“You can’t simply copy and paste something that’s going to work for a big enterprise or for a higher income customer and then translate that to a customer who may not feel as comfortable with digital tools or may not have as much access to the same sort of information as another customer…if you want to have this impact, you have to first start — like any good founding team — on understanding the problem, understanding the needs, and the realities for that customer.” Amee Parbhoo, Managing Partner of Accion Venture Lab, shared her insights about investing for social impact during Web Summit Rio. Accion Venture Lab, Accion’s early-stage fund, invests in inclusive fintech companies that bring financial services at scale to underserved populations.
Watch the full session, moderated by Julia De Luca, Venture Capital & Growth Funds Coverage Itaú BBA, to hear Amee’s insights on how capital can be deployed for a positive impact.
Transcript:
Julia De Luca, Venture Capital & Growth Funds Coverage Itaú BBA:
Everyone, it’s a pleasure to be here. So let’s talk about investing with purpose. Investors have significant influence over the direction of a market, and acting to guide this market to have a positive social influence is extremely important. In this session, we will learn from Managing Partner at Accion Venture Lab, Amee Parbhoo, everything about investing with purpose. Thank you for coming, Amee.
Amee Parbhoo, Managing Partner, Accion Venture Lab:
Thanks for having me.
Julia De Luca:
First of all, just before we dig into the questions, could you give a brief overview of the fund and of yourself?
Amee Parbhoo:
Yes, happy to. So as you mentioned, I’m Amee Parbhoo, one of the managing partners of Accion Venture Lab. We are an early-stage fund, one of the leading early-stage funds focused on what we call inclusive fintech. So we are investing in fintech solutions for the underserved. Those could be low-income consumers, small businesses, but really everyone, kind of the 2 billion people around the world who’ve been left out by traditional financial systems. We’re a global fund. We’ve been investing for over a decade, made over 60 investments all over the world, in Asia, Africa, LatAm, and the U.S.
Julia De Luca:
So it’s interesting that fintech companies, by definition, have a financial component, which might make us think that you’re focused on returns, but fintechs can have a lot of positive impacts. I think we have several examples here in Brazil. What’s your view about this?
Amee Parbhoo:
Yeah, absolutely. I think there’s such a massive opportunity for impact in fintech. Our thesis at Accion Venture Lab is very much that access to affordable, well-designed financial products isn’t sort of an end in itself, but is a means to really build economic growth, prosperity, and resilience for consumers. So those are the kind of solutions that we really look for. And again, are trying to attack these massive gaps, 2 billion people that are underserved, the 3 trillion credit dollar credit gap around the world for small businesses. You know, Accion, which is our foundation, is a nonprofit that’s been working in this space for 60 plus years. You know, we were early investors in Compartamos, in BancoSol, in a lot of those traditional financial institutions that, at the time, were the only ones reaching small businesses, microentrepreneurs, and consumers.
But it really was about a decade ago that we looked around the room and said, look, it’s also tech innovators. Technology has a massive role it can play to reach these populations in a few different ways. First of all, increasing the reach of these financial products, really being able to leverage that for scale. The second being around lowering cost. So not having legacy technology systems enables, you know, fintech companies to offer solutions at a much lower cost to these underserved populations. And then just design, you know, really having a design orientation of building products that are gonna be for contextualized for the customers that they’re trying to reach. And so, we see massive social impact from the fintech companies we’ve been investing in. And I’ll give three examples. One is a company we invested in that’s actually here in Brazil called Dinie.
They are an embedded finance company, a credit as a service for small businesses partnering with digital platforms. So what’s really amazing is, you know, 70 percent of the 17 million small businesses in Brazil are transacting online already. They have some digital footprint, some digital trail and, but only 35 percent of them have access to credit through a traditional institution. So massive opportunity for real social impact to extend credit to those small businesses.
The other portfolio company we have in, in Brazil is a company called TerraMagna that is bringing credit to farmers, small and medium-sized farmers, again, through partnerships, through data but helping those, those farmers access inputs, which will help them increase yields, increase their incomes, they’ve now dispersed over 200 million of loans to those farmers. So again, huge scale, a huge market with impact. And then the last one I’ll mention is a company called Henry which works across the region, but they’re, they’re helping drive upward mobility. So they provide, online coding and data science boot camps to help train people and then place them into jobs. So they’ve now helped train over 15,000 students across Latin America 90 percent of which find jobs that have four x the salaries that they previously had in their work. So again, huge market opportunity. It’s a scaling business with positive impact.
