How This Fund Leverages Its Nonprofit Structure To Make Profitable Impact Investments
This post was originally produced for Forbes.
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Eva Yazhari, co-founder and CEO of Beyond Capital, a nonprofit organization that makes profitable, seed-stage investments in India and East Africa, says the nonprofit status “is vitally important for us.”
Operating as a nonprofit has allowed the organization to attract pro bono resources that made the fund operationally possible.
“If you think about a fund of our size, the economics don’t work when you’re taking a two and twenty,” she says referring to the standard venture fund model of charging investors a 2% management fee plus a carried interest of 20% of the profits.
The Beyond Capital fund is just $1.8 million, meaning that a 2% management fee would pay only $36,000, not enough to run a fund.
Eva Yazhari, Beyond Capital
Beyond Capital was born as a family philanthropy. “About two years in, we realized that there was a tremendous appetite from our networks to focus their own philanthropy on what we were doing,” Yazhari says. You can watch our entire interview in the player at the top of the article.
The firm had its first exit near the end of 2017, yielding the fund a 26% IRR. The fund invested in ERC Eye Care, a low-cost eye care operation in Northern India that provides eyeglasses and cataract surgeries to people living below the poverty line.
Using a hub and spoke model, the company operates two “hub” hospitals where surgeries are performed. Clinics in small villages where residents could go for screening provided the spokes. Yazhari says the $20 cataract surgeries are the most profitable line of business.
Osman Khan, a member of the Beyond Capital board, highlights the fund’s structure. “It has developed a rigorous and systematic framework to identifying and evaluating enterprises and readily quantifying and assessing those that are currently making, or are expected to make, the greatest impact at the ‘bottom of the pyramid.’”
Yazhari outlined four aspects of the framework:
“We’re investing in people.” She says this is a lesson she learned while working on Wall Street.
“We’re really looking for simpler solutions to complex problems.” As an example, she points to their investment in Kasha, a mobile retail platform that sells women’s health products, including sanitary pads and contraceptives in Rwanda.
“We also are very strict on having an impact first lens.” Before investing, Beyond Capital ensures that the management team of the company has inculcated their mission into the business model to avoid mission creep in the future, especially if and when investors without an impact first approach bring funding to the table.
Prove the unit economics and scalability. She highlighted the need to ensure that the unit economics work so that the business can scale up, generating cash flow to help fund the growth.
The fund’s average deal size is just $75,000. Investing such small amounts in faraway places could put a burden on financial returns. This is where the nonprofit comes to the rescue. By donating her own time for several years and getting due diligence services donated, the firm has been able to keep diligence costs to near zero. One key is the volunteer services of a board member based in Bangalore.
Another tool that helps maintain low cost and high effectiveness, she boasts, is her phone. A quick “what’s up” on Whatsapp yields, “the best update and really more information than we would get in the monthly or quarterly reporting,” she says.
Yazhari says the fund is now in the process of raising a $2 million round of grant funding, she hopes to close in October, noting that $800,000 is already committed. That should allow the fund to make another 18 investments.
So far, the first fund has a paper return of 30% IRR, based on the valuations of the companies that have gone on to raise additional funding. The goal, she says, is to be able to reinvest the profits from the fund in more companies, ultimately allowing the nonprofit to become “financially sustainable” by 2024.
Yazhari’s heart is in this work. She says she has been inspired by her grandfather who started a hospital in Tanzania in the late 1950s. She’s found a way to honor his legacy by leveraging her Wall Street experience to build a nonprofit that is now reaching more than 2.3 million people.
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