Nancy Widjaja

Article

We, Accion Venture Lab, are by definition an impact investor. Our overarching goal is to invest in and provide support to seed-stage innovative fintech startups that increase access to, improve the quality of, or reduce the cost of financial services for underserved customer segments at scale. Grounded by this intention, our first and foremost step in screening for a prospective investment is to diligently assess the company’s potential in creating such impact. If our impact considerations are satisfied, we then move to carefully assessing the returns potential of the business. We only proceed with full-on due diligence if we see a strong promise of both impact and returns. Finding companies that we think can generate both is not a walk in the park, but we have yet to find ourselves in a situation where we need to consider trading one for the other.
We were therefore intrigued by Mara Bolis and Chris West’s take on the state of impact investing, <a class="markup--anchor markup--p-anchor" href="https://ssir.org/articles/entry/marginalized_returns" target="_blank" rel="noopener noreferrer">“Marginalized Returns”</a>, on SSIR that impact investing has been inundated by a false narrative that there is no tradeoff between social impact and financial returns. Our experience so far has given us a more nuanced perspective on this. We have seen that both social impact and financial gains can indeed go hand in hand. Last year we made two successful exits from <a class="markup--anchor markup--p-anchor" href="http://varthana.com/" target="_blank" rel="noopener noreferrer">Varthana</a> and <a class="markup--anchor markup--p-anchor" href="https://clip.mx/" target="_blank" rel="noopener noreferrer">Clip</a>, startups that not only scored on our financial impact goals but also delivered “market-rate” returns.
We share Bolis and West’s sentiment that while impact investing offers a spectrum of financial and social returns, too many impact investors have predefined expectations of financial return that are both too high and too short term. However, we believe that the question should not be whether setting certain financial returns target means that social returns need to be sacrificed.
Here are a couple of our thoughts:

<h3 class="graf graf--p">Impact investing is not one big monolith of an asset class</h3>
It’s worthwhile to note that impact investing is a nuanced space instead of a one-dimensional initiative. Stage, geography, sector, and other factors play a key role in determining potential impact and financial returns. The earlier the stage you invest, the riskier it is, and the longer the expected returns would be. Some sectors, such as education, are inherently more complex. Investing in a startup in South Sudan would present different economics than investing in one in Mexico. We commend Omidyar Network’s thoughtful <a class="markup--anchor markup--p-anchor" href="https://ssir.org/articles/entry/across_the_returns_continuum" target="_blank" rel="noopener noreferrer">Returns Continuum</a> framework that helps the breakaway the conversation from impact-returns tradeoffs.
We see a need for the industry to move away from a single umbrella to define impact investing and to develop and agree to a better framework to define the multi-dimensional nature of the space.

<h3 class="graf graf--p">Impact investing is still at a nascent stage — and so is the way we evaluate its performance</h3>
Being relatively nascent, impact funds have been raised based on GPs’ own narratives rather than vintage performance. Our northern star so far has been “market returns”, while many actually still struggle to define what that means or how that is applicable to them. How do we think about what is actually an “acceptable” rate of return for different types of investments — and how do allow for room for a figure to percolate up and down? How does the market hold funds accountable while there is there is little benchmark information?
The notion of a “subsidy”, a factor that also determines the rate of returns, is also a nuanced one. Our beyond capital support for our portfolio, ranging from bespoke strategic projects on developing a credit risk process to fundraising advice and strategic communications support, could be categorized as a “subsidy” — although for us it’s a way for us to enhance a company’s chance of success and generate returns.
We agree with Wharton Social Impact Initiative’s <a class="markup--anchor markup--p-anchor" href="https://socialimpact.wharton.upenn.edu/wsii-news-thoughts/impact-investing-seduced-thats-one-hypothesis/" target="_blank" rel="noopener noreferrer">Nick Ashburn and Katherine Klein</a> that there isn’t yet enough rigorous research to refuse or to refute Bolis and West’s hypothesis. Today, there is still not much public data available on impact funds’ portfolio-level performance, and we are fully behind the assertion that there needs to be a greater transparency in reporting social and financial returns.