Julia De Luca:
Super interesting. In the backstage we were talking about how sometimes you need a tradeoff of returns versus positive impact, right? So, I was wondering if you could share with us what are the main obstacles that these companies face to maintain their pace of return and consistently grow, but still focus on the impact piece and, more specifically, fintech?
Amee Parbhoo:
Yes, I mean, I think the challenges start from day one almost. We oftentimes find companies and founders who have a desire to reach these customers by designing products that aren’t tailored to their, to the underserved customers, needs. So you can’t simply copy and paste something that’s going to work for a big enterprise or for a higher income customer and then translate that to a customer who may not feel as comfortable with digital tools or may not have as much access to the same sort of information that, you know another customer. That’s one obstacle we’ve seen is if you want to have this impact, you have to first start, like any good founding team, on understanding a problem, understanding the needs and the realities for that customer.
The second challenge we oftentimes find the obstacle is around building a sustainable business model for these customers. So especially in a market environment, like right now, we’re seeing a lot of companies have to increase price, or they’ve had to kind of extend to larger customers bigger businesses because fundamentally their business hasn’t been sustainable to reach the customers that they care about. So, you know, that’s something, as an investor, we spend a lot of time understanding the unit economics of reaching a microentrepreneur or a small business with the services that they, that that customer or that company is offering.
And then the last challenge or obstacle we’ve seen is, this is almost taboo to say as a fintech investor, but there’s oftentimes a lot of emphasis on all digital business models. And I think there’s a time, and there’s a place for an all-digital solution, but I think we also recognize oftentimes, to be successful, you have to balance tech with touch. And so finding the right moments in which you’re leveraging a human, you know, whether it’s a loan officer or an agent or someone on the phone, but to build that relationship with a customer and to be able to make your product really sticky. And so those are all obstacles that, I think, if you really want to have an impact, you have to kind of think through and design your entire business model accordingly.
Julia De Luca:
It’s super interesting, the point of being high tech, but also has a component of touch as well, to make an impact. So, talking a bit about, about the fund and the companies that you invest in, you already gave a couple of examples here in the region. What is the ideal check size, and what are the different criteria that you look for before investing in a company?
Amee Parbhoo:
Yes, so we are an early-stage investor. We invest before a Series A, and that’s where we think we can add the most value. That’s where we can help companies kind of figure out their product market fit. That’s a check of up to a million dollars for us into companies at that stage. Really, I mean, we view ourselves, we were talking a little bit about this, we view ourselves as impact-first investors. And what I mean by that is, our first screen when we look at a company is impact: Who’s the customer you’re targeting? Are you, are you targeting them with an affordable, well-designed product? And are you a founding team that’s kind of really thinking about that customer at the heart of what you do? You know, you could call that mission-aligned, but we like to really think about it as customer driven.
That is our first screen. If you pass that screen, we are evaluating a company like any venture investor would. My LPs are looking for risk-adjusted market returns. We are looking not to kind of trade-off impact with returns. And so then we’re evaluating a company like any investor would, you know, how scalable is this business model? What’s the competition look like? What’s the unit economics of the business? Everything that anyone else would ask you. But it’s kind of that balance of two screens that’s critical for us.
Julia De Luca:
I would say that we’re, I mean, a couple of years ago, we’re starting to see more only like impact funds in the region like they’re born here and that are investing here. Right? but I’m always curious to understand what would be the difference between an impact fund and, I would say, traditional fund in different aspects. So, the first, like how would governance change if you are, and now talking about you, of course, and your fund, but an impact fund versus a traditional fund, or how do you evaluate the exit, for example? Of course, you need financial return and financial capital, but is the return on the society and also importance components? How do you measure it?
Amee Parbhoo:
Yeah, these are all great questions. And I think, first of all, impact investing is a very broad tent. So there are different approaches, different people who are trading off impact for returns are, like us, impact first and then commercially driven. So you really have to understand what’s sort of at the center for a different impact fund that you might be talking to. But from a governance perspective, we are very active on the boards that we sit on. And again, we are like a traditional investor in many ways. We, we do understand these markets, and we do understand these customers. So a lot of our focus is around the strategy of scaling and growing the business focused on small businesses, for example. But we also realize that North Star of how you want to create impact as a company is something we try and focus on.
