I hadn’t heard the term patient capital before, but as someone who has avoided accountancy, reading the Financial Times (FT) and bankers for much of my life, it’s not surprising.
A quick search revealed it’s a term to describe a longer term investment. I expect any investor not only needs to be patient because of time, the original pun behind the name, but also because the recipient of the cash, the investee, could be described as the patient, in need of help and support, just not the white coat variety.
Thinking along those lines helps to explain why the money often goes to solve tough, intractable problems, philanthropic causes like healthcare, housing and alternate energy sources.
It’s the polar opposite of a seductive investment with a 3-5 year gestation period and multiple returns. Even those that purport to be exactly that, rarely do.
The term was brought to my attention by Seth Godin, he of Purple Cow fame.
It would be doing him a disservice to say he was just a smart marketing mind. Aside from his daily thoughts, he uses his big brain to instigate change often with the help of teams of like-minded individuals, drawn to a problem which they believe can be solved.
Together, they look for solutions, often harnessing technology, on paths less well trodden, creating life-changing outcomes for the communities they’re trying to serve.
It was his daily blog that alerted me to Kheyti, one project, along with many others supported by Acumen, the patient capitalist company, founded by Jacqueline Novogratz. She quit Wall Street in 1986 to co-found Rwanda’s first micro-finance institution.
Godin is one of their impressive long list of Global Advisors.
Acumen’s cash provides start-ups with the flexibility and security needed for a typical seed, early-stage company investment, helping them to validate the demand for their products and services before beginning any sort of scale up.
Kheyti design and develop greenhouses to help farmers in India adapt to the effects of climate change.
Drought, volatile temperatures and soil erosion are ruining crops, a major issue when 70% of families in rural India depend on farming to survive. The majority own less than five acres of land and earn less than $3 per day.
Larger commercial farms can afford to use greenhouses to protect crops, but they’re too expensive for farmers on smallholdings. The result is millions of these farmers are rapidly losing their incomes.
Kheyti’s solution is to make greenhouse tech available to these smaller farmers for the first time. They supply a Greenhouse-in-a-Box which allows farmers to adapt to drought conditions.
The results are impressive. Farmers are able to grow 7 times more food with 90% less water. They also use 70% less pesticide than traditional farmers which helps to reduce soil erosion.
Climate-affected harvests are becoming a thing of the past for their customers, who now number 1,000 farmers in six Indian states.
Kheyti install a drip irrigation system for each customer, provide fertiliser and importantly offer connections to affordable loans for the greenhouse purchase. The company also helps farmers sell their crops to the larger grocery retailers.
The support provided with the greenhouse has enabled farmers to double their income using the same plot of land.
Greenhouses are nothing new. But what Kheyti have cleverly done is make them affordable for a whole new class of farmer, offering additional support to achieve better harvests. All of this, despite the underlying issue of more unreliable weather, less rainfall and more severe droughts.
They hope to have 50,000 farmers on their programme by 2027.
Acumen’s story is impressive. They set out to be a new kind of institution in 2001, filling the gap between pure philanthropy with the efficiency and scale of market forces. So far they’ve invested $146 million in 155 companies serving low-income customers in 13 countries.
In the last 20 years, the patient capital industry has grown in value to more than $500 billion. It’s become a crowded landscape. What continues to set Acumen apart is a desire not to focus on financial returns relegating the impact of any investment to a poor second.
Their investment principles neatly summarise where their focus lies.
They look for projects where they can kickstart markets to give opportunity for people living in poverty. Typically, these can be funding gaps, investing in early stage and by definition, high-risk business models. Entrepreneurs who get this far are expected to welcome the active management and strategic support on offer as well as measuring the change being delivered.
Success is about all the stakeholders not just shareholders. The priority is on the impact being made and the longer term financial sustainability of any project funded, rather than focusing on profits generated.
Acumen invest in too many companies to start listing out here. Each company certainly tells a story and I decided to mention Easy Solar, because of the stark contrast between our energy expectations in the west, with the reality of those in Sierra Leone. They also face the added complication of new energy developments needing to be climate friendly.
In Sierra Leone, only 12% of urban households have access to electricity. In rural communities this drops to as low as 2%. 7.4 million people, 87% of the population are forced to use more expensive and often unhealthy fuels such as kerosene.
Solar lanterns are available, but they’re also expensive and certainly outside the financial reach of the poorest members of the community.
Easy Solar’s solution is to invest in solar panel infrastructure, providing off-grid electricity, using simple, pay-as-you-go technology. It allows low-income families to use mobile money to make interim payments and not pay the full cost upfront.
Now 6 years on, their product range has expanded beyond solar panels for homes, to include solar lanterns, clean cook stoves and smartphones, all available on flexible credit plans.
Their online platform allows the company to monitor transactions at all times, while empowering Easy Solar’s agents and employees to serve their customers better. More importantly, the company is building trust, vital for the success of building alternate energy solutions in a new market.
The company continues to grow quickly, opening offices in Liberia to the south east of Sierra Leone. This year they’ve also made it into the top 10 Financial Times’ 2023 list of the fastest-growing businesses in Africa.
To date they’ve created 800 new jobs and provided off-grid electricity to 720,000 people. Importantly, they’ve managed to save their customers around $27million, no longer needing to rely on more expensive fossil fuel alternatives.