Darragh Cotter, Communications and Marketing Manager
In the second Q&A of our investor series, GOGLA speaks with Kat Harrison, Impact Associate Director at Acumen. Kat joined Acumen from another GOGLA member, SolarAid, where she created and grew the research and impact measurement activities to be a resource for the off-grid energy sector, now housing some of the most comprehensive data on energy access in rural Africa. Kat also chairs the social impact working group at GOGLA and led the development of the sector’s harmonised impact metrics framework, being adopted by IRIS.
Q: Thanks for taking the time Kat. Firstly, can I ask how the transition of SolarAid’s research and impact division to Acumen has been? How have projects, initiated at SolarAid, been progressing?
A: The rehoming of SolarAid’s research and impact division to Acumen was a vital move to ensure that all the learning and ongoing research projects that are generating knowledge and understanding of the off-grid energy sector’s impact could be continued. What it has meant is that Acumen now house and use the SolarAid extensive research database with tens of thousands of datapoints from those living off-grid in rural Africa. This can be used to inform Acumen’s own energy investments: a core focus of the organisation going forwards. In addition, the external research studies on the impact of solar lighting on education with Stanford, on indoor air pollution and health with Berkeley, on poverty alleviation with ETH Zurich, on the energy ladder with Humboldt State University, and on opportunities for solar waste, repair and recycling with the University of Edinburgh have been maintained. In fact, exciting news is that the results for the three-year long study, funded by Google, on the impact of solar lighting on poverty will be released in the next few months.
What’s more, all the learning from conducting research and listening to customers of solar products and those living off-grid has been injected into Acumen’s own Lean Data approach coming out of the Impact team at Acumen where I now sit.
Q: Investors are clearly interested in a financial return when investing in a business. However, social impact is also prioritized by many when investing. What is the key motive for Acumen when making investment decisions?
A: We have a double bottom line: financial returns and impact. They go hand in hand – if a company is effective, has an innovative business model, and is successful, they are able to scale, to reach many more people, and therefore to multiply their impact. From Acumen’s point of view, this offers sustainability for our own investing model: a chance to receive returns many years later (based on our patient capital model) and reinvest in the latest innovative and creative ideas for tackling poverty. At Acumen we measure impact in three ways: breadth – number of people reached with the products or services of the companies we’re investing in, depth – what value those products or services are generating in the customers’ lives, and poverty focus – what proportion of our investee companies’ customers are living below the poverty line. So we’re going beyond just the big ‘people reached’ numbers that many investors and donors focus on.
Q: Acumen has almost 10 years of experience of investment in the off-grid energy space. What do you think have been the biggest changes for investment in the area since 2007?
A: I’m not sure our investments have changed dramatically, but have become more nuanced in terms of how we make them and what support we offer post-investment. For the last six months, we’ve been working on our new energy investing strategy so it’s been a time of reflection and review. A few things we’ve learned that have shaped our energy investing strategy:
Over 55% of our energy portfolio companies’ customers live below the $2.50 poverty line, showcasing a real opportunity to reach the base of the pyramid population through energy access. However, affordability, access, and awareness remain real challenges for low-income adoption. So, investing in companies that focus on making products or services accessible to lower-income households is key; and enablers, like mobile money or PAYG services are critical to the ecosystem. As we all know, financing mechanisms can play a key role in a customers’ opportunity to gain energy services by pushing down uptake costs and de-risking investment, but the lack of mobile money and other enabling factors must not restrict or slow progress in countries where this is not an option. So, we’re thinking about what enabling systems or processes already exist and how can they be leveraged, as well as what can be designed, to reduce the tread on different steps of the energy staircase (because actually we think it’s a staircase not a ladder as customers stack their energy services and build a suite of energy options); how can we make steps shallower and more accessible for more of the population?
We’ve learnt to frame impact in the words of our investee companies’ customers, not our own. Listening to customers and allowing them to frame impact is key to understanding potential drivers for uptake, and enabling companies to better meet their needs and wants. It also helps us to identify exciting investment opportunities and emerging ideas.
We’ve heard from customers that the companies providing products and services to them could be doing better at reaching out to them, at responding to their complaints or challenges, to delivering exactly what they need. This is a common theme not just within our product or service companies, but beyond for companies working on new innovations, in difficult markets, testing out business models and approaches. But getting this right is key to driving customer satisfaction, loyalty and opportunities to deliver better and bigger services over a lifetime, so we’re thinking about how our post investment support can work on this.
