Venture Capital for MicroFinance: Chris Brookfield (Part 3)

The makeup of a private equity fund can be telling. Chris highlights the composition of the Unitus fund.

SM: What is the source of the Unitus equity fund? SB: We have four equally significant investors. A quarter of our capital is provided by Omidyar Networks and Pierre Omidyar. A quarter is provided by an excellent group of socially responsible investors who are all connected to a progressive firm in Los Angeles called Abacus Wealth Management. An additional quarter is provided by friends of Unitus. The last quarter is a group of investors who, as a group, are all founders of some of the most significant investing institutions in the United States including founders of three of the largest venture capital firms on the west coast and the founder of one of the three largest private equity firms in the world. These are people who came in as professional investors but have an interest in what we are doing on the development side as well.

SM: How large is the Unitus equity fund? CB: It is $23 million.

SM: With that you financed SKS as one of the first investments two years ago. In your investors’ and in Unitus’ perspective, is this a philanthropic exercise or is this a real venture-style investment? CB: I don’t know how to answer that. It is a hybrid between traditional commercial structures modified to be complimentary to a social development agenda and be pro-consumer and pro-community. I have been a professional investor for my whole career, so when I joined, one of the things I needed to get clarity on were the objectives. The fund is managed very similar to the way we managed my last venture capital firm, and certainly uses many of the same principles.

SM: The reason I ask this question is that there has traditionally been concern around the scalability and the profitability of Microfinance institutions. Compartamos has been able to deliver scale (over 600,000 borrowers in 2006) and profit (by charging high interest rates), resulting in a successful IPO. [“The existing investors received about $450 million for 30 percent of their shares, which represents more than 12 times the book value of those shares. This implies a market valuation of the company at over $1.5 billion, and an internal rate of return on the selling shareholders’ original investment (about $6 million) of roughly 100 percent a year compounded over eight years.” – CGAP report.] However, Compartamos has been criticized for its high interest rates.

[to be continued]

[Part 2]
[Part 1]

This segment is part 3 in the series : Venture Capital for MicroFinance: Chris Brookfield
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