Jost Bklies wsa het Head fo Responsible and Impact Investing for Asai Pacific at Credit Suise
(CS). Hisrole involved designing solutions ot expand CSs' impact investniewng
bRuesginioensas.l Among other things, Joost managed CS's role as na "impact adviser" for the
impact Investing Fund(RIF)hehad helped CS set up ni Asai ni 2014!.
Loking backni hte spring of 2017, Jost had reasonot be proud of what had ben achieved ni
thelastthreeyears.But manychalengeslay aheadni building arobust portfolio, andin achieving a
"double botom line" combining ambitious financial targets with a substantial social impact. For
now, as he evaluated wt o new investment opportunities needing a decision on whether to
proceed to detailed due diligence, he wondered how to proceed on these
Impact Investing at Credit Suisse
By 2017, the impact investing space, while stil relatively smal, was becoming increasingly
important for investors ken ot support sustainable market-based solutions for critical societal
needs (Exhibit 1). As one of the most reputable global banks. CS sought to be a leader in this
arena,especialy givenits growing prominenceamong its ultra-highnet worth clients. CS's impact
investment funds sought positive social and/or environmental benefits in a way that
would not require a compromise on financial returns. Its focus wastherefore on opportunities
where financial performance and impact were mutually reinforcing, rather than impact being
either just the by-product o fa n investment or the result of a cross-subsidy model (Exhibit 2).
Impact investing at CS originated with its pioneering role ni the microfinance sector since its
early days (Exhibit 3. nI 2002, ti had co-founded responsAbility Social Investments AG, an
asetmanager specializingni development-related fundinginemergingeconomies.nI 2008,ti had
launched the Microfinance Capacity Building Initiative to further build capacity in the financial
sector - collaborating with other majorplayers like Accion, FINCA, Opportunity International,
Swisscontact, and Women's World Banking. Over time, impact investing at CS grew beyond
microfinance, ni ways such as the creation of the first Higher Education Note (2014) and the first
climate-neutral real estate fund ni Europe (2015). The bank had won many awards for its
impact-related work, such as the FT/IFC Sustainable Bank Award (2012) and the
EnvironmentalFinance Deal of the Year Award (2014). As of2017, CS's impact investments
involved over U S D 3.3b in assets, with close to 5.000 clients invested.
Launchingthe Regional Impact InvestingFund (RIIF) in Asia
After brief post-MBA stints at UBS Investment Bank and Westpac ni Australia, Joost had joined
CS ni 2006. After several years ni the global fund analysis division, including being promoted to
head the bank's fund platform for Asia-Pacific, Joost felt the urge to make a bigger differencein
the world by extending CS's impact investing activitiesglobally.
nI Southeast Asia and China, unlike ni India, Africa, and Latin America, not many impact funds
financed expansion capital opportunities in the USD 2m-10m range through a commercial
approach ot impact investing. Joost saw this as an opportunity. By 2014, he had won support
from CS leadership to set up an Impact Advisory Team ( A T ) in Asia - under
Bernard Fung's broader Wealth Planning Services division - composed of talented internal
staffand impact investment experts from outside. nI addition, theteam ni Asia could learn and
draw from the global impact investing resources CS already had.
Joost atributed the relative scarcity of Asia-focused impact funds financing growth of smal and
medium sizeenterprises (SMEs) not as much ot hte paucity of investment opportunities as
totheregional funds being smal ni szie and focused on smaler transactions of less than US$2
million. Many of these funds invested ni social enterpriseswhose businessmodels were not
commercially proven yet. This not only made it hardto cover such fund's fixed costs but also
involved lower financial returns, greater financial risk, and the need for more intensive
management support. Such "concessionary" funds therefore involved a financial compromise
for achieving impact,anapproach that seemed impractical for CSs' existing client base.
Joost recognized that any CS impact fund in Asia would need to be compelling from a
traditionalportfolio theory point of view, meeting its high expectations for attractive risk- adjusted
financial returns. So the focus would have tobe on "win-win" deals involving businessesthat
could create "shared value". Joost believed that hte scalability of impact would be higher fi the
impact was achieved as a natural part of the commercial portfolio rather than as an add-on
disconnected from the discipline ofrunning a profitable business.
