Many impact fund managers are looking to scale up by raising larger funds. New Ventures, a Mexico City-based fund, is going niche to deepen its impact. It offers specialized financing vehicles that are tailored for companies facing specific challenges.
New Ventures’ Empodera fund raises capital to provide flexible funding healthcare solutions for Latin American women. Viwala is New Ventures’ lending facility. Its mandates include financing solutions for transgender companies in Mexico and innovative ventures that conserve and restore oceans and corals.
The first thematic fund New Ventures Capital which will manage a series of venture funds has backed over 1 0 early startups that have tech solutions for youth well-being.
“One thing I like about focusing on a specific issue is that you’re not talking about the impact investment industry. You’re talking about the ocean or health industries,” New Ventures Rodrigo Villar said to ImpactAlpha at the fund manager’s celebration of its 20 years of building the Latin America impact investment ecosystem.
“The impact industry is an ideology, a perception. I don’t think it will ever penetrate the traditional markets. You can do this if you choose a niche. You can break down those barriers in a more effective way.
Building an ecosystem
New Ventures was founded in Mexico City, as one of the first accelerators for social and environmental entrepreneurs. It raised $60 million in two funds with Adobe Capital, before selling the revenue based finance fund manager Deetken impact to Deetken.
The entrepreneurial team distributed over 150,000 copies of a publication named Las Paginas Verdes to customers in Mexico, Colombia, and other countries. This publication introduced thousands of companies that had sustainable products.
New Ventures currently runs around a dozen accelerators a yearly, with a 20-person team building pipelines for companies in cities such as Bogota, Quito, and Buenos Aires. It supports about 250 companies per year from a pool that is around 2,000.
More than 1,000 investors and practitioners exchange deals and best practices at the Foro Latinoamericano de Inversion de Impacto (FLII) of New Ventures.
Intentionality, innovation and
Villar believes that too much capital is being invested in Latin America by managers who are not consciously focusing on impact and the needs of social and environmental entrepreneurs. He says the industry must grow beyond private-equity funds. “You need financial institutes, debt facilitators, and warranties. We need to create a more complex ecosystem.”
Villar and his team discovered that “the bigger the fund, the farther we got from the actual problem and the dealflow.” He added that issue-agnostic money funds compete to raise capital among “the usual suspects,” such as development finance institutions and retirement funds.
Villar continued that specialized funds targeting specific problems sets can be designed instead with the “right size, right people, right financial mechanism, and the right LPs.” The problem-focus approach “opens a lot of opportunities.”
Read ImpactAlpha’s full Q&A, edited to length and brevity.
ImpactAlpha: You’ve celebrated your 20th anniversary on the road. What is it about New Ventures that you love most?
Rodrigo Villar :New Ventures has a reputation for being a company that helps fill many positions. New Ventures employees are generally highly regarded. We are celebrating all the staff, both current and past, who have worked at New Ventures. We have grown a lot. We are not just a Mexico City based organization. We are spread across the entire region. We have a office in Buenos Aires. We also have a office in Bogota. We also have a branch in Quito, Ecuador. Several other staff members are scattered around the world. We didn’t want to throw a big party and leave behind all the important pieces of New Ventures in Mexico City. We decided to celebrate the ecosystem that we created in the different regions we work.
ImpactAlpha – Where have you been?
Villar :We held our first event in Madrid. We had our second one in Buenos Aires a few weeks ago, where you were. Our next one will be in August in Bogota. We are also planning to hold another in Mexico City and Ecuador. We are also planning to do something with our US partners around SOCAP.
ImpactAlpha : Looking back at the past 20 years, what has New Ventures been able accomplish?
Villar :We were recently talking with partners of New Ventures, and we planned to get together to do a strategic planning. It’s hard to do strategic planing because we don’t really want to. This is by design. New Ventures’ story has been driven by a very clear purpose. We still have the exact same purpose that we had 20 years ago. New Ventures was founded with the goal of using the power and private capital of markets to solve social issues. It’s the same goal.
We want to be the bridge between philanthropy, and the private sector. We know both worlds. New Ventures’ story has been about creating tools that make it easier for social or environmentally conscious entrepreneurs. We were an accelerator when we began 20 years ago. We were looking for entrepreneurs who were creating new technology and innovating. New Ventures’ purpose at that time was finding those few entrepreneurs who were working in this field, supporting them with mentorships and training, providing strategy, and connecting them to investors. This was the first cohort for New Ventures.
It was difficult to find companies. Few people talked about sustainable or environmental businesses. We began creating the ecosystem. We began building a mentor network. We began talking to investors and financial organizations to try to spread the word about these companies. We tried to put social and environmental entrepreneurs at the forefront of the agenda.
We then started to innovate constantly. We realized that although we were supporting many companies, no one was offering a financial product to support them. This could be because they were too risky or too small. Adobe Capital was created because funds did not invest in these companies. We felt that there was a demand for a fund to target these types of companies using the right financial instruments. We began experimenting with revenue-based funding. It was working, but not as much because we were only investing in one or maybe two companies per annum.