<h3 class="graf graf--p">Shifting the perception: Acknowledging that the underserved can be a profitable customer segment and that technology enables new business models to better serve them</h3>
In our effort to provide better access to financial services for underserved segments, we try to move away as much as possible from the timeworn perception that they are a destitute population in need of a helping hand. Instead, we see them as an empowered population with needs, wants, preferences, and drive to improve their wellbeing. These customers represent real market opportunity waiting to be tapped. We hold this view against the companies we invest in. A company’s keen understanding of their target customers and how they come up with innovative solutions to serve these customers’ needs and solve their persisting pain points in a way that is significantly better and attainable is what is most appealing for us. Unilever made a big breakthrough in emerging markets by <a class="markup--anchor markup--p-anchor" href="https://hbr.org/2016/12/how-unilever-reaches-rural-consumers-in-emerging-markets" target="_blank" rel="noopener noreferrer">offering low-cost, single-use sachets</a> of consumer goods such as shampoos and deodorants that were previously too expensive for the rural populations.

We see a similar wave of innovations going on within financial services, and they are particularly driven by the advancements of technology and connectivity. Across the world, fintech startups and other financial services actors are taking advantage of the rapid adoption of mobile phone, digitization, the increased capacity of computing power, and so on, to come up with solutions that enable them to offer savings, credit, payments, and insurance to previously excluded customer segments in a way that existing players weren’t able to. In Kenya, <a class="markup--anchor markup--p-anchor" href="https://apolloagriculture.com/#home" target="_blank" rel="noopener noreferrer">Apollo Agriculture</a> uses remote sensing technology, data science, and mobile money to more efficiently and affordably finance the fertilizer and seeds that smallholder farmers need to increase crop yields. In Mexico, <a class="markup--anchor markup--p-anchor" href="https://konfio.mx/" target="_blank" rel="noopener noreferrer">Konfio</a>’s entirely digital platform allows for low-cost customer acquisition and rapid credit assessment which enables the company to offer lower rates for micro and small business loans compared to traditional brick and mortar lenders.

Coming up with an offering with a strong value proposition that is affordable for underserved customers while making the economics work well for the company is not an easy feat. But this ability is what differentiates game-changing innovators from the rest of the pack, and for scalable impact to be achieved. Over the three years of us making active investments, we have reviewed over 1,300 potential deals and have only invested in 31.
<h3 class="graf graf--p">Broadening the definition of impact</h3>
We question the definition of a “social enterprise” and the notion that only companies with such label are able to generate social impact. Many of our companies probably don’t see themselves as a social enterprise, but we invest in them because we believe in the inherent value of their offering for underserved segments. We also view impact achievement as beyond solely impacting end-customers’ well-being. How a company’s innovation can help us learn, raise a broader awareness, or influence other stakeholders is meaningful to further drive the sector.
Instead of the ever-percolating question of whether there is a tradeoff between impact and returns, we strongly believe that such binary view is not helpful for the industry. Rather, we’d like to engage actors in the space on thinking further of how we can create an industry-level spectrum of both impact and returns achievement — while being mindful of the wide variety of initiatives in the space.