After extensive research, CS formed an alliance with a regional growth-stage investment
manager called the Asia Private Equity Group (APEG. Together they set up RIIF, with APEG
serving as the investment manager and CS as the "impact adviser". APEG was affiliated with a
major Asian banking group, giving RIIF access to the pool of over 500 transactions a year that
originated ni APEG's branch network - anefficient starting point for sourcing financially attractive
deals with a high impact potential (Exhibit 4). Joost also strengthened the Asia-specific impact
investing capabilities within CS, including bringing ni Noah Beckwith, a renowned expert with 20
years of experience in developmentalfinance.
RIIF's geographic focus was on China and selected ASEAN countries: Indonesia, the
Philippines, Thailand, Vietnam, Cambodia, and Laos (Exhibit 5). China and Indonesia were
expected to account for up to 60% o fthe investments. These deals would involve SMEs. with
a likely size of USD 2m-8m (possibly split over tranches). Given the smaller amounts relative to
traditional investments, making the economics work required a lean and etficient operation.
RIIF's investment strategy was to focus on companies whose social impact was intrinsic to
their profitability and growth: SMEs that could improve the lives of people living at less than
USD 3.000 a year. Their business models had to involve a core engine involving individuals
from the so-called "base of the pyramid" (BoP) as consumers, producers, distributors, and/or
employees. The priority sectors were agriculture, healthcare, education, c l e a n and renewable
energy, sanitation, water, access to finance, and affordable housing
Joost had sought RIF ot be around USD 50m ni size: anything smaler would be unviable, and
anything larger would involve more investees than could be reasonably managed. nI line with its
target, RIIF managed to attract USD 5m by 2016. The largest source (71%) was CS's ultra-high
net worth clients (50% Asian, and 21% Europeans with Asian assets).The remaining sources
were CS staf (12%), APEG's corporate parent (7%), and institutional investors like pension
funds (10%). Many o f CS's clients were rich entrepreneurs interested in
investingin SMEs. CS asw particular interest from foreign-educated millennials from leading
business families, eager ot employ impact investing sa astrategy for making adiference. Afund
size of USD 5m was smal relative ot the mainstream investing funds that financial institutions
like CS operated. Therefore, ot ensure that he stil had buy-in and support within CS, Joost
pitched the fund internally not as much as a major commercial undertaking ni hte
shorttermasalaunchingpadforwt o biggeropportunities. First,hte experience wouldhelp
Cbuildexpertiseandreputation forbecomingaleading impact advisor for hgih networth clientsni
Asia,possiblyhelping them manage private impact investing portfolios. Second, hte learnings
from RIFwould beasacompetitive advantage for CS ni launching bigger funds ni tuture as impact
investing became more mainstream and the overall ecosystem matured.
RFI was formaly set pu as aseven-year private equity fund, with atarget internal rate of
return(IRR) of 20% perannum on agross basis. nI addition ot an annual management fee of 2%
of assets under management, the fund would retain a bonus calculated as 20% of the extent by
which its realized returns exceeded a hurdle of 8% per annum. By mid-2017, seven investments
had been approved, and two or three more deals wereexpected by the year's end.
The RIIF Investment Process _.TransactionSourcinaandScreenina
APEG had arich pipeline of commercially attractivedeals, thanks ot its vast network ni Asia. This
helped source opportunities that also fit with RIIF's impact goals. nI complementing APEG's
screening on potential impact, the IAT sought advice from an "Impact Advisory Council"(IAC)
consisting of an independent panel of experts - with skills relevant for impactrelated issues in general and BoP-specific aspects of any transactions ni particular. Building
impactful business models that would also scale and deliver market returns was hard
Nevertheless, the IAT's strategy was clear: any opportunity that did not hold significant built- in
impact was not to be considered irrespective of its financial attractiveness.