Viwala was created as a way for us to reach out to smaller companies. Viwala has helped us provide more than 100 small loans with a big impact.
ImpactAlpha – How have investors and LPs responded to your evolution?
Villar :Our initial approach to investors was Adobe Capital. First, we raised $20 million. The second fund was $30 million. The majority of them were institutional investor. Some of them were family foundations or offices that were aligned with the impact. Many others were investing in impact funds for the first time. We had institutional investors such as DEG, BID Invest and CAF. I remember 10 years ago we were afraid to use the word social. We talked more about industries like education and affordable housing. We avoided the word social, as we thought that some LPs might be scared by it. Now, I’d say that has changed a lot. I think they get it.
The first time we talked to the funds of fund in Mexico, they said, “I don’t believe in impact.” Now, after a few years, they have a funds of funds for impact. Now they are super aligned. Ten years ago, we were probably the first impact fund they invested in. They weren’t sure if they liked it. They didn’t really believe in impact. Now, impact is their biggest bet.
ImpactAlpha: At some point, you sold Adobe Capital. Why?
Villar :Three Years ago, Deetken purchased the GP of Adobe Capital. We are very proud of that. As an entrepreneur, it’s a great feeling to build something from the ground up and then have it bought out. It was a great experience for New Ventures. We created New Ventures Capital, a fund management company with a completely different approach.
ImpactAlpha – What is the new approach to impact?
Villar :We have learned a great deal at New Ventures about creating ecosystems. We started out with a very large ecosystem, the impact investment eco-system. As we grow, we think we need to dig deeper into the issues. We’re focusing more on getting into certain industries. We have a fund which is very deep in oceans. We have a systemic strategy, and we have products to accelerate companies working on coral reefs and oceans. Viwala, Viwala’s lending facility, allows us to provide loans to these companies.
I prefer to go deeper than be agnostic, as we were at Adobe Capital. With partners, you can achieve a lot. There are many organizations that have worked in these fields for many years and have a great deal of knowledge. They lack the financial skills needed to support an ecosystem. When we dive deeper into these industries, we prefer to partner with corporations. We like to partner up with philanthropy who have been working in the field. We like to partner up with different organizations and governments that support specific niches.
New Ventures Capital’s future is to build a fund family, where we can design funds with the right size and people, the correct financial mechanism, and the right LPs.
ImpactAlpha Can you give me an example?
The Empodera Fund. We are still raising money for the fund, but we have started partnering up with foundations who have been working in the women’s health field for many years. One of them, the Linked Foundation, is one of our partners. We are conducting market research. We went through a program of acceleration to find the pipeline. We are creating a fund to match the criteria of the companies we found. We have so far found more than 400 firms in a field we thought was complex. We have about 400 companies in our pipeline.
ImpactAlpha: The new strategy is to continue innovating. Find niche categories. Partner with investors who share your vision. Build a family of mutual funds and be responsive to the market.
Villar: Yes. Most fund managers start with a small fund to test the waters, then raise a second one, and finally a third. We realized, and this is what happened to us at Adobe Capital, that the bigger the fund was, the further away we were from the real issue and the dealflow. To put this in context, New Ventures supports about 250 companies annually. Rarely do these companies ask for checks of $20 million. Most companies are looking for between a half million and $5 million. We believe that if you go to a larger fund, it is more likely to be companies whose impact will not be as great as we would like.
We like the idea of a niche fund or family of funds because you can align yourself with a specific problem. You can measure impact much better because you are focusing your efforts on a specific problem. You can find LPs who are not the usual suspects. If you are raising an agnostic funds, you will approach the usual suspects: DFIs and pension funds. You may also contact family offices. If you are in a niche fund you can partner up with foundations and corporations. There are many organizations that have the same vision and the same problem. It opens a lot more doors than agnostic funding, and we appreciate that. It’s not only the money; it’s also a lot of information. We value that and it becomes a great advantage.
ImpactAlpha: Are you measuring scale by assets under management or by assets under management? How do you define scale?
Villar : Every company at New Ventures has their own metrics. I can remember the first document we wrote when we launched Adobe Capital. The mission was not about the size or AUM. The mission was to show that impact investment funds can be as profitable as conventional funds. If we are successful in achieving that, we will see a lot of capital flowing through the ecosystem. We don’t use the New Ventures AUM method. We are attached to our purpose, and our purpose does not depend on size.
ImpactAlpha: Do You think that Latin American impact investing has been demonstrated? Is money flowing in more easily now?
Villar :I believe it is flowing more easily. In some cases, I am concerned that the money is not going to the right managers. Many traditional funds are moving cautiously towards impact because there are many investors in Latin America who are focused on impact.
ImpactAlpha : You’re saying more traditional fund managers create impact funds?