The many shades of impact and returns

[caption id="attachment_7915" align="alignnone" width="1024"]<a href="https://www.facebook.com/4uno.org/videos/1295081240538091/"><img class="wp-image-7915 size-large" src="http://blogs.accion.org/wp-content/uploads/2017/09/catalyst_fund_quote_1_update-1024x576.png" alt="Catalyst Fund lessons" width="1024" height="576" /></a> Miguel Duhalt, CEO of Comunidad4Uno in Mexico City[/caption]
When we met Miguel Duhalt, CEO of <a class="markup--anchor markup--p-anchor" href="https://4uno.org/landing" target="_blank" rel="nofollow noopener noreferrer">Comunidad4Uno</a> in Mexico City, he was working day and night to launch a company that sought to change the financial lives of domestic workers. His goal was building a platform that could offer financial services such as insurance, direct payments, and bank account access to low-income domestic workers in Mexico. With Comunidad4Uno, people who employ domestic workers in their homes would be able to sign up for the service and, with a small annual fee, insure their domestic workers and give them access to medical check-ups. They would be able to pay their employees electronically via a smartphone app into a newly-opened bank account. Leveraging technology and the personal relationships between workers and employers, Miguel wanted to formalize access to insurance and other financial services for domestic workers in Mexico.
But to achieve his ambitions, Miguel needed two things: to raise enough capital to take his enterprise off the ground and to validate his idea in the market with more users. Like many other startup founders, he faced a Catch-22. Investors wanted to see traction and a proven business model before endorsing his company, but his small team had a hard time focusing on reaching proof points because they needed to raise capital to keep the lights on. Raising seed funding is particularly challenging in Mexico and many other emerging markets. Moreover, challenging regulatory environments, inefficient infrastructure and connectivity, costly supply chains, and consumer distrust add to the operational difficulties.
So Miguel, like other talented entrepreneurs, needed to find an aligned investor who could look beyond quick financial returns and help meet important milestones to attract institutional funding at a later stage.
Catalyst Fund: Catalyzing investments in inclusive fintech
This is where the <a class="markup--anchor markup--p-anchor" href="http://www.catalyst-fund.org/" target="_blank" rel="nofollow noopener noreferrer">Catalyst Fund</a> came in. Catalyst Fund is a $2 million program of <a class="markup--anchor markup--p-anchor" href="http://bfaglobal.com/" target="_blank" rel="nofollow noopener noreferrer">BFA</a>, funded by the Bill &amp; Melinda Gates Foundation and JPMorgan Chase &amp; Co. <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/how-we-work/invest/accion-venture-lab/" target="_blank" rel="nofollow noopener noreferrer">Accion Venture Lab</a> is a founding member of the Fund’s Investor Advisory Committee. It aims to help ‘pre-seed’ inclusive fintech startups like Comunidad4Uno address barriers to early venture development while demonstrating how the financial products and services of these ventures can serve and benefit underbanked customers. Investees receive grants up to $100,000 (no strings attached), tailored technical assistance, and mentoring from a group of impact and mainstream investors.
One year down the road, Catalyst Fund has provided grant funding and technical advice to 10 investees. Investees’ innovative business models range from insurance and payment services in Mexico, to pay-as-you-go gas cooking stoves in Kenya, to a peer-to-peer lending insurance platform for low-income farmers in Ghana, mobile-based micro-credit for middle and low-income households in India, to alternative credit scoring in Chile.
What we learned about how Catalyst Fund best supports startups
We want to arm our Catalyst Fund investees with the data points they need to prove to their next round of investors that the risks they are being asked to take on are commensurate with potential returns. To do so, we help startups reduce a number of risks typical of early-stage ventures, such as value proposition risks, execution risks, financing risks, and technology risks. Of course, developing our approach to technical assistance and mentoring has been a process. We built on initial ideas and continually refined what kind of support was most appropriate. Here is what we learned so far.
<img class="alignnone wp-image-7917 size-large" src="http://blogs.accion.org/wp-content/uploads/2017/09/catalyst_fund_quote_2_blue-1024x576.png" alt="There are no cookie-cutter solutions" width="1024" height="576" />
There are no cookie-cutter solutions to make startups investment-ready — tailor-made and hands-on support works best in the early days. At the outset, we run through a risk framework to identify which risks the company is facing and how we can best support them. Do they know their customers well enough? Is their technology solid? Is the team capable of executing and working efficiently together? Getting to “key milestones” and reaching proof points means different things for various startups and business models, and they uniquely require myriad resources and support to do so. Some examples of our tailored support include:

