The evolution of impactful investing
In the dynamic world of Venture Capital (VC), where investments can shape the future of industries, there's a fast-growing focus on more than just financial returns.
Impact investing challenges outdated views that Environmental, Social, and Governance (ESG) issues are the mainstay of philanthropists with negligible financial benefits. Thanks to a fast-maturing ecosystem and industry benchmarks like the UN’s Sustainable Development Goals (SDGs), investors with an appetite for impact are having their cake and eating it, too.
This class of investors is deploying capital to address the world’s most pressing issues while achieving market-related returns and stabilising their portfolios. According to the Global Impact Investing Network’s (GIIN) most recent figures, impact investors reported that portfolio performance across emerging and developed markets overwhelmingly meets or exceeds both financial return and impact expectations.
Beyond the frontlines, it’s no secret that purpose-driven working environments also produce happier employees and better results. Companies rooted in purpose have been shown to achieve 30% higher levels of innovation and 40% higher employee retention. Tracked over a period of 10 years, purpose-driven companies in the United States showed an average annual return on equity of 13.1% - 9% greater than the S&P stock market index (source).
Impact investing in Africa
In Africa, for-profit and impact investing go hand in hand. The continent’s unique blend of challenges and opportunities provides fertile ground for startups to achieve both positive impact and financial returns.
According to the World Bank’s 2022 figures, half of Africa’s population still lacks access to electricity, only 63% have access to clean drinking water, and a mere 0.6 out of every 100 people have fixed broadband subscriptions. 60% of the continent’s nearly 1.6 billion people also reside in rural areas, which means poor access to healthcare, financial services, and road networks, among other things.
While the continent’s infrastructure gaps make life challenging for millions of people, Africa also has the world’s youngest and fastest-growing population. According to the UN, the median age on the continent is 19, compared to 38 in the United States and China. By 2035, more young Africans will enter the workforce each year than in the rest of the world combined (source).
There is tremendous scope for growth and development, for which technology is a key catalyst. Technology has the potential to transform traditional industries with impactful solutions that are scalable. Increasingly, Africa is leading by example, producing world-class solutions born from real-world problems.
In more mature tech hubs like Silicon Valley in North America, ESG factors are a key focus in the early-stage investment space as indicators of long-term resilience and success. In these markets, investors tend to prioritise climate change and carbon emissions, followed closely by governance considerations like board composition and diversity. In Africa, the scope for sustainable development is vast and layered. Startups that integrate ESG considerations and align with the continent’s long-term sustainable development goals have much to gain. On the one hand, impact investing in Africa is closely tied to bridging the lack of infrastructure or meeting basic social needs to reduce inequalities while achieving financial returns. On the other hand, governance is at the forefront for many early-stage technology businesses in the region, including understanding and implementing best practices to create the right foundation from which to scale.
Furthermore, institutional investors and asset managers are placing greater emphasis on ESG integration across their investment portfolios, prompting VC firms to incorporate ESG criteria into their due diligence processes.
A new technology investment frontier
Africa’s high and escalating smartphone penetration is projected to reach 87% by 2030 – a meteoric rise of more than 40% in just nine years. The continent’s fast-growing young and mobile-savvy population is a key catalyst for growth. Startups and corporates that tap into mobile technology to solve everyday problems with scalable and sustainable solutions play right into the wheelhouse of impact investing, and the market is brimming with success stories.
Within our portfolio alone, the impact of tech innovation on day-to-day life in Africa and beyond is evident, from providing underserved communities with better access to healthcare to empowering millions with vital financial services that build the foundations for generational wealth to creating safer communities through tech-enabled emergency services solutions.
Examples include Vula Mobile, which connects rural health workers with on-call specialists to provide better care and more accurate referrals. And the data generated improves practices and care. To date, the app has facilitated more than 2 million referrals. The hearX Group is tackling Africa’s crippling lack of hearing healthcare via a smartphone-based hearing test that no one thought was possible. Today, the company sells hearing aids over the counter across the United States. Last year, they were named among TIME100’s Most Influential Companies globally.
The impact of Africa’s startups is growing across an ever-widening spectrum of sectors. AURA democratises emergency access by connecting individual emergencies with the nearest response vehicle, reducing response times to less than five minutes. The business now operates in eight countries. And African-born RapidDeploy’s suite of tech products is revolutionising emergency responses at 911 centres and on-site emergencies across the United States by bringing emergency situations into sharp focus so operators and emergency responders know exactly how to react in real-time.
Fintechs Tanda and Fairmoney are reshaping the financial ecosystems in Kenya and Nigeria to give individuals and businesses access to vital financial services that bypass traditional infrastructure and access hurdles.
The early-stage companies we back are among a growing cohort of tech-enabled companies leveraging Africa’s potential to accelerate economic growth and create skilled and representative employment on the continent. With companies such as AURA, hearX, and FairMoney named among the Times’ fastest-growing companies in Africa, their financial presence and ability to make a difference could not be more evident.
The sector’s ongoing maturity is underscored by the increasing involvement of institutional investors. International development finance Institutions such as the International Finance Corporation (IFC), Africa’s largest pension funds, including the Public Investment Corporation (PIC), and African governmental bodies like South Africa’s Department of Science and Innovation (DSI) are leading the charge.
Moreover, initiatives like the African Impact Investing Leaders Forum (AIILF) and organisations such as the African Venture Philanthropy Alliance (AVPA) are crucial in promoting impact investing and fostering collaboration among stakeholders.
According to a 2020 GIIN survey, roughly 8% of impact funds’ assets, compared to only 1% of traditional private equity funds, are focused on Africa—a number that continues to climb yearly. Kenya continues to have the most impact investment funds distributed in the region, while South Africa has the largest amount of assets dedicated to impact investing strategies, followed by Nigeria and Kenya.
Accelerating impact
In a world measured by returns and exits, it’s easy to get fixated on the numbers. In contrast to more developed markets like the US, Africa’s startups are evolving steadily, which creates more space to scrutinise and accelerate impact. The result is resilient startups that grow and improve people’s lives at a more sustainable pace while achieving strong financial outcomes.
As summed up by The Big Deal’s recent African report, savvy founders have learned to show that they are solving an urgent development problem as well as trying to make a fortune.
At HAVAÍC, we set and track financial and impactful goals for our portfolio companies, which include a focus on positive social outcomes, improved governance, and alignment with the UN’s SDGs. This means working closely with founders to assess their ESG and SDG contributions and prioritise improvements. Our approach has yielded promising results, reinforcing the dynamic relationship between impact and financial success, with our portfolio companies steadily changing the continent for the better.
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