Can Venture Capital Save The World?

by Helen Coster

Jacqueline Novogratz and her Acumen Fund attack the human race’s oldest problems with a groundbreaking model: Fund noble startups and let altruistic capitalism do the rest

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Image: Warrick Page / Getty Images For Forbes

“HOW HAS THE LIFE CHANGED?” Meeting with farmers’ wives in Bahawalpur, Pakistan

ahawalpur in eastern Pakistan is known for magnificent palaces built during the British Raj, but in the dusty part of town where most of the 400,000 residents actually live, four dozen farmers have gathered in the decidedly unpalatial concrete building that houses the local branch of the National Rural Support Programme Bank. Their darkened, sun-creased faces testify to the toll of tilling soil in one of the hotter places on Earth.

Suddenly the front door swings open and a tall woman with piercing blue eyes and brownish blonde hair struts in. Accompanied by the bank’s president, Rashid Bajwa, Jacqueline Novogratz whips out her red notebook and gets down to business. “What kind of livestock do you have?” she asks one client. “How much money are you saving at the bank? What do you do with that cash?” An hour later, the notebook now filled with minute details of how, exactly, the farmers intend to pay back their loans, as well as whether their daughters go to school and what they want their children to do when they grow up, Novogratz walks out of the bank, satisfied. “I’m feeling optimistic about rural Pakistan,” she tells me. “Farmers are making good money.”

Novogratz plays the role of auditor because, as CEO and founder of the Acumen Fund, helping people starts with financial due diligence. In April, Acumen sank $1.9 million into the bank in exchange for an 18 percent stake, one small investment in a decade-long experiment in charitable giving. Instead of shovelling aid dollars to causes or governments that give away life-sustaining goods and services, Acumen espouses investing money wisely in small-time entrepreneurs in the developing world who strive to solve problems, from mosquito netting to bottled water to affordable housing. It’s a new twist on the old adage about teaching a man to fish, except that Novogratz wants to build an entire fish market.

The bank in Pakistan is a good example: Acumen’s financial injection has enabled the bank to lend small amounts (up to $350) to farmers. Acumen has given Pakistani farmers the ability to access cash at credit card rates, versus the loan shark terms of before — a staggering 125,000 clients have tapped the bank for $30 million in new credit this year. Novogratz’s infusion has also allowed the bank to take deposits for the first time, introducing the idea of savings, and 6 percent interest rates, to a community that has been locked in poverty for centuries. Since April, 10,000 farmers have deposited $7 million in the bank, which of course, has resulted in yet more loans.

Novogratz obsesses over such numbers. Hence, the signature notebook. Field visits, says the 50-year-old Novogratz, “give me insights and quantifiable data I can bring to conversations that have, frankly, been devoid of them for so long.”

Quantification is key. Acumen Fund is quite literally a philanthropic venture capital fund, which has put $69 million to work in India, Pakistan, Kenya, Tanzania, Uganda and Rwanda. Its loans and equity investments mandate the same benchmarks traditional VCs use, with a twist: Since the donor-investors don’t get their money back — all returns are reinvested in Acumen — progress is measured not in ROI but rather against the good that could have been done by simply giving the money away. No easy task but one that makes Acumen’s mission more critical: To prove that altruistic capitalism can solve the world’s ills.

Even in a dazzling clan of overachievers, Novogratz precociously stood out. Jacqueline’s six younger siblings include 48-year-old Bob, a designer and co-star of Bravo’s 9 By Design, and 47-year-old Michael, a principal at the hedge fund Fortress Investment Group. “By the time she was four years old I realised she was different,” says Novogratz’s mother, Barbara, who ran an antiques business while her husband, a West Point grad and US Army major, served in Korea and Vietnam. “I knew she’d always be involved with people and try to help them. When Jacqueline was little her father would send letters back from Korea. They talked about poverty. She would ask, ‘Why are they poor?’” Brother Bob remembers his perfectionist big sister as “very Marcia Brady”, the girl who sold the most scout cookies, got the best grades and worked all night on projects: “She was always hell-bent on changing people’s minds about the world at a young age.”

From there, Novogratz’s narrative gets almost hagiographic, full of absurdly perfect coincidences and anecdotes. She put herself through the University of Virginia, with a double major in economics and international relations, by tending bar and doing three part-time jobs. Then came the interview at Chase Manhattan Bank in which, asked if she wanted to be a banker, Novogratz replied she was only appeasing Mom and Dad, who wanted her to go through the motions “just for practice.” A pity, her interviewer replied, because she would’ve been able to visit 40 countries working for the bank. In a do-over that seems inconceivable, she answered the question afresh, declaring that she’d craved the life of a banker’s since she was a kid — she got the job, learned finance and, at age 22, started flying first-class around the world, reviewing the quality of loans, especially in troubled economies.