<ul>
 	<li id="ee63" class="graf graf--p graf-after--p">Perfecting the startup’s technology by <a class="markup--anchor markup--p-anchor" href="http://bfa.works/medium-worldcover" target="_blank" rel="nofollow noopener noreferrer">crafting product and service roadmaps</a> and <a class="markup--anchor markup--p-anchor" href="http://bfa.works/medium-paygo-CTO" target="_blank" rel="nofollow noopener noreferrer">sometimes serving as interim CTOs</a></li>
 	<li id="3f34" class="graf graf--p graf-after--p"><a class="markup--anchor markup--p-anchor" href="http://bfa.works/medium-escala" target="_blank" rel="nofollow noopener noreferrer">Identifying opportunities for behavioral nudges in their customer journeys</a></li>
 	<li id="8a5d" class="graf graf--p graf-after--p"><a class="markup--anchor markup--p-anchor" href="http://bfa.works/medium-destacameML" target="_blank" rel="nofollow noopener noreferrer">Testing the performance of machine learning algorithms</a></li>
 	<li id="8585" class="graf graf--p graf-after--p"><a class="markup--anchor markup--p-anchor" href="http://bfa.works/medium-worldcover" target="_blank" rel="nofollow noopener noreferrer">Building customer service blueprints</a></li>
 	<li id="a695" class="graf graf--p graf-after--p"><a class="markup--anchor markup--p-anchor" href="http://bfa.works/medium-trust" target="_blank" rel="nofollow noopener noreferrer">Engendering customer trust</a> by integrating elements like transparency and proper data management</li>
</ul>
Startups are better positioned to take advantage of Catalyst if they have already piloted with at least one client and generated initial data for analysis. We help startups run lean startup experiments as early as possible to validate learning, even with very rudimentary value propositions. We’ve worked with companies to identify the best market fit for their product or conduct early customer discovery to refine their core offering and communication strategy. With Comunidad4Uno, for example, we visualized core customer personas, building each customer journey and tweaking the product, marketing, and user experience for each persona.
B2C and B2B startups exhibit different operational models, requiring different technical support and knowledge resources. Creative partnerships are emerging that leverage the respective strengths of incumbents and innovators. But companies need support on how to best forge successful partnerships. Accion Venture Lab created a primer to advise B2B startups on forming partnerships with banks (see <a class="markup--anchor markup--p-anchor" href="https://www.accion.org/venturelab/resources" target="_blank" rel="nofollow noopener noreferrer">“Enterprise Sales for Fintech Products and Services”</a>). For investee ESCALA Educación, which provides long-term savings plans for higher education tailored to lower and middle-income individuals in Colombia, we helped think through what financial services partner would be best for a painless customer experience and for their long-term business goals. For Atikus, we helped build an ROI simulator to show microfinance banks in Rwanda the value of using the Atikus loan management platform and worked on KPIs to track bank performance over time.
Given the common challenges faced by many of our startups, we are now also packaging what we learned into practical <a class="markup--anchor markup--p-anchor" href="https://www.cftoolkit.org/" target="_blank" rel="nofollow noopener noreferrer">toolkits designed for early-stage companies</a>. These toolkits help management teams think through how to build trust with low-income customers, how to manage their internal and external risks and how to achieve product-market fit in emerging markets.