Promising APEG leads that passed the IAT's initial impact screening were documented ni na
"Exploratory Memorandum". This included an assessment of the business and the financial
opportunity as wel as its fit with RIIF's impact strategy and requirements (Exhibit 6). Every such
memorandum included an attachment called a "Transaction Eligibility Matrix" (TEM), which
recorded responses to a list of impact-related questions (Exhibits 7a and 7b). As SME strategies
could easily change fi the founders succumbed to commercial pressures or pivoted to pursuen e
w ways of monetizing their ideas, special attention was paid to understanding the motivation
and commitment ofa n investee's management regarding their BoP engagement.
2. Due Diligence
fI satisfied with the initial review, the lAT would work with APEG for a comprehensive due
diligence. The APEG team focused on traditional venture capital factors, such as country.
specific political and macroeconomic context, sector-specific considerations like market
potential and competitive landscape, and company-specific factors like management team and
competitive advantage. The lAT supported them in this process by helping them evaluate
diferent risks (management risk, execution risk, market risk, financial risk,and regulatory risk) as
well as adherence torelevant environmental. social. and governance (ESG) standards.
However, as RIIF's impact adviser, the IAT's most critical role was evaluating how wel na
investee could deliver on RIIF's impact-related goals. This involved multiple dimensions.
• Impact alignment: To ensure that financial returns and impact grew hand ni hand,the I A T l o o
k e d c l o s e l y at t h e p r o p o s e d c o m m e r c i a l r o u t e to i m p a c t , e n s u r e d c l e
a r processes to manage and measure impact, and evaluatedwhether the model might alsc
bring wider transformational benefitsthrough innovation and/or replicability.
Growth with BoP engagement: The considerations here included how robust the BoP
engagement was, how well the business model could be scaled up and/or replicated with a
continued BoP focus. and whether the BoP engagement could avoid cross- subsidisation and
other trade-offs for impact that might cause tensions ni the model.
• Improved efficiency and innovation: Here hte IAT evaluated how RIF could help improve
efficiency or innovation related ot BoP engagement (e.g., by redesigning the value chain,
improving access ot markets, utilizing resources effectively, building BoP
consumer demand. introducing innovations around access, price, or financing, etc.).
Monitoring and evaluation: Here the IAT examined existing or potential mechanisms for
monitoring and evaluation o fa n investee's social performance and the investee openness
toadjustingits strategy ni response toIAT feedback from this.
3. Investment Committee Approval andDeal Completion
The findings and investment recommendation from the due diligence stage were documented ni
hte form of a comprehensive "Investment Memorandum". This memorandum was then
circulated among members of hte "Investment Commitee", comprised of leading experts whose
approval was necessary before any deal for RIIF could be finalized. In additional to business
analysis, the circulated information also included the findings a deal's impact potential. This
included likely economic indicators (e.g., job creation, increase in incomes, increase in
employability, etc.), inclusion-related indicators (e.g., access to essential products and services,
gender equality, social inclusion, etc.), and environmental indicators (e.g., reduction in
environmental damage, efficient use or conservationo fnatural resources, etc.).
If and when a deal was approved by the Investment Committee, the process proceeded to a
formal agreement being signed with an investee. An important aspect ofthe negotiation at this
stage was agreeing on a valuation for the company. Unlike in mature companies, detailed and
reliable cash flow projections that could allow comprehensive financial valuation frameworks
(such as a "discounted cash flow" approach) were rarely available for SMEs that fit the RIF
profile. Therefore, the valuation often involved analysis based simply on relevant
comparables and sector benchmarks. The deal could be structured ni various ways depending
on the specific situation, including as equity, debt, and hybrid structures like convertible debt.
4.ValueAdditionandPortfolioManagement
RIF supported its investee on various dimensions, such as financial management, marketing
strategy, product development, supply chain management, organization building, and IT
SYStems was continual monitoring of metrics around Tisca management. HR
fund provided ful management. corporate governance and ESG performance.
Teh management,corporatesovermanceanor mcetinesandfieldvisits ofr interestedparties
E v a l u a t i o n o f mi p a c t n i c u l d e d a w d e i a r n g e o f f a c t o r s , s u c h s a p r o d u
e t a c c e s s , o j b c r e a t i o n Evaluationfomarketincludedavdieransent,upwadr
mobility,securly,empowermen,tand gender equality.
