This week our Breakfast with the MD series takes us to Bogotá, Colombia to speak with the energetic and inspirational Kim Kastorff of the Global Success Fund.
Kim has years of experience in international finance and impact investing across the U.S., Europe, Latin America, and the Asia-Pacific region. She’s currently CEO and Founder of the Global Success Fund (GSF), the first-ever Pay-for-Success-based investment model. GSF provides low-cost capital and training support for social businesses, offers attractive returns to investors, and utilises the latest in mobile technology. Their first GSF-Latina Fund focuses specifically on underserved women entrepreneurs and social business in Latin America by providing low-cost debt capital, financial training and a global network.
Simi Shah (SS): Can you give me a primer of the impact investing space in LatAm?
Kim Kastorff (KK): The impact investing space has really started to develop in the past decade, with main pockets of activity in Mexico, São Paulo, Brazil and Bogotá, Colombia, but largely the definitions, capital flows and networks for impact investing are still in development. Those of us who work in the field met at the Latin American Impact Investing Forum (FLII) held in Merida, Mexico last month, and the fact that there were over 500 people from around the world is a very good sign that the industry is growing, and specifically interest in Latin America.
SS: Can you share any themes from the meeting? Both in general and any that relate to investment in women specifically?
KK: Overall, it was exciting to see so many attendees from all around the world coming to LatAm to learn more about the space, to explore work opportunities, to offer investments, or somehow provide their support. I was lucky to be part of a small roundtable discussion with Sir Ronald Cohen, and to discuss initiatives and development of a steering committee in Colombia (stay tuned!).
As for the content, some themes were similar to other impact-oriented conferences, but there was definitely a larger discussion around alternative investment structures and collaborating together to build new models, such as Pay-for-Success in Colombia (e.g. Global Success Fund or Instiglio) and Variable Payment models in Mexico. Another key distinction was the larger percentage of women in the room compared to other investment conferences, both as attendees and speakers, which led to more vibrant discussions around how the sector can better support women entrepreneurs via gender lens investing.
SS: What other events will you be attending this year?
KK: I attend quite a few regional and international events in the areas of financial inclusion, technology, women and impact investing. Some larger events on my calendar include the LatAm Venture Forum in Colombia (April); SOCAP in San Francisco (September); B Corp Champions Retreat (October); and the Foromic Conference (October). Also, I am a co-chair for the Impact Investing Global Summit to be held at the United Nations in New York in September.
SS: I recently read Bain’s 2014 report State of Impact Investing in Latin America that identified three unique challenges in the region which were: limited investment pipeline, imperfect methods for measuring impact and lack of a legal framework. The report does not treat gender at all – so am curious as to your reaction to those challenges, in terms of investment in women?
KK: Thanks for opening this can of worms! Well, as you know, I have a strong perspective on each point, but let’s focus on the first point, which is that I know investors are willing and actively seeking impact investment opportunities in LatAm, and I expect that the roughly twelve-fold increase over the last 5-year period will continue given the explosion of women entrepreneurs in the region. I recently heard someone say that if an investment manager or VC firm says there’s no investment pipeline (and particularly in regards to women businesses) – that person should be fired!
In fact in Colombia, there are many programs and banks already investing in women (e.g. Womens World Banking, Fundacion de la Mujer, Bancamia, etc.) and accelerator programs such as Agora Partnerships providing a wide range of viable investment options.
Of course, when I decided to invest in women businesses here in Colombia, many told me [there weren’t that many of them]! Well, perception is reality. But, if we change our perception on pipeline and look beyond tech startups with short-term exit opportunities, there are actually thousands of investable women-led businesses seeking funding, and many successful women lendees are currently paying roughly 30-50% interest rates from MFIs. This provides a large untapped opportunity for the impact investing pipeline.
While it’s true some fall into low-growth categories (i.e. artisans, bakeries, jewellery), there are others that stand to deliver strong growth, or could grow with support, mentors and a network. So I feel we are missing the biggest pipeline opportunities and we need to widen our scope. If we continue down the VC-style path and look for a grand slam with a huge exit, we’ll miss out on the majority of impact investment opportunities in Colombia and really across LatAm.
Beyond equity, we should be looking to support the thousands of LatAm women-led businesses who are investment-worthy, if we can also consider debt and other forms of capital investment. Let us look at the 99% of Colombian businesses, which collectively result in a much larger investment potential and social impact for LatAm and beyond. I believe there is an enormous supply of capital that is not reaching these businesses, in contrast to Silicon Valley with pitch competitions galore!
Overall, I think we need more impact investing funds focused on offering lower cost of capital, including debt, other alternatives to equity, and smaller investments for earlier stage women-led companies, which often have higher repayment rates. Finally, as we further consider catalytic capital and utilizing local, on-the-ground field partners to help source investees—plus with emerging Fintech solutions—I have no doubt that we can lower our overall cost of capital, reduce long-term risks, and achieve economies of scale to allow for even greater pipeline opportunities.
SS: Perhaps we should move off of the regional focus, as I know that’s always going to limit the analysis one can make. What are the particular barriers or opportunities to investing in women in Colombia?
KK: Women-led (or managed) businesses are more common and easier to identify, and a bit more inclusive than if we target only women-owned. Also in terms of inclusion, women entrepreneurs here are not as integrated with each other, as compared to the U.S. market, for example. In Colombia, women lack extensive support networks (beyond family) and have little knowledge of available funding opportunities, along with a lower level of financial education, especially in rural areas.
Yet, roughly 90% of the businesses in Colombia are micro-businesses and another 9% are SMEs, which means enormous opportunities exist for this under-served, financially-excluded impact investing market. Perhaps most importantly, I am constantly impressed by the work ethic and personal drive of Colombian women. When given an opportunity (i.e. work or funding) they are grateful, dedicated and determined to succeed, which collectively forms the basis for some great investment opportunities.
SS: What are the principles and values that drive you in your work? How are those reflected in the structuring of the GSF-Latina? How can the Women Effect community assist you in these aims?
KK: My passion is helping women gain access to low-cost capital and capacity building, training and global networks. I look forward to participating in the Women Effect community and working in partnership with your passionate members to drive greater investment and financial returns for women, whether investors or entrepreneurs. I also am excited at the prospect of having thought partners committed to a shared vision so we can collaborate and deliver greater social impact globally, and to help expand the network to Latin America.