So, has it worked? Has Catalyst Fund’s combination of philanthropic capital and TA been enough to make our startups investment-ready?
The $100,000 grant seed funding, coupled with the tailored technical support, makes a big difference in the trajectory of a startup at this early stage. It helps keep the lights on and allows the management team to focus on running the startup and gaining traction. Catalyst Fund’s investees have been using the capital to reach important milestones, ranging from hiring a capable sales team to financing data collection efforts or pilot projects. While we’re flexible about how the funding is spent, we fully expect each investee to have a clear, transparent plan on the use of the grant capital. Moreover, funding is connected to certain milestone achievements, in conjunction with the TA plan.
And some startups have quickly received follow-on investments. <a class="markup--anchor markup--p-anchor" href="https://www.destacame.cl/" target="_blank" rel="nofollow noopener noreferrer">Destácame</a>’s successful achievement of milestones through Catalyst Fund eventually convinced Accion Venture Lab to invest in a seed round. ESCALA Educación was able to <a class="markup--anchor markup--p-anchor" href="https://www.crunchbase.com/organization/escala-educacion#/entity" target="_blank" rel="nofollow noopener noreferrer">close a seed round led by Mountain Nazca</a>, a prominent Latin American venture capital firm. <a class="markup--anchor markup--p-anchor" href="http://catalyst-fund.org/news-home/2017/4/25/paygo-energy-cooking-on-your-terms" target="_blank" rel="nofollow noopener noreferrer">PayGo Energy</a> closed a round with a key investor in Kenya.
However, there is still a persistent gap in the funding continuum for these startups after they graduate from Catalyst Fund. Currently, only a limited number of seed stage fintech investors exist, underlining the need for more creative ways to bring funding into this space. Commercial investors often wait until they can make bigger ticket investments and startups, quickly find themselves back in a dire funding environment. To help address this issue, Catalyst Fund has created the <a class="markup--anchor markup--p-anchor" href="http://catalyst-fund.org/circle-of-investors" target="_blank" rel="nofollow noopener noreferrer">Circle of Investors</a>, a group of investors who follow the startups’ progress and are matched with firms that fit their investment criteria. Some 19 mainstream (e.g., Index Ventures) and impact investors (e.g., Goodwell) have already joined this group and we hope to see many introductions turn into real investments.
Measuring the impact of our kind of model on a startup’s trajectory is not easy. Catalyst Fund is not a typical accelerator and there are no directly relevant benchmarks. While Catalyst Fund can certainly reduce a number of risks for a company on its growth journey, we don’t solve all of them. But after over a year, we are ever more convinced that against the backdrop of an investment continuum, de-risking early-stage startup trajectories is critical for attracting investors and capital to inclusive fintech. For now, we’ll continue to unpack the indicators and feedback sessions about how Catalyst Fund makes a difference in the life of the startup and their likelihood to thrive.
<a class="markup--user markup--p-user" href="https://medium.com/@carrarom" target="_blank" rel="noopener noreferrer">Maelis Carraro</a> of Catalyst Fund co-authored this post.
A version of this post appeared previously on the <a class="markup--anchor markup--p-anchor" href="https://blog.catalyst-fund.org/catalyst-fund-lessons-on-getting-early-stage-fintech-startups-investment-ready-a571c5a4e3a0" target="_blank" rel="nofollow noopener noreferrer">Catalyst Fund</a> blog.

