RENEW Strategies

Part 5: How to Become an Impact Angel

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Matthew Davis, CFA
| May 15, 2012

A New Strategy for Africa and other Emerging Economies (Part 5): How to Become an Impact Angel

Continuing our series on a new strategy for Africa, we will now go through the steps to becoming an impact angel. Here we talk through Step 1: Having the mindset of an impact angel.

Do you think like an impact angel? As a first step, determine whether you think like an impact angel. How you think is informed by your beliefs. Here are some core beliefs we have gleaned from discussions with hundreds of active or soon-to-be-active impact angels. The central belief of an impact angel is that investing (vs. giving) creates long-term, sustainable impact in a developing country. An impact angel believes that investing in high growth, small and medium enterprises (vs. microenterprises or large infrastructure projects) will create jobs through local businesses. They know this investment can generate attractive returns and has a multiplier effect in the local economy by generating tax revenue, prospering local businesses and offsetting foreign imports. Impact angels believe that the private sector is the means of solving many of the current problems (the West tries to fix) in developing countries. Hans Rosling, the infamous TEDTalks statistician, captures this belief in a simple chart (See Figure 1). Impact angels believe investing aligns their goals to their native skills – building competitive businesses – and incentivizes them to ensure the businesses in which they invest grow.

Figure 1: Hans Rosling’s Chart on the Dimensions of Development.

Do you have the means and skill to become an impact angel? I would be exaggerating if I said anyone can become an impact angel, but in the West it’s probably more possible than you think. Becoming an impact angel is not something reserved for the super wealthy, although angel investors are traditionally self-made, high-net-worth individuals (HNWIs). To put a very rough number on it, I would say someone making more than $100,000 per year could become an impact angel. According to the U.S. Census Bureau, in 2010 there were about almost 14 million individuals making more than $100,000 per year in the U.S.

At RENEW, we focus on impact investments between $100K - $2M, which fills a critical investment gap in the financial markets in developing countries. This investment size is often comfortable for a HNWI, but is also entirely possible for a group of five to ten people who want to pool their money and form a mini-impact angel fund. We’ll talk more about these steps in later posts. More good news: the U.S. government is making it easier for more people to get into these investments – see the “crowdfunding” bill. Nonetheless, angel investing in businesses in Africa is risky, so you should work with someone who knows what they are doing. Impact investing directly into businesses in developing counties is also a relatively new concept for both philanthropists and investors. Current options are limited to micro-lending, donating to a nonprofit or investing in specialized impact funds. Only a few companies like RENEW are creating the path to enable individuals and groups to invest in high growth businesses in developing economies. Impact angels also have some education or background in business. The transfer of these skills to entrepreneurs in developing countries is invaluable. Although many entrepreneurs can navigate the dynamics of their local market far better than their counterparts in the West, they crave someone to educate them about international best practices, connect them to markets in the West, and advise them on how to package their products to attract Western clients. Luckily we have ample resources in the West. According to the Graduate Management Admission Council there are more than 100,000 MBA degrees awarded annually in the U.S. Thus, if you have some capital and some business skills, you likely have what it takes to become an impact angel.

Which direction are you approaching from? The direction from which you approach becoming an impact angel should be thought through, because it will help in the process to develop your investment strategy (outlined in later posts). Generally speaking, we see two directions from which potential impact angels approach from. One approach comes from the donor side. Here, a current philanthropist is seeking an alternative to giving. The second approach comes from the investor side. Here an investor sees the potential of getting in early to high growth countries like Ethiopia, but doesn’t want to dive into a $50M commitment, or invest through a fund that makes it hard to track where the investments go. These two approaches generally fit into five investment personas (See Figure 2).

Figure 2: The five personas of an impact angel.

Most impact angels are a combination of more than one of these personas, but finding which resonates with you most, will help formulate your investment strategy.

To summarize step 1: Having the mindset of an impact angel, is about ensuring you believe in the principles of being an impact angel. If you feel the draw and appeal of investing in the private sector in developing countries – both for the social and financial rewards it can bring – then you’re on the right track. If you want to invest in more than a microenterprise ($1 to ~$5,000), but less than a $50M fund or infrastructure project, then you are on the impact angel track. If you have the means to invest, either as an individual (easier for HNWIs) or as a group (~$25K via a mini-impact fund), then you are an impact angel candidate. If you have the an investor’s mindset and want to experience the satisfaction that comes from meeting with entrepreneurs in developing countries, getting your hands a little dirty, sharing your skills in business, learning about the culture and developing friendships in foreign lands, then you are a prime candidate to become an impact angel.

In our next post we will start to break down the actual steps RENEW takes impact angels through. Please don’t hesitate to contact us with any questions at renew@renewstrategies.com or follow us on Twitter @RENEWLLC.