Member: Elevar Equity
Executive: Johanna Posada, Founder & Managing Director
News Coverage: Search LAVCA
LAVCA spoke with Johanna Posada, Founder & Managing Director for Elevar Equity about the opportunity for investing and exiting impact in Latin America and LP priorities when committing to an impact fund.
LAVCA: Please provide some background on Elevar Equity What opportunities in emerging markets initiated Elevar’s inception and strategy?
Johanna Posada: Elevar Equity is a venture capital firm that manages over US$166 million in AUM, has made investments in 29 companies across seven countries and, through its investing period, has been involved in all stages of a company’s lifecycle. Elevar focuses on the entrepreneurial vibrancy of low-income communities and fuels their economies by supporting companies that deliver high quality, affordable services (i.e. financial services, agriculture, education, healthcare and housing). At the core of Elevar’s investment approach is the observation that every community and individual has intrinsic economic and social value. Our companies have reached over 20 million underserved customers in low-income communities.
LAVCA: Your latest fund targets India and Latin America, where do you have offices in Latin America? How does your work in the region compliment what you are seeing in India?
Johanna Posada: Elevar expanded its efforts into Latin America with the establishment of an office in Bogota, Colombia, in 2015 and leverages the knowledge and business model discovery from one part of the world to another. In the 10 plus years of investing, Elevar has seen this customer base evolve, in terms of their needs, aspirations and expectations, as economic opportunities have become available to them. In Elevar’s experience, customer requirements and company business models are oftentimes transportable to markets that have similar needs but do not have nearly as much investor competition. This visibility in India and ability to disseminate that knowledge to new geographies is a unique competitive advantage for Elevar.
LAVCA: As an emerging markets impact fund, what types of institutional investors make commitments? Do you have local and international LPs? What priorities do LPs have when investing in an impact fund?
Johanna Posada: Elevar seeks capital from limited partners that are aligned with its human centered approach; investors who understand that the risk-reward calculations are based on an inherent link between customer value, affordable business models, scale and returns. To date, we have been able to crowd in a range of investors from individuals and family offices to pension funds and endowments all entering with a balance mission of return and impact. Our investors historically have been majorly based in the US. Investors in our most recent fund include the Rockefeller Brothers Fund, Oblate International Pastoral Investment Trust, JPMorgan Chase & Co., Omidyar Network, Prudential Financial Inc., the Rockefeller Foundation, Blue Haven Initiative, Treehouse Investments as well as family offices, private foundations and a university endowment.
LAVCA: You closed your third fund in late 2015 with US$74m. Did any of the LPs from your first two funds invest in your third fund? How did you build relationships with new LPs? How much of this fund has been deployed? Do you have plans to raise a fund in the near- to mid-term?
Johanna Posada: Yes, we had several investors from Fund II come into Fund III. The expansion of our LP base for Fund III was largely linked to the nurturing of relationships over the years and greater momentum developing in dedicated pools of impact oriented capital. Wealth management channels started becoming a channel for capital raising, a new dynamic compared to the Fund II raise process. To date, we have deployed 65% of Fund III and have reserved the remainder for follow-ons. Yes, we do have plans to continue to scale the Elevar Method of investing.
LAVCA: What types of companies are most attractive in Latin America and why? What markets have you committed to in the region to-date? What markets are you keeping an eye on?
Johanna Posada: We specifically focus on companies seeking early stage financing and looking to raise a Series A with an average capital need of US$2 million. We are particularly interested in companies within the financial services industry and those business models that tap into financial service adjacencies with a focus on specialized lending and/or technology enabled focuses. We have also been watching the education sector and various models that focus on the delivery of effective content and ultimately increasing access to our targeted customer base. Lastly, business models that provide services and increase the productivity of MSMEs across the region. We are committed to the major markets across Latin America with an increased focus on Argentina, Mexico and Peru.
LAVCA: In addition to the types of companies you target, what types of entrepreneurs are most attractive? Do you look for a certain level of experience? What makes those you invest in stand apart?
Johanna Posada: Elevar commits a substantial amount of time to building entrepreneur relationships based on mutual trust and understanding. The entrepreneurs from our prior fund’s portfolio companies are seasoned, long-term professionals averaging 15 to 20 plus years of prior professional experience and most have held C-level positions in their prior careers. We typically focus on those that have demonstrated motivation to improve the welfare of their customers by building customer-centric organizations and have a high level of comfort and focus working in low-income communities and engaging directly with target customers.
We look for extensive operationally experienced and execution-oriented backgrounds with a vision and ambition to scale their enterprises.
LAVCA: How do you see fintech and financial inclusion startups making an impact in the region? Can you describe your investment in Credijusto and how Elevar has contributed beyond just financially?
Johanna Posada: In our view, proximity to and a deep understanding of our customer’s need enables a deeper understanding of what business innovations are required to build a high value and cost-efficient distribution channel. We see technology enabled solutions as a way to address affordability, access, data asymmetry and, thus financial penetration efficiently. For example, Credijusto fills an important capital access gap in the MSME market by leveraging technology and data (e-invoicing), improving processes and unlocking collateral value for MSMEs, while also providing competitive rates and timely loan decisions.
Beyond our pre-series A investment into the company, we are working with the team to establish best governance practices, fostering new debt relationships and preparing for the Series A equity raise.
LAVCA: How often is Elevar co-investing versus making standalone commitments? What benefits are there to a co-investment structure?
Johanna Posada: We lead transactions and strategically syndicate other investors to bring in complementary expertise or experience. For example, we co-invested with IFC into Afluenta to leverage their deep regulatory experience as we thought about pan-regional expansion plans for the company’s future. When there is alignment and complementary strengths as the foundation of the co-investment structure, there is a significant amount of potential for success for the company.
LAVCA: What is the exit environment like in LatAm for your portfolio – how do you generate exits and liquidity for your investors? Please describe some exits you have made to date.
Johanna Posada: As an active investor in the region, we see ourselves continuously focused on the exit process for our companies. Success depends on relationships and networking. Over the past few years, the PE/VC ecosystem has also improved significantly and as new investors come into the region, we see exit activity increasing. We recently had a successful exit out of from our position in Caja Los Andes, a leading, profitable, deposit-taking, and regulated microfinance-focused bank with operations in Peru. Los Andes was backed by our second fund and the Peruvian Development Group, as well a group of professional individual investors. In 2016, Creation Investments Capital Management acquired a majority stake in the company, providing us a successful and profitable exit.
LAVCA: Have you noticed an increase in impact funds in LatAm in the last decade? What do you think is motivating this?
Johanna Posada: Although we have not seen an increase in newly formed dedicated impact strategies across the region, we are seeing an increase in activity from existing country specific funds. Several of them are starting to either position themselves as impact funds or are actively dabbling with allocations into businesses targeting solutions in impact oriented sectors. We believe this is driven by an increased awareness of the commercial opportunity in these sectors and within this customer base.
LAVCA: Why did you join LAVCA?
Johanna Posada: We joined LAVCA primarily to collaborate and contribute to the building of the PE/VC ecosystem across Latin America. We also value the industry exposure and potential for relationship development that LAVCA fosters. Some additional benefits include learning about new players and their investment strategies which also helps when looking for co-investors and partners for our portfolio companies and having access to industry wide data.