Lauren Cochran (knees bent, front row) with members of Blue Haven portfolio companies in Nairobi
Blue Haven Initiative
What do the coronavirus pandemic and economic crisis mean for social enterprise and impact investing? Not Only for Profit is talking to a variety of key players for their insights.
How are investors and entrepreneurs in sub-Saharan Africa addressing the challenges they face? For answers, we talked to Lauren Cochran, a managing director at Blue Haven Initiative, whose primary focus is on that region.
Launched in 2012 by Liesel Pritzker Simmons and Ian Simmons, Blue Haven was one of the first family offices dedicated 100% to impact investing. Active in emerging markets and in the U.S., it makes direct investments in mission-driven, early-stage companies and projects focused on creating economic opportunity, improving standards of living and delivering products and services to under-served communities.
Here’s what Cochran had to say:
Can you tell us about your responsibilities?
Most of my day-to-day work is running our direct investment portfolio, a $50 million carve-out focusing on early-stage startups in sub-Saharan Africa. We have nine portfolio companies, mostly headquartered in Nairobi or Lagos. We’re investing anywhere from $250,000 to $7 million to $8 million in a company over time.
What have you been doing to help your portfolio companies? And how has that evolved?
Around mid-March, we set up phone calls with all of our companies to see how they were doing. People felt it hadn’t quite gotten to Africa yet. It was almost like we were calling from the future, asking if everyone was working from home. We said we understand you’re behind us, but we would strongly encourage you to work from home sooner than later. And where people have to be in the office—how are you going to protect them? You need at a minimum an account where they can take a private car to work. These cities get really crowded.
People thought we were being crazy. By the following week, we seemed less crazy. And then everybody started working from home. Now, very essential employees are being asked to go to the office. For example, we just made an investment in a company that helps pharmacies manage their inventory. They manage thousands of SKUs. That group has taken specific measures, putting up hand washing stations in all their pharmacies, making sure people have the right PPE.
In our first discussions, we went through a checklist. Are your people safe? Are they working from home? How are you protecting them? What’s the financial outlook and what are you going to need? Are there ways you can continue to make revenues? We discussed what happens if you lose 50% of your revenues tomorrow?
We think about what our businesses would look like in a recession, regardless of the timing. But we haven’t looked at a recession that takes hold and wipes out your revenues in 10 days. The rapidity of this is alarming and tested any plan we may have had as to how these businesses would do.
Now I would say our guiding principle is how to keep your teams intact. We’re hoping that economic activity will come back by early next year. And we want out teams to have the resources they need to be well-positioned when a rebound happens. We’re thinking through costs, for example, paying rent upfront for steep discounts. Are the founders and management in a position to take a pay cut? I’m trying to touch base with everyone once a week to see what’s changing, what kind of emergency funding they need.
Where do you see particular challenges?
We have a pretty big exposure in the pay-as-you-go solar market with a consumer-facing asset financing model. They build and design systems that provide lighting. There’s an embedded SIM card that allows people to pay remotely once a day. These are the type of models where, if payment from consumers slows down, they quickly can have issues with their balance sheets. They have complicated balance sheets and take on a lot of debt. An industry association and some investors have set up an emergency financing fund to provide long-term, low-interest financing. It’s a very concessionary fund.
What we’ve found is, it’s true in good times and when businesses struggle—culture matters. If people take a pay cut to keep the team intact, you need to have a really strong culture to do that. One of the things we look at in our entrepreneurs is how they think about their people. Hopefully, they’re not just seen as revenue generators—they’re actual people—and everybody feels they want to see the business survive as much as they need to get paid. You need to focus on the culture and continue doing that as people work remotely.
But that’s an extra challenge because our companies have bandwidth constraints. Not everyone has reliable Internet or even reliable electricity. So it’s important to check in one-on-one. Taking time even more than usual asking people how they’re doing, especially because a lot of people are alone.
Most of our companies are at a good point in the fundraising cycle. They’ve recently closed rounds. The challenges from a funding perspective won’t come until the end of the year.
Are you planning to make new investments?
We recently committed money to Open Road Alliance (a philanthropic initiative that serves the social sector), which has a lot of experience supporting companies that go through sudden existential shocks. We thought it better to support a group that has proven success than to build our own financial product.
We’re actually talking to some new companies. We have cash left to deploy. For a long time, we wanted to do more investment than we’ve done, but felt valuations were a bit out of whack. We feel this will be a buying opportunity, particularly in healthcare businesses. Because we’ve been disciplined in the boom years, we’re not afraid to continue to invest.
But when companies need money, it’s important not to look at 2020 numbers in a vacuum. We hope to hold ourselves to that standard.
A lot of folks we’re talking to are people we’ve known for a long time. It would be really tough to make an investment where we haven’t visited or met the founders in person already. Though I’m sure by the end of this, we will get to know people a lot better on Zoom.