BRIEFING BOOK Data Information Knowledge WISDOM JACQUELINE NOVOGRATZ Location: Forbes, New York, New York About Novogratz .............................................................................. 2 Debriefing Novogratz ......................................................................... 3 Novogratz in Forbes "How A Sweater Changed My (Business) Life,” 04/06/09....... 10 "Saving The World, One Loan At A Time," 03/26/09…………. 13 “Thinking Big – And Small: Jacqueline Novogratz," 11/24/08. 15 "The New Activist Givers," 06/01/08........................................ 16 "Can Corporations Save The World," 11/28/06....................... 20 The Novogratz Interview ………………………………………………… 24 ABOUT JACQUELINE NOVOGRATZ Intelligent Investing with Steve Forbes Jacqueline Novogratz is the founder and chief executive officer of Acumen Fund, a non-profit global venture fund that uses entrepreneurial approaches to combat global poverty. The firm uses philanthropic capital to invest in scalable businesses that serve poverty-stricken people with goods and services, such as clean water. Acumen Fund has offices in New York, India, Pakistan and Kenya. Novogratz began her career in international banking at Chase Manhattan Bank and she also founded Duterimbere, a micro-finance institution in Rwanda. Before founding Acumen Fund, Novogratz founded and directed The Philanthropy Workshop and The Next Generation Leadership program at the Rockefeller Foundation. Novogratz currently serves on the Board of the Aspen Institute as well as the advisory councils of Stanford Graduate School of Business and MIT’s Legatum Center. She is currently an Aspen Institute Henry Crown Fellow, sits on the advisory councils of Stanford’s Graduate School of Business and MIT’s Legatum Center and is a Synergos Institute Senior Fellow. Novogratz received the 2009 CASE Leadership in Social Entrepreneurship award, AWNY’s 2009 Changing the Game Award, and the 2008 Entrepreneur of the Year award from Ernst & Young. She has spoken at several international conferences including the World Economic Forum, the Clinton Global Initiative and TED. Her current book, which came out March 3, 2009, is The Blue Sweater: Bridging the Gap between Rich and Poor in an Interconnected World . Novogratz graduated from the University of Virginia with the bachelors degree in economics and international relations. She later earned her MBA from Stanford University. - 2 - DEBRIEFING NOVOGRATZ Intelligent Investing with Steve Forbes Interview conducted by David Serchuk 5/13/09 Forbes: How well does microfinance work in tandem with government aid? Where do they galvanize one another, where are they antagonistic to one another? Well, first, it’s important to note that we don’t actually do microfinance. So if you want to talk about microfinance we can. But essentially, it [Acumen Fund] makes investments from $300,000 to $2 million, which is not your typical $30 to $100. Yeah, that’s not micro . Our whole focus is on using what we call patient capital, recognizing that charity alone doesn’t solve problems of poverty, nor does the market alone. The idea with patient capital is that we can take money, invest it in enterprises that are delivering water, helping with healthcare to low-income individuals, and then re- measure the change both financially and from the social perspective. And you’ll see, they report back successes and failures. The idea with patient capital is we will have asked for much longer periods of time, and expect much shorter returns, and accompany the investment with a lot of management assistance. One thing you had said is that very few entrepreneurs know how to reach emerging markets and get them the products they truly need for a better quality of life. Why is this, and what is the Acumen Fund doing to encourage this migration of ideas and entrepreneurship? Well, I’m not sure that I said very few entrepreneurs, but more that the market doesn’t recognize the potential of very, very low income markets. And the reason is really straightforward. Actually, it’s really hard. There’s a lack of distribution channels, high levels of corruption, horrendous roads and often non-existent infrastructure. And, maybe most important, you’re dealing with markets with individuals who maybe make $1 to $3 a day. And so the only way to do this effectively usually is with a fairly significant, upfront investment and building any demands whatsoever, and then providing services and products at extremely low margins with the necessity of reaching high volumes of individuals. So it’s really hard markets to figure out, to penetrate. To complicate that, we work in the basic services, like healthcare, water, housing. Especially if you’re looking at any area like health, for instance, there is often a level of subsidy that is required to make the whole thing work. And certainly health prevention, whether you’re looking at vaccines, clean water, anything that makes for a better quality of life. Human beings tend not to spend money health preventionally. We tend to spend it on top treatment. - 3 - Clean water remains the largest international health issue. The UN spends $13 billion on this annually yet over a billion people remain without any real access to clean water. What is your approach to this problem, and what real successes have you had? I totally agree with what you’re saying. What’s frustrating is that typically … [some] individuals take the stand that water is a human right and it should be given out for free. Or water is a scarcity with us and should be priced accordingly. And our approach is to say, these conversations can only get us so far, we need to experiment, we need to innovate, and we need to learn from those experiments undertaken. So in 2004 we invested $600,000 in equity into a company called Water Health International, which is a fairly simply ultraviolet filtration system that it sells at the local village level, either to the panjaya, which is a local government entity, or to an individual entrepreneur. Basically in addition to the money, we’ve provided a lot of national support. In the beginning, inputting health information was a job itself. We also use our patient capital to encourage the commercial banking sector to lend into those local areas, either to the entrepreneur or the panjaya, so that they can buy these systems in the first place. We put up our first loss guarantee to the banks using our high risk launch capital eventually and we’ve seen over the years that we were much too conservative in the beginning and have been able to negotiate a second first loss guarantee at half, where we have to take only 15%, not 30% of the potential loss. And thus far there’s been no money drawn down on the guarantee. Today, Water Help International serves over 350,000 paying customers in over 200 villages. And so, we have a model that we know can be sustainable, that we know can scale, and now we face a whole different set of choices around supporting the government, I mean, supporting the company to help the government to see if there are possibilities for outsourcing. Using it as a model for replication in other countries, in other areas, and using the company to scale itself. But over time, the idea is we will, actively somewhere in a laboratory, we will create these models and we will show the world there is a better way of doing international development. And water just remains a hard way to make money. There are water ETFs, but those don’t seem to be doing too great, and human beings are talking about selling water now. It’s been called the next oil. It’s a big deal what’s going on in water. And at the same time are you obligated to make money from these things or is it certainly enough to get the water out to a lot of people and then start to build things? How long can you sustain losses on a project like trying to get clean water out before you have to try something else? - 4 - Well, many of these villages are operating sustainably. It is very hard to make money but this is where we have more options at our disposal than we have used our latter imagination to embrace. One, there are examples where, and Water Help International happens to be one of them, where we’re starting to see real sustainability when it comes to selling water to low-income families and neighborhoods in a way that covers costs. This is tricky, because if you actually go into the urban areas, you’ll often find people paying 40 to 50 times what the middle class would pay for that same, clean water. So some people make a lot of money selling water to poor people. Will that scale? I hope not. What we’re looking at, innovations that don’t have to be worldly possible, but somehow have to cover their costs in a way that is sustainable and can be monitored for the long-term. So in some cases it may be that the system itself will pay for itself. In other cases, it may be that by selling all or a portion of the water, even at subsidized levels, we can look at government participation with a private sector entity and find more efficient, effective, low-cost ways to deliver clean water to many, many people. And that’s really the idea. We have different resources at our disposal as a world. What we need is greater accountability and real focus, a thoughtful focus on both efficiency and effectiveness. Should water be thought of as a commodity or a basic human right? How do you square that circle that doesn’t seem to want to be squared? But you know, of the hard questions of what it means to be a human being, are not usually squared.