Even in our diligence process and as we invest, we are creating what we call our impact thesis. And a set of metrics against which we want to continue to evaluate and really hold ourselves accountable is this meeting the impact that we originally set out for that keeps coming back in our governance, on and on as we work with companies. But from an exit perspective, and this is something we’re quite proud of, actually, as a fund, we’ve had 11 exits at great returns. To prove out that double bottom line of impact and returns is something that’s very central to us and something we spend time on when, when it comes time for an exit by that point, we one hope that, you know, the team, the, the board, everyone is sort of aligned with that path that we originally set out from the early days. But that, you know, when we evaluate and exit, we do think about, have we achieved that thesis that we had originally set out? It’s not just the returns analysis that we do to be able to kind of show our LPs that we have achieved both.
Julia De Luca:
So I’m going to go a bit off script because, after your answer, I had an idea and a thought. So there’s a super famous paper from a Silicon Valley fund that says that every company is a fintech, right? Or will be a fintech. When you say that you are specific, specifically looking at financial services companies, would that also include maybe e-commerce that has a financial component because of that fintech side? Or do you look at only financial services?
Amee Parbhoo:
It’s a great question. I mean, if you had asked me ten years ago when we first invested, there were, it was, it was straight products. It was, you know, we invest in credit payments, savings insurance, and we still do all of that, but you’re right, how those products are actually delivered to customers looks very different. So the focus for us really as a fund now is around embedded finance. And that could be embedded in a marketplace, in a SaaS solution, in any number of things that are reaching customers, maybe with the non-financial product first, but then layering on payments, credit insurance. So, you know, that’s really the makeup of a lot of our portfolio now. And again, I think goes back to that building contextualized solutions that are really exciting and easier for our customers to understand.
Julia De Luca:
And now, talking specifically about Latin America, we’re growing, despite everything that’s happening in the market. I think that there’s no way back, right? I’m always an optimist, and I’m sure that the region will digitalize a lot and have lots of opportunity for companies here. What are, what are the themes that you get most excited about in fintech here in Latin America?
Amee Parbhoo:
First of all, I agree; I think there’s a massive opportunity here in the region and in Brazil. We are excited to be continuing to invest in fintech. You know, I think so many of the opportunities, or the fintech solutions we’ve seen scale already in the region, are really just starting to scratch the surface of the mass market opportunity, right? You know, they’re reaching larger enterprises; they’re reaching already tech-enabled startups with financial tools. Some of the examples that have truly reached a mass market of small businesses and consumers, quite honestly, are in our portfolio, Konfio in Mexico, Clip in Mexico. I mean, these are solutions that have now really brought payments and credit to a much broader stretch of the population.
But I think that’s where we get really excited is now that same brilliant kind of entrepreneurial talent that is sitting in this region, looking at the challenges, the true challenges of the real economy. So figuring out, okay, how do we get beyond the tip of the spear and reach small businesses with verticalized plays. So verticalized platforms that truly now understand subcontractors in the construction space have cash flow challenges. How can we design financial products there? In agriculture, we’ve invested in TerraMagna again, but that’s, again, an entire broken value chain in agriculture. How do we be able to kind of penetrate more deeply and provide financial products like insurance to that population? So I think there’s a number of themes we’re excited about, all going back to embedded finance and to these verticals that are in the real economy that drive local economies to be able to bring more to the customers who still, quite frankly, are offline. It may not be as online as who’s being reached today.
Julia De Luca:
We have only one minute and a half left. What are your final remarks, perhaps a piece of advice to the entrepreneurs that are watching us?
Amee Parbhoo:
I’d like to go back to the team piece of it because I actually think one of the values and one of the exciting drivers of being one of these socially impactful businesses that’s also looking to scale is that if you tell that narrative. If you tell that story right, it’s an incredible way to attract and retain a team. I truly believe the talent that’s out there that wants to build a business, they’re excited about having an impact as well as solving challenging problems. And nothing is more challenging than saying, okay, how do I design a completely new financial product for a customer who maybe doesn’t have access to financial services, has never taken out an insurance policy, how do you design and reach them? So I would just say use that to your advantage, especially when you’re attracting and retaining teams, putting that mission central to what you do.
Julia De Luca:
Great. Thank you so much for the panel. Thank you.
Amee Parbhoo:
Thanks so much.