Acumen Energy Impact Report

We’ve just launched the Acumen Energy Impact Report. It is the culmination of more than 10 years investing in early-stage, off-grid energy companies in South Asia and Sub-Saharan Africa, and more than four years of developing Lean Data, our approach to measuring social impact that’s built on the simple premise that talking directly to customers is the best way to build successful companies that make a meaningful impact in people’s lives.

The headlines are exciting: the $22 million we’ve invested in 20 companies has allowed more than 80 million people to have access to safe light, power, and cooking fuels. Three-quarters of these people—58 million of them—have access to modern energy for the first time.

Think about that for a minute.

$1 invested means three people can, for the first time, move away from dirty, dangerous, and expensive fuels like kerosene. Three people can turn on a light that costs nothing to charge. Three people can feel safer at night. All for a dollar.

But everything I just wrote, about what it means to have access to that light—is it really true? How can we know for sure?

It’s simple. We know by asking them.

At its most basic level, this is what we do with Lean Data. It sounds simple, but if we’d written this report five years ago, and you’d asked us the following questions, here’s what we’d have said:

Who exactly are these 80 million customers?  We don’t know.

Are they men or women? Rich or poor? We don’t know.

Do they really stop spending money on kerosene? How much? We don’t know.

Does financing create more access? Or more debt? We don’t know.

Do they use the light to run a business? To study more? We don’t know.

What about cookstoves…do they really get used? How often? We don’t know.

Do these answers differ for different countries, different customers, different types of business models? You guessed it, we don’t know.

OK, I’m overstating, but only a little bit. We’d know something thanks to the customers we’d visit in person. We’d have anecdotes from the companies in Board meetings. We would talk to management and to the sales team and learn from them.

But the simple truth is, the amount of educated guesswork was enormous.

The “impact math” you’d have found from us then, and which is still prevalent today in much of the impact investing sector, assumed that every customer in every place was more or less the same. It assumed that every product, no matter who it was sold to and where they lived, had the same impact.

And the thing is, those assumptions were often way off.

This isn’t just important in terms of how we learn, or in terms of how we deploy capital to solutions that make more of a difference, or even in terms of how we serve our companies better.

It’s important to the customers themselves. Really important.

If you’re the person buying a stove, and you still have to collect wood or charcoal for your other stove, it matters, because you’re still wasting time and money and your home is full of smoke.

If you’re the mother who saves up for a solar panel on her roof, only to discover three months later that the panel doesn’t work when it rains, it matters because you’re in debt and your home is still dark.

If you’re a customer off the grid and, despite tens of millions of new investment in off-grid companies, you’ll still be in the dark five years from now, it matters to you.

And if it turns out that certain products are bright enough, durable enough, and flexible enough that they make it easier to start and run a business, and if that helps more shops stay open later so more customers can make more money, and local economies can grow, that matters a lot too.

These are the questions we are starting to be able answer thanks to Lean Data—because we talk directly to customers (more than 5,500 of them, in this case, twice for each customer), we hear what they have to say, we learn about their lived experience and can use that to help our companies serve them better.

Some of those stories are here in this report: data on who the customers are, whether they save money, if they feel safer, if their homes are less smoky. With all this data at our fingertips, we begin to understand which companies have the most impact, which companies reach deepest into low-income markets, where there are trade-offs between financial and social returns.

Giving these customers voice to tell us what is actually happening in their lives, rather than just assuming that we know, is the first step towards real understanding. It’s the first step towards dialogue. It’s the first step towards holding ourselves accountable to the promises we make and the claims we share.

I don’t make a habit of reading nonprofit annual reports, and you probably don’t either, but this one is different. I hope you’ll check it out:

Dispatch from Padrauna, India (Part 1)

I often end up running for trains, so it was no real surprise that I found myself in the Delhi train station with just four minutes to spare, having to run from Track 1 to Track 16 against the crush of hundreds of passengers advancing in the other direction.  It was only when I caught a glimpse of my colleague Karthik Chadrasekar’s eyes that I realized that our 2:45 train might leave on time and without us – never mind that just minutes before we’d confirmed online that the train was running two and a half hours late.

A short, breathless sprint later, we bounded down the steps and onto platform 16 at exactly 2:45, and, seeing the train start to move, dove into the steamy, overstuffed third-class cabin.  A couple of minutes later, the train ground to a halt, affording us the chance to jump out again and head to the front of the train to our much-more-spacious second-class seats.  Just as we plopped down, the massive, iron beast groaned its way out of the Delhi station –  just 14 hours to go until our scheduled arrival in Gorapkhur.

Karthik, Molly Alexander and I were setting out on a two-day excursion to visit Husk Power Systems, an Acumen Fund investee that is providing power to some of the poorest areas in the northeast Indian state of Bihar.  Like most Acumen investees, Husk is doing what others said could not be done – provide power in rural India in an economically and environmentally sustainable manner.

All very exciting, but first we had to get there, and the best way to get there is a 700 km train east from Delhi to Gorahpkur followed by a two hour drive to the town Padrauna, where we’d arrive in (hopefully!) 16 hours’ time, just a few hundred kilometers away from the Nepalese border.  Just a week prior, I was in North Carolina for a family vacation, and I couldn’t help but feel a shot of traveler’s whiplash at how much ground and how many worlds I’d crossed in such a short period of time.