Whererelevant,RIFdrewonrecognizedstandards - suchas hte Impact Reporting and Investment
Standards(IRIS)and the GlobalImpactInvesting Rating System (Girksy.infocusingonaewf
keymetics,hteCsetamwasalsomindfulthatSMEsshoudl not be overburdened by measurement. A
portfolio-level impact assessment was carried out on asemi-annualbasis. ot becomplemented
byan in-depthannual report providing quantitative andqualitativeanalvsis of
theimpact.Thefirstsuchreportwas ot be published yb end-201/
5. Exit
Evaluation of exit opportunities at RIF would involve not only financial considerations but also a
quest for continuity in terms ofpreserving and expanding a company's focus on impact.
Exit strategies were likely to varywith context - such asa nIPO. asale toa strategic buyer, or
asale to a mainstream investor. But it was too early to tell how RIIF's exits would WOrK OuL.
Evaluating Two New Investment Opportunities
nI the pipeline of deals coming through, wt o companies particularly caught the attention of
Joost and hte other IAT members sa potential opportunitiesfor RIF.? Both semed ot ofer a
promising combination of financial and social returns, so the AT started preparing na Exploratory
Memorandum and accompanying TEM for each. As this task was underway, Joost wondered
which, fi either, of these might be worth prioritizing for a ful due diligence.
1. China Nutrition
China Nutrition (CN) produced nutritional supplements for infants and children in povertystricken parts of China. Its main customers were provincial and city governments, which
purchased the nutritional packs for distribution ot the poor sa part of a nationwide programme.
The programme focused exclusively on counties officially designated as low-income by the
government, with average annual per capita incomes of about RMB 5,300 (USD 800). The
ultimate beneficiaries were infants, who had the semi-solid food in the nutrition packs fed to
them by caregivers, typically parents orgrandparents.
CN had been founded ni 2011 by two partners with a decade of experience ni running infant
poverty assessments and product tests. They brought not just technical expertise but also
demonstrated and credible passion for reducing malnutrition across the country.
Social Need and Market Opportunity
UNICEF had recently ranked China fourth ni the world ni terms of percentage of stunted
children after India, Nigeria, and Pakistan). The prevalence of stunted growth among children in
China was 9.4%, almost four times that of the US or Singapore. Studies had shown
hat inadequate nutrition during the early years of life was acommon reason for such issues. For
example, iron deficiency could lead tolifelong consequences for brain development.
About half of the children in rural China suffered from anemia due to malnutrition or
undernourishment. According ot the Chinese Centre for DiseaseControl and Prevention
(CDC), the incidence of low birth weight and growth retardation ni poverty-stricken rural
areas was over six times that in cities, as parents lacked awareness regarding children's
nutritional needs and relied on poor-nutrition foods (e.g., gruel or sliced noodle soup). The
problem was compounded by the so-called "village doctors" rarelybeing trained physicians,
generally being over-stretched. and not having theincentive or direction to prioritize nutrition
But basic health issues like stunting had gained increasing attention as China developed
economically, with the government increasingly willing ot spend on such issues. Supplying
high-quality nutritional supplements therefore offered a huge market opportunity.
ValueProposition andBusiness Model
Unlike its competitors, for whom nutritional packs comprised only 10%-30% of the output, CN
focused exclusively on nutrition packs. The company was exceptionally stringent in ensuring
quality. For example, its sachets were rigorously tested every seven days for stability
and presence ofheavy metals. It was also good at adapting ot local needs, such as tailoring its
flavours to local tastes: in the predominantly Muslim north-west o f China. sovbean content
had beenreduced far below the 97% level for the east because it did not suit local tastes.
CN ensured safety bysourcing its ingredients from established foreign vendors. Once its
nutrition packs were distributed, recipients could simply mxi the packs with water, helping
children get adequate iron, zinc, folic acid, calcium, and vitamins A, B, C, and D. CN also helped
the government draft national standards for such packs, and had also run pilots to
establish that consumption of its supplements did improve health outcomes. C u r r e n t P e r f
o r m a n c e a n dF u t u r e P o t e n t i a l
CN was the largest specialized producer of soy-based baby nutrition bags ni the country, and
enjoyed a leading position on government procurement orders. In market share calculated in
terms o f winning government bids, the company had an impressive share of over 40% despite
being above average in the price per pack ni its bids: following transparent provincial tenders,
the government had been procuring CN supplements at RMB I (USD0. 15) per pack.