So, in short, what we’re focusing on now is investing in solar home system business models in new geographies to expand their reach, investing in hybrid mini-grids to identify ways to get them to commercial viability, cross-sector innovations which might include things like solar irrigation, solar water ATMs, and then enablers such as financing mechanisms and other innovations.
Q: Can you summarize the benefits of the “patient capital” model that Acumen created? How important is “patient capital” for off-grid energy businesses in developing countries? Is management support a big element of the “patient capital” model?
A: Because decentralised energy is still a nascent technology in terms of household access, and because the majority of the off-grid population live in rural areas of developing countries – some of the toughest environments in the world to do business, there’s a long way to go before a mature and sustainable market is created. Acumen believes that markets alone cannot alleviate poverty, but charity and aid aren’t enough either. Patient capital is an approach to find new solutions; it’s about bridging the gap between the efficiency and scale of market-based approaches, and the impact of pure philanthropy. Our investing has a high tolerance for risk, over a long time horizon, recognising how difficult it is to test and scale lasting solutions, especially when we’re unwilling to sacrifice value for customers for the sake of profit.
This means that innovative ideas in terms of products, services, enabling functions like financing mechanisms, business models and consumer awareness are fundamental to the pace at which the market will grow and develop.
Post investment, Acumen works closely with our investee companies to offer support – this includes impact measurement through our Lean Data approach, but also talent development and management, normally one of Acumen’s portfolio team sitting on the Board to ensure they are fully integrated and updated on the company’s work and can identify opportunities for support.
Q: Impact reporting is obviously an area that Acumen puts an emphasis on. What support does Acumen offer to companies with regard to the collection of impact data? Is there quite a high reporting burden demanded by impact investors? Do you think this is proving difficult for companies in the off-grid space?
A: At Acumen, we have a real commitment and drive to listen, to learn, to improve and to deliver. And one of the ways we’re doing this is through our Lean Data work at Acumen. Designed specifically for social enterprises, Lean Data helps build more impactful businesses by providing them with data on their social performance, customer feedback, and behaviour. It’s a service we offer to our companies as we found that often there aren’t the resources, capacity, or sometimes prioritisation to collect data on customers – but it’s key to delivering the best products and services. Lean Data uses low-cost technology and methods to gather high-quality data quickly and efficiently. It is a shift away from data collection as a task for reporting and instead it’s about giving entrepreneurs richer insight to make decisions. So, it’s decision-centric, customer-focused, quick and, well, lean. It’s not about compliance but about accountability; about us partnering and working alongside our investee companies to get valuable information to inform their business which drives value and impact for their customers. It's a win-win for us as we’re investing in these companies to drive change and positive impact. It’s iterative too – it’s a journey for us, we’re still learning and improving and developing what we’re doing to get better and better over time.
So, rather than us being a burden to our investees, we believe – and have validation from them – that we’re actually providing value by getting out there and collecting the data, doing the analysis and using it to inform our work as well as our investees’ work.
Q: Unlocking Solar Capital takes place between 1-2 November in Nairobi, Kenya. What are you looking forward to most from this event?
A: I’m looking forward to meeting entrepreneurs, to hearing about their challenges and the unique opportunities they see, learning about what risks they face and what space there might be for Acumen to support the off-grid energy sector to grow, scale and reach many more of the 1.2 billion living without access to modern energy.
As chair of the GOGLA's social impact working group, I’m really looking forward to talking with different stakeholders and identifying ways to make the off-grid harmonised impact metrics we’ve created more usable, more accessible, and more valuable for everyone – with a particular focus on investors: how can we align to make the lives of our investee companies easier, as well as equip us with information to award capital more effectively.
Q: Acumen joined GOGLA at the end of 2015. What would you say to other investors in the off-grid space who might be thinking about joining GOGLA?
A: I think GOGLA provides an excellent forum to become or be an active part of the off-grid energy sector – it brings with it opportunities to meet, discuss, share and support one another. With that comes opportunities for improving effectiveness, increasing credibility, and identifying partnership opportunities. The off-grid energy sector is still a nascent space, but it’s growing, building momentum and is increasingly being recognised as a place to contribute to the achievement of development goals, as well as a place for the private sector to grow.