When Dr Andrew Kuper was set to launch LeapFrog Investments a decade ago, the thesis of impact investing was solid, if unproven. He had created an equity fund whose objective was to make investments in underserved markets that generated positive social outcomes and strong financial returns. Kuper saw that the rollout of mobile phones had the power to unlock an additional four billion consumers in emerging markets. He wanted to deliver financial products that would help change their lives.
The South African-born entrepreneur (who is married to Australian human rights lawyer Bassina Farbenblum) had assembled the best minds he could find as partners — and former US president Bill Clinton to launch the venture. With billionaire global investor George Soros on board as one of the first investors, it looked good — except for the GFC unfolding around them and Kuper having to raise more than US$100m from investors.
At a glance
LeapFrog invests more than $1b in 17 companies, which employ more than 114,000 people and reach 111 million people, 93.8 million of whom are low-income or undeserved.
“We launched on September 22, 2008, a week after Lehman Brothers collapsed,” Kuper says. “While people were carrying their boxes out of the building, we were launching something focused on emerging markets and utterly new in its team, language and approach. People think it’s glorious to be a pioneer, but at the time, the headwinds were tremendous.”
LeapFrog aimed to build an institutional-quality, world-class, at-scale, equity investment system that would generate enviable returns — and do a lot of good. Kuper reasoned that growth in established markets sat at around two per cent, while growth in emerging markets was two or three times that. Growth in healthcare and financial products in those markets was two or three times that again, so those sectors could provide a potential return of 16 to 17 per cent.
LeapFrog’s counterintuitive approach, which saw huge value in low-income or underserved consumers, has helped raise the profile of impact investing worldwide. It takes equity positions with successful companies that help it deliver affordable financial products like insurance and health services to excluded parts of the community. For example, AllLife in South Africa provides life insurance to HIV sufferers; BIMA supplies mobile insurance to 24 million people in Asia, Africa and Latin America.
A decade on, LeapFrog has more than $1b of investment and large corporates as investment partners. Its portfolio of 17 companies provides insurance, savings, pensions and credit products to 111 million people. With an average revenue growth of 23 per cent and a profit growth of 43 per cent last year, LeapFrog sits at fifth spot on Fortune magazine’s “Change the World” list.
Guided by strategic insights from its “stellar” advisory board — which includes Purpose.com founder Jeremy Heimans and the vice-president of Ashoka, Valeria Budinich — Kuper and his partners established a set of investment and social metrics at the outset for where they would work and where they would invest. They focused on creating teams of people with deep knowledge of the target markets, including former CEOs and CIOs. Working on the principle that “you can’t solve for local without being there, on the ground”, a distribution model was established that sees LeapFrog offices in South Africa, Nairobi, Lagos, London, Singapore, New York and Sydney. That local talent allows it to see risks and opportunities before others do.
“We get opportunities others don’t. Most emerging markets funds have a very high dependence on advisors to send them deal flow. Of our deals, 89 per cent are proprietary [sourced from their own network of people on the ground]. That’s a function of having a deep commitment to local knowledge and local networks.”
To maximise this geographically diverse talent pool, Kuper says, three things are essential:
- Energy — “Look at where your personal source of energy comes from, what inspires you on a daily basis. For me, it’s emerging consumers and seeing great team members come through the ranks.”
- Trust — “Build a high level of trust with your partners, and a lot of autonomy — but with accountability. You have to trust, enable and then hold accountable a diverse set of team members. Micromanaging a global enterprise is a disaster I’ve always tried to avoid.”
- Celebrate success — “LeapFrog has made significant leaps at certain times, which have attracted the next set of individuals, the next companies to invest in, and the next investors.”
Entrepreneurs, by definition, always have another mountain to climb, but Kuper is trying to pace himself. “I’ve learned to stop and celebrate not only getting to the top of the mountain, but also the people who got us there.”