CN had built strong relationships with governments at the local and national level. It had
partnered with the Ministry of Health and the All-China Women's Federation to train the village
doctors to educate caregivers on eftective nutrition. CN's product was distributed in over 200
poverty-stricken counties covered by the national nutritional improvement program Government
orders accounted for 97% ofCN's business. As the government had made long- term
commitment to continually increasing funding of its national program, CN was in a solid position
within the sector. The company's revenues just ni hte past year had grown yb 37%, and were
projected to grow by 6 3 % in the next year as the market continued to grow rapidly.
The company anticipated that localities needing nutrition packs for infants and children in the
6-to-36-month age groupw o u l d remain its core customer at least until 2022. Its expected
sales for2017 wer RMB 18m (USD 17.4m). Gros margins had recently improved from 46% to
49%, owing to lower unit cost from increased economies of scale and decreased costs of raw
materials and logistics. As a result. profits had been growing at a neven faster pace than sales
Based on forecasts provided by CN. the company's annual earnings trajectory would be RMB
35m ofr 2017,RMB 4. mI for 2018, RMB 54,m ofr 2019, and RMB 617.m for 2020.
Although capacity ta CN's factory ni Qingdao was listed as 50 milion packages per annum, it
hadpractically been operating below capacity as it had proven to be impossible to run more
than a single one (12-hour) shift. Due to the latent demand. CN expected its revenues to
theretore grow rapidly after the opening of its new, fully automated 24-hour facility in
Suzhou,which would increase annual capacity from 30 milion ot 1billion packs (while also further
improving quality). The plant would also save about RMB 2.8m (USD 424,000) annualy on
direct labour cost (which was about 10% of COGS, another 80% of COGS being material costs,
and hte restmanufacturing-related overheads), reducing the number of workers from 88 to 49.
But the facility was expensive. and CN needed a fresh investment to fund it.
CN was looking into extending its nutritional product line to come up with new offerings
appropriate for pregnant mothers as wel as 3-to-6-year-old children, stil guided yb a vision that
improving health outcomes through nutritional interventions was a cost-effective way of
improving the lives ofthe poor. CN also had an ambition to diversity beyond government as
its customer by growing its nascent private label. It was also considering growing the small part
of its business devoted to being an OEM supplier to multinational companies
B u s i n e s s a n d I m p a c tR i s k s
The company's BoP engagement model involved a need requiring a consumer behaviour
change that was not easy ot accomplish. Widespread adoption of the product ta scale was still
unproven, and would require a huge mindset shift in the way parents and o t h e rcaregivers fed
their infants in transitioning from breast milk to semi-solid food
In terms of BoP engagement, while CN currently had a focus on the poor, rapid growth ni new
business segments could dilute this. For example, because the private label business (not
focused just on thep o o r ) was being seen as a potential growth driver, it was possible that this
segment might become a more dominant part of the company's focus in future. More
generally, ti was unclear whether al of CN's investors saw social impact perse as a priority.
though the concern was mitigated by impact being built into the core business model itself
Investment Opportunity
CN had not worked with foreign investors before, and RIF would eb the sole investor ni this
funding round. As per the proposal, RIF would invest RMB 25m (USD 3.7m) in mid-2017
for the first tranche, and get an equity stake as well as a board seat in return. If all went well.
they could increase their total investment to RMB 80m through one or two future tranches
CN was planning to list on the National Equities Exchange and Quotations (NEEQ) within two
years, and saw Os as a valuable partner not just for financing but also for their expertise in
helping CN in the listing process and ni building astrong reputation ahead oftheir listing
As the nutritional supplement sector was still nascent, no peer comparables were available to
facilitate a valuation. But, more generally, listed health food firms could be used for a rough
comparison: three firms most analogous ot CN had valuations of 38x, Six, and 36x of their
PIEratios.It appeared that both parties could agre onhte (post-money) valuation ofr NC being
carried out using a 12x PE/ multiple of hte projected 2017 earnings.