Catalyst Fund: Lessons on getting early-stage fintech startups investment-ready

<a class="markup--anchor markup--p-anchor" href="https://www.accion.org/venturelab" target="_blank" rel="nofollow noopener noreferrer">Accion Venture Lab</a>’s mission is to support early-stage fintech startups in scaling innovations that enable underserved customers to access better and cheaper financial services. We work closely with the CEOs and management teams of these companies and are able to understand their day-to-day challenges. So in addition to providing them with much-needed capital, we also provide support in other non-monetary ways. One is bringing our CEOs together as peers to trade stories and share the solutions they’ve learned on their individual journeys.
In June 2017, 40 executives from the companies we work with around the world gathered in The Hague, Netherlands. Startup founders face a journey of “figuring things out” (which is much less sexy than coming up with a great idea) with limited resources (funding, staff, business connections…). It’s a long road and it takes a village to make it through. Our recent CEO Forum was such a village.
Building a community of leaders
This was our second CEO Forum (<a class="markup--anchor markup--p-anchor" href="https://nextbillion.net/how-to-get-30-fintech-ceos-to-open-up-about-financial-inclusion/" target="_blank" rel="nofollow noopener noreferrer">the first took place in London in 2014</a>). We would like to thank <a class="markup--anchor markup--p-anchor" href="https://www.fmo.nl/" target="_blank" rel="nofollow noopener noreferrer">FMO</a>, the Dutch Development Bank, for their support in hosting and organizing the event, in collaboration with <a class="markup--anchor markup--p-anchor" href="http://www.quona.com/" target="_blank" rel="nofollow noopener noreferrer">Quona Capital</a>. <a class="markup--anchor markup--p-anchor" href="http://www.cgap.org/" target="_blank" rel="nofollow noopener noreferrer">CGAP</a>, sponsor of the 2014 Forum, was again a major supporter, joined by the <a class="markup--anchor markup--p-anchor" href="http://www.newventurefund.org/" target="_blank" rel="nofollow noopener noreferrer">New Venture Fund</a>, <a class="markup--anchor markup--p-anchor" href="http://catalyst-fund.org/" target="_blank" rel="nofollow noopener noreferrer">Catalyst Fund</a>, <a class="markup--anchor markup--p-anchor" href="http://www.citigroup.com/citi/inclusivefinance/" target="_blank" rel="nofollow noopener noreferrer">Citi Inclusive Finance</a>, <a class="markup--anchor markup--p-anchor" href="https://www.rabobank.com/en/home/index.html" target="_blank" rel="nofollow noopener noreferrer">Rabobank</a>, and <a class="markup--anchor markup--p-anchor" href="https://www.triodos.com/en/about-triodos-bank/" target="_blank" rel="nofollow noopener noreferrer">Triodos</a>.
The participating entrepreneurs represented pre-seed, seed, and growth-stage startups that cover a variety of financial inclusion themes and models, from credit building and rehabilitation services to agricultural input financing.
The Venture Lab team ran a pre-event survey to identify the most pressing challenges and issues to discuss. We then sorted the most commonly mentioned issues into three broad categories: Delivering value to customers, leading a growing team, and fundraising.


[caption id="attachment_7834" align="aligncenter" width="613"]<img class="size-full wp-image-7834" src="http://blogs.accion.org/wp-content/uploads/2017/07/vlabquery.png" alt="CEO Survey" width="613" height="451" /> Responses from our CEO survey asking about their key challenges[/caption]
Below are a few key takeaways from the discussions that took place at the Forum:
Delivering value to customers
Innovating from 0 to 2.0 and beyond
The power of startups lies in their ability to identify a consumer problem and come up with an innovative solution. CEOs discussed key questions around product and service innovation such as: How do you look at existing products and think about how to make them even better? What does your customer discovery process look like? How do you design and test a new innovation? Here are some of the insights shared:

<ul class="postList">
 	<li id="cbf0" class="graf graf--li graf-after--p">A product should solve a real problem for customers. Therefore it’s key to have a human-centered design approach that places our target customers at the center of the design, innovation, and implementation processes.</li>
 	<li id="7f08" class="graf graf--li graf-after--li">User experience is not just about an app or a website itself, it’s the whole way a customer experiences the service or product, from point of purchase to using, renewing, and possibly even leaving.</li>
 	<li id="4b90" class="graf graf--li graf-after--li">Strong leadership and CEO-Board alignment are critical to creating a culture of design and innovation throughout the organization; design can’t sit alone in any one function or area.</li>
</ul>
Winning customers
The CEOs exchanged insights and tips on identifying, understanding, and engaging with target customers. Some of the key takeaways that we gathered were:

<ul class="postList">
 	<li id="571d" class="graf graf--li graf-after--p">Startups targeting individual customers need a strong value proposition for target customers’ specific needs and should focus on niches that allow for low-cost acquisition strategies. Marketing partnerships with strategic partners (such as telecom businesses for mobile phone-based services) can enable scale, low-cost structure, and brand association.</li>
 	<li id="4ec1" class="graf graf--li graf-after--li">Startups targeting business customers face notoriously long enterprise sale cycles, which can be somewhat inversely related to market size. Companies need to set a clearly defined expectation: Set minimum revenue targets, get a product person to sit with the new customers early on, provide an implementation toolbox, consider a softer sell to set client expectations, ensure and maintain direct communication channels.</li>
</ul>
Leading a growing team
Leadership
The CEOs discussed ways they can strengthen their leadership skills to maximize the well being of their businesses, and employees. Insights included:

<ul class="postList">
 	<li id="760b" class="graf graf--li graf-after--p">Company culture is a product of how management reacts to challenges. Startups are often very task-oriented and anxious to scale. It’s necessary to step back, reflect on the journey so far, and think about the bigger picture.</li>
 	<li id="4b4f" class="graf graf--li graf-after--li">Startup leaders need to give employees the tools and resources they need to execute their responsibilities. Coach and develop others in order to build trust when delegating tasks.</li>
</ul>
Managing talent
Sourcing and attracting the right people is every CEO’s number one responsibility and number one challenge. Some effective strategies discussed were:

<ul class="postList">
 	<li id="5fb1" class="graf graf--li graf-after--p">Startups need to provide a differentiated mission and employee value proposition (EVP). This helps compensate for offering lower salaries than larger, more established institutions. A strong and compelling EVP is important for employee retention and engagement.</li>
 	<li id="d3ce" class="graf graf--li graf-after--li">When hiring, ensuring cultural fit is first and foremost. Link EVP to customer experience to drive performance and ensure that there’s a clear performance feedback process.</li>
</ul>
Fundraising
Attracting new investors and raising money is a never-ending process for a startup CEO. In emerging markets, raising money can be difficult as next round equity investors aren’t always easy to identify. CEOs discussed insights on the funding landscape, as well as how to be smart and strategic in the selection of the raise target, timing, and valuation according to their growth stage, and walked away with a couple of key takeaways:

<ul class="postList">
 	<li id="7f35" class="graf graf--li graf-after--p">Attracting new investors and raising money is a never-ending process for a startup CEO. In emerging markets, raising money can be difficult, as next-round equity investors aren’t always easy to identify. CEOs discussed insights on the funding landscape, as well as how to be smart and strategic in the selection of the raise target, timing, and valuation according to their growth stage.</li>
 	<li id="642c" class="graf graf--li graf-after--li">Companies seeking to raise series A capital face a shift in investors’ expectations as they exit the seed stage. Common series A expectations include an emphasis on sustainable scalability, quality of credit, and having the right team in place to execute.</li>
 	<li id="6019" class="graf graf--li graf-after--li">For companies looking to raise a Series B, having the right investor come in is more crucial than ever. Companies need to be clear on their objectives before entering the round. The incoming investor should fit the company and should provide room to actually run the business.</li>
</ul>
What’s next?
At the end of the Forum, we ran another quick survey and discussion on what the future holds for fintech for inclusion. Participants voted that artificial intelligence for data analytics and customer engagement, and open API are the key enabling technologies for driving innovation for inclusion. Participants also underlined that connectivity is fundamental to scaling these innovations.
We were encouraged to receive feedback from participating CEOs that they found great benefit from being among peers “in the same boat.” One CEO mentioned that he was pleasantly surprised (stunned!) and energized by the sheer wealth of creativity represented at the event.
Following the CEO Forum, we held a <a class="markup--anchor markup--p-anchor" href="https://www.fintechinclusionsummit.com/280037" target="_blank" rel="nofollow noopener noreferrer">Fintech for Inclusion Global Summit</a>, where the CEOs had the opportunity to showcase their companies' innovations to over 200 investors, entrepreneurs, funders, and other field builders in the space