26 Sep IMPAQTO Capital
Interview with Justin Schwartz, Managing Partner
How was IMPAQTO Capital Created?
Justin: IMPAQTO Capital was created by Michelle Arévalo-Carpenter and Justin Schwartz as a spin off of IMPAQTO, an ecosystem builder based in Ecuador that has been a key player in the development of the social entrepreneurship and impact investing ecosystem in Latin America through its accelerator, social innovation programs, and annual impact investing summit CLIIQ NEXUS Latam. We started IMPAQTO Capital to fill the gaps in the access to capital for impact companies in the Andean Region. We saw an opportunity to fill the “missing middle” financing gap for early-stage companies while providing the right type of capital through alternative investment structures such as revenue-based financing.
Jen: How are your investment funds catalytic in a way that is different from other funds?
Justin: The fund is catalytic in a couple of ways:
1) We are one of few funds investing in companies in the missing middle in Latin America, which allows the fund to serve as a proof of concept that shows that capital can be channeled to this segment in a profitable and impactful way. We promote this unaddressed opportunity through thought leadership in different forums (one example here: https://bit.ly/missingmiddlelatam), through which we hope to attract more investors and more capital to impact companies in the missing middle.
2) We raised over 50% of the capital for the first close of the fund from local individuals and families in the Andean Region, for the majority of which this is their first impact investment. As part of this effort, we have done significant evangelizing of and education about impact investing locally. The involvement of local impact investors has helped us to attract investors from developed markets by showing local involvement and trust.
Jen: How do you describe the kind of non-financial returns the fund offers?
Justin: The impact thesis of the fund focuses on 4 sectors:
- Agroindustry and food supply chains
- Environmental and climate solutions.
Entrepreneurs in these areas are providing access to education and health to underserved populations, improving the lives of smallholder farmers in agricultural supply chains, and helping to combat large environmental problems such as climate change. The impact return of the fund is our ability to support the growth of these businesses and helping them to scale their impact.
Jen: Can you describe how you use integrated capital to do your work?
Justin: In addition to providing impact companies with the right type of capital, IMPAQTO Capital provides hands-on post-investment support, leveraging the institutional capacity and network of IMPAQTO’s accelerator program. Our portfolio companies are able to access a proprietary network of 75 mentors as well as 200 mentors in the Google for Startups network, of which IMPAQTO is a partner. We also leverage our strong network of entrepreneur support organizations and funds throughout Latin America to connect entrepreneurs with partners that can support their regional expansion, as well as investors who can provide additional capital. These efforts increase the companies’ ability to scale their reach and impact.
Jen: How do you address racial justice, income inequality, and/or gender justice through your products and services?
Justin: We invest with a gender lens strategy that focuses on 3 gender lenses: 1) women-led businesses, 2) products or services targeted to women, and 3) women in the value chain. The fund also advance income justice through investing in companies that benefit vulnerable communities, such as smallholder farmers and poor communities without access to education and health services. In addition, climate solutions is one of our focus sectors, where we look for companies innovating in renewable energy and circular economy solutions.
Jen: Can you share with us an example of an investment?
Justin: We invested in ELSA, a Peruvian company that leverages technology to reduce the incidence of sexual harassment in the workplace. Sexual harassment is a huge problem globally and specifically in Latin America, which is estimated to affect 1 in 3 workers annually. ELSA provides organizations with participative diagnostics and generates plans of action specific to their needs. ELSA has been used by more than 140 organizations in eight countries, with over 105,000 workers benefiting from its use. ELSA has driven a 60% reduction in the incidence of sexual harassment among organizations that use the platform.
Jen: What do you tell people who think your fund is risky?
Justin: According to the Inter-American Development Bank, small- and medium-sized businesses create 67% of employment in Latin America but receive only 12% of total credit. This funding gap is a key barrier to creating a stronger and more inclusive economy in the region with the world’s highest level of inequality. IMPAQTO Capital is part of the solution to this funding gap and we seek to help reduce inequality in Latin America. The risk of not investing is to see inequality continue to rise, which would lead to a continuation of the great threats the region faces, including political difficulties, threats to democracy, and rising violence.
Investment Thesis/What is your rationale for your approach to investing? IMPAQTO Capital offers flexible capital primarily through revenue-based financing instruments with the goal of accelerating the growth of early-stage impact companies in the Andean Region and support them in scaling their impact, while providing hands-on post-investment support through mentoring and connections.
Geography: Andean Region: Ecuador, Peru, Bolivia, Colombia, Chile
Year Founded: 2021
# of Investments: 1
# of Investors: 24 (donors, funders, supporters, investors)
Funds Raised: $1.2MM since inception
What’s on Justin’s Mind?
Book: The Making of the Atomic Bomb by Richard Rhodes
Song: The Chain by Fleetwood Mac