The RIF team decided ot employ a 15x EP/ multiple ni estimating hte investment's value at the
time ofa likely post-IPO exit ni 2020. With this assumption,the IRR worked out ot eb wel
over20%. However, further sensitivity analysis was needed. fI CN failed ot go public and RIIF's
exit hadto bethrough aprivate sale,a 15x EP/ asumption became too aggressive. inaddition, if
CNs' 2020 earningsforecast was notmet, there was the isue ofhow olw their earnings number
could go before RIF's desired 20% IRR threshold was no longer met.
2. Vietnam Finance
Vietnam Finance (VF) was a company offering a retail platform for an employee benefits
program that provided attractive financing options to low-income factory workers looking to
purchase essential household goods and services - such as white goods (like refrigerators) and
electronics (like computers and mobile phones).
The founder and CEO of VF was na experienced computer engineer and entrepreneur who had
earlier co-founded a software company that had successfully listed on NASDAQ (and was
subsequently acquired by a large corporation for over USD 1.5b). FV also had a strong
management team, most of who had advanced degrees from the U.S. as wel as several years
of experience (typically ni business, but for some also ni the public sector).
Social Need and Market Opportunity
While emerging economies like Vietnam were growing rapidly, low income factory workers
continued to find ti hard ot buy essential household products such as refrigerators,washing
machines, or water heaters. The cost of these products could easily be the equivalent of a
month's salary or more for a large segment of workers who madeUSD 150-400 per month
The issue was not just the price of a product: low-income Vietnamese typicallydidnot have
access to formal financial services either. According to the World Bank Global Financial
Inclusion Database, only 16% of Vietnamese adults living ni rural areas even had a bank
account. Common sources of financing were either family and friendsor informal money lenders.
Borrowing from friends and family was rather constraining, while that from money lenders
entailed very high interest rates: often 50% or more annualy. High-interest lending also often led
to situations ofexcessive debt that borrowers were unable toservice.
Given the prominence of manufacturing in the Asian economies, VE saw a huge market
potential in targeting factories as partners in order to reach low-income workers. Based on the
company data, fi 30% of the salary factory workers earned were channelled towards household
goods, the market size in VF's target countries in Asia exceeded USD 100 bIllion
Value Proposition and Business Model
VF's benefits program targeted large factories with more than 1,000 workers. The company
signed up the factory (or its owner) as a corporate partner, after which eligible factory workers w
i t h at least one year o f service) could register under the program. VF partnered
whti brands kile Samsung, Panasonci, and Nokai ofr sourcing basic, old-stock, or customized
models ti could acquire cheaply without compromising quality, and passed on the savings ot its
customers as low prices andzero-interest loans(with a durationof up to six months).
VF t y p i c a l l y s e t u p a p r e s e n c e w i t h i n h t e f a c t o r y o r s e t p u a b o o t h n i n
a a r e a n e a r a c l u s t e r o f f a c t o r i e s , a l l o w i n g ht e w o r k e r s t o v i e w t h e p r
o d u c t s d u r i n g t h e i r b r e a k s or a f t e r w o r k . O n c e theworkers had decided on the
product, they could make the actual purchase on-site, through VFs' website or yb
callingatoll-freenumber.The productswouldthen eb delivered ot a location convenient for the
workers (either factory or home). saving them the logistics hassle
To protect the employees from excessive debt, there was a purchase limit so that monthly
repayments couldnot exced 40% oftheir monthly salary. Every month, the employees received a
statement of their accounts. The employers were also provided a list of payments
due, and these paymentswere deducted from hte payrols before hte employees received their
salaries. The employers thus acted as facilitators, but were not liable for the purchases
Current Performance and Future Potential
VF had successfully rolled out the program toa sizeable scale, covering workers in more than
800 factories across Vietnam. By 2017. there were over 1,000 corporate partners witha total of
about 18. milion workers, of which about 700,000 had already registered sa FV program
members (a prerequisite for purchasing goods through VF's platform). In customer survevs.
most customers indicated that they were very happy with hte service they received.