Villar : At least they claim they are impact. They are finding ways to measure, with at least some tools that can be used to claim they have impact. That’s good. New Ventures doesn’t want to just be that. We want to go further. For example, we have a method of measuring the outcomes for the Empodera Fund. We also have an investment-related metric. We want to reach 3 million women. This is as important as IRR.
We want to create an account that will provide quality healthcare for three million women. This goal is the same as the return of the fund. We need to dig deeper, and I think that we may want to establish a different metric for impact funds. Right now the line between impact funds and traditional fund is very blurred. The intentionality of the funds is not the same, and I believe that is what is missing.
ImpactAlpha: Some people I’ve spoken to have been critical of the Latin American impact investing ecosystem. The criticism is that impact funds and product don’t meet the financial needs of various types of entrepreneurs. Smaller farmer cooperatives are an example. What’s your opinion? Does the impact ecosystem meet the needs of social and impact-oriented entrepreneurs in the region?
Villar :Not at All. We are still far from meeting the needs of all entrepreneurs. We support 250 entrepreneurs each year, and they are selected from approximately 2000 companies. New Ventures has 20 people working on pipeline, and they are involved in 10 to 12 different accelerator programs. Viwala is ours. New Ventures Capital is our partner. We support around 250 companies each year. Very few get funded and even fewer are funded by private equity. Deals disappear when you start to think like a fund manager, have this fiduciary obligation and start looking through other lenses.
ImpactAlpha : Few people meet the criteria for the fund.
Villar :Very Few meet the criteria. But it’s not the entrepreneurs’ problem. This is not a problem for investors. The problem is we need innovation and we need different vehicles to meet the needs of an enormous ecosystem. There’s still plenty of room for innovation. Viwala offers a flexible option for New Ventures. Viwala uses debt. Viwala has nine or ten different mandates that are blended vehicles. We have been able invest in companies we would never have thought of before.
We partnered with a German Foundation on a pilot to invest in transgender companies. This was a great experience for me. The entire story of building the product and ecosystem, understanding the issue, building trust with the community. It’s not only about building the financial mechanisms. It’s all related to it.
ImpactAlpha: Could you explain the blended mechanisms?
Villar : We begin with a problem. For example, transgender and LGBT+-led companies. We found that the average life expectancy for a transgender in Mexico was 32 or 33. They have many institution problems that have kept them out of the system. We begin by understanding this. Then comes the philanthropy. We’re testing a new product. You won’t get much scale because the market is small. The philanthropic funds allow us to lower our risk or interest rate. With this mechanism, we have formed partnerships with nine foundations. We are, for example, working with the Hilton Foundation to develop an employability product. We are working on social businesses led by women with a Spanish firm. Viwala has a delinquency of less than 7% and invests in the most complex areas.
ImpactAlpha: What is the main need of the Latin America impact investing industry?
Villar :The Market is Very Large. We’re partnering up with a Swiss Foundation to invest in one of our funds, which is part of New Ventures Capital. Our focus is on the well-being for youth. We are doing early-stage VC. We’re looking for unicorns. We’re investing in technology-based, seed-stage companies. But the market requires more than just private equity funds. You need financial institutions. You need debt facilitators. And you need warranties. We need to create a more complex ecosystem. Funds won’t solve all of the problems with impact investing.
ImpactAlpha: More financial infrastructure is needed. Where do you see this?
VillarWe think that the impact investing ecosystem should begin to consolidate. Consolidating the ecosystem is one of the most important things we will do in the future. When you reach your 20th birthday, you may ask yourself “how much have we done?” Was it a lot, or very little? I think we were one of the most influential impact investing organizations in the region but it’s now been 20 years. Should we be three-times larger? Should we be global? These questions are difficult to answer.
I am certain that I do not want other organizations to wait 20 years and do the same thing we did. It’s a long time and the world must move faster to build this industry. We need to consolidate things. Latin America is full with tiny, small initiatives that are all looking for the same funding. I think we should start working together more. I think we should start building more institutions capable of larger projects.
We began with the vision that a fund should be created in Mexico, in Colombia, and in Brazil. We went down that road, but now people want a Belize fund, a Bolivia fund and a Uruguay fund. Those regions probably don’t have enough size. I don’t believe they have to start from scratch. Building larger institutions is a great opportunity. Making life easier for newcomers. New Ventures wants to open its doors to people from different backgrounds and regions. Use our institutional approach and brand to accelerate initiatives that would take years for them to achieve on their own.
ImpactAlpha : What examples do you have of what you are saying?
Villar :There are many individual achievements in trouble. Sumatoria in Argentina was able to raise funds in Argentina through a bond, which is a really difficult thing to do. These are all individual success stories. I think that they are still small and we’re very far from reaching scale. I think we have an opportunity to work together.
I don’t believe we need to be a “side” industry, the “impact industry.” One of the reasons I like to focus on a specific issue is that instead of talking about impact investing, you talk about the ocean industry or the health industry. The impact industry is an ideology, a perception. I don’t think it will ever penetrate the traditional markets. You can do this if you choose a niche. You can break down those barriers better.