I’d heard lots of stories about Indian trains – the crowds, the mayhem, the lack of safety – and while the many stations we passed along the way were a sight to behold, with hundreds of people splayed out and settled in on colorful cloth and plastic squares, seemingly settled in for the night, the ride itself was singularly uneventful (might I have felt differently without a native Hindi speaker as a travel companion?).    And so, after some long conversations with Karthik and Molly and all-too-little sleep, we rolled into the train station in Gorahpkur at 4:30am, foggy from the lack of sleep but still in high spirits.

A few heated cellphone calls later, Karthik located our driver, and we piled in to a little, nimble Tata Indica for our two hour drive to Padrauna.  I would have given anything for a bit more sleep, but the road (full of both speed bumps and holes) and our driver (for whom two trucks coming head-on in the other direction was not cause to waver) were enough to dissuade me from that plan.  So we quietly watched the sun rise over rich, green rice fields bursting with monsoon rains, while all around us hundreds of people began their days, mostly squatting in fields and at the side of the road to relieve themselves (less romantic, but that’s reality)…


Acumen Fund Breakfast Discussion on Energy

[Editor’s note: this entry was originally posted on the Acumen Fund blog.]

Yesterday morning, Acumen Fund hosted a monthly breakfast for members of our Partner community featuring Acumen Fund Director of Capital Markets and Energy Portfolio, Raj Kundra. With 30 guests in attendance, this promised to be an engaging discussion.

Brian Trelstad, Acumen Fund Chief Investment Officer, opened up the discussion with reference to Acumen Fund Advisory Council member Peter Goldmark, who observed in 2006 that marginal changes in the climate will affect those on the margins first and most profoundly. Later that year – in no small part due to Peter’s influence – Acumen Fund made a Clinton Global Initiative commitment to launch an energy portfolio, and we began our work in energy 12 months ago.

Raj began the talk with a description of the Acumen Fund model, and how we raise philanthropic capital to invest in breakthrough enterprises that provide critical goods and services to the poor – with a focus on health, water, housing, and most recently energy. So while Acumen Fund acts like a venture capital firm, we differentiate ourselves with our focus on large-scale social impact, coupled with economic sustainability, as our primary objectives. We invest in management assistance to support our investees – both before and after we make an investment. And we believe in the power of sharing what we are learning, based on the recognition that in a world with trillions of dollars of capital, we will always, by definition, be a relatively small player.

Raj continued with a discussion of the poverty trap that poor people face with respect to energy. As of 2005, poor people spent more than 14% of their incomes on energy, and Raj estimates that these numbers have increased to over 20% with the recent surge in energy prices. In addition, the poor often use fuel sources that are expensive, inefficient, and dangerous (for example, kerosene lamps or burning wood for cooking in open spaces). Finally, with limited access to energy, productivity (whether on the farm or the result of the shortened day for studying or work) is simply lower, all of which contribute to a ‘poverty trap.’

Even though this problem exists, there’s a significant market opportunity in energy, with the poor spending roughly $433 billion a year on energy – or about $100 per person per year – most of which is in Asia. So a lot of spending is already happening today, and the question for Acumen Fund is how to find entrepreneurs who are looking to provide products that are better, safer, more energy efficient, and therefore lower cost for poor consumers.

Raj scoped out Acumen Fund’s focus areas as broadly divided between “Renewable Energy Generation & Supply” (micro hydro, wind, biomass, solar, biogas, and biofuels) and “Energy Consumption & Appliances” (high efficiency lights, cookstoves, and other household level applications). Broadly speaking, Acumen Fund sees opportunity in these two areas, though some areas (like large scale generation and supply, where the state plays a heavy role; or direct-to-consumer retailers) look to be out of scope for now. Raj went on to describe Acumen Fund’s portfolio of closed and approved investments, totaling $2.5 million, which focus on LED lighting and a micro-hydro provider in India; as well as our late-stage pipeline of about US$4 million of investments on which we are doing serious due diligence. We are seeing significant progress in the portfolio and expect it to grow considerably over the coming 12 months.

Raj closed the presentation with a diagram of what it takes to navigate the carbon markets, pointing out that there are across the board opportunities for Acumen Fund to provide expertise and support to entrepreneurs; and also noting that there’s a particular role for patient capital to play in these markets, where a two year certified emission reduction process can significantly alter the economics of a given investment.

This discussion quickly shifted gears, touching on LED light prices (currently US$10 to $30, with the expectation that costs will continue to drop as companies scale); the role of mini-grids (by definition less efficient, but potentially effective in areas where the grid will not be built out for the foreseeable future); how to ensure that customers get access to energy; whether and how Acumen Fund should invest in biofuels companies (where we have been extremely cautious); how we think about environmental impact in this portfolio in particular; and how to compare various options at the level of the low-income household, to decide which interventions might have the greatest impact.

In the end, I was left with a sense that Raj and Acumen Fund have both a broad and deep understanding of the energy market, but that there are a number of truly complex issues where we and others still have a lot to learn. We hope to continue to learn by doing, supporting entrepreneurs with the passion, vision, and commitment to execution to help millions of people to escape the poverty trap.