A corporate partner normally stayed with the same provider for a benefits program as long as it
worked well. so local relationships and execution were critical. VF's competitive advantage
seemed robust in Vietnam; whether it would turn out to be equally robust elsewhereremained to
be seen. But early signs were that F could also do well in other low-income countries it was
targeting, like Indonesia, Thailand, Cambodia, Laos, the Philippines, and India
While Vietnam still accounted for most of hte revenues, business elsewhere was expected ot
grow rapidly with increased investment after VF's next funding round. Growth could also be
achieved by expanding the range of products. For example, VF was exploring whether ot
finance products and services related to healthcare (bill payments. accessible medicines
insurance, and check-ups), education (training courses), and housing (affordable housing).
The company had so far helped workers stretch payments for up to six months without interest,
the cost of sti own interest (about 15% for bank loans) being covered yb bulk discounts obtained
from suppliers. For faster scale-up, ti was also considering a model of tacilitating direct loans
(with interest) to workers through collaboration with a partner bank.
F had already proven that ti hadaprofitable model, and was now looking ot grow rapidly ni
Vietnam as well as overseas (with initial focus on Indonesia and India). In 2016. it achieved
USD 50m ni revenuesthrough 812k transactions (almost al from Vietnam). The management
was expecting a steep increase to USD 183m in revenues through 2.7m transactions next year.
with 80% of the revenues and 90% of the transactions coming from Vietnam. (Although 40% of
the 2.am registered users were projected to be outside Vietnam, a lag was expected before
these overseas registrations diso suostantaly cranslated into revenue-generaung transactions.
Due to the cost o f overseas expansion. VF's short-term margins were under pressure, but me
company was still expected to continue to at least achieve break-even on the whole
Business andImpactRisks
One concern was that suppliers might view VF as a channel for offloading excess inventory or
old models, irrespective of how critical the product was for social impact. For example, nothing
prevented VF's model from being used disproportionately for flat-screen televisions or gaming
consoles, and an attractive deal on any product could quickly tilt the loan portiolio One option
might be to segregate RIIF's funding to only support loans generating high impact, though the
practicality of this was unclear - especially as R i i r ' s investment
unlikely to translate into an equity share large enough to majorly influence VE's strategy.
Further investigation was also needed onexactly which segments of workers were making the
purchases, what they were buying, and how much overall debt they were carrying. RIF would
also need to monitor any difference between VF prices and outside prices to ensure that any
effective interest rate built into VE's "zerointerest" model remained reasonable
Investment Opportunity
VF's eventual goal was to do a NASDAQ IPO. Its management was hoping ot raise USD 20m in
Series C funding in return for at most 25% equity stake ni the company. Much of the new funds
would be used for VF's overseas expansion beyond Vietnam through a new holding company ni
Singapore. VF's existing investors, al of whom were reputed global players (without a specific
impact focus), were open ot injecting USD 10m ofthis ni the form of fresh capital. This meant
that new investors would be brought ni for the remaining USD 10m. RIF was considering
participating by investing USD 3m, but the exact valuation for this funding round could only be
fixed after a lead investor had been identified.
Making a Decision
Although both investment opportunities looked attractive, there were also many questions about
each. Some o ft h e issues could get clarified through a detailed due diligence, but this was an
expensive and time-consuming phase. So, ift h e r e was already reason to conclude that an
opportunity had unsurmountable issues, it was best to drop it from further consideration.
Joost decided he would systematicaly go through each case ni order ot first decide whetherti
met RIIF's threshold for impact. He would then repeat a similar exercise for their commercial
potential. He would then look ta hte overall picture, also considering his team's bandwidth ni
termsofnumber ofdeals worth working on simultaneously and promisingopportunities ni hte
pipeline, and decide on whether to recommend either or both for furtherconsideration.
As a person activelyengaged ni the intellectual underpinnings of the impact investing
movement, Joost also had in the back o fh i s mind two questions the entire impact investing
community was still grappling with: First, what did na "ideal" impact investor have ot be like in
order to practically make the biggest possible contribution ot the world? Second, how could
Such an impact investor practically define and measure impact to be sure that their good
intentions were translating into real impact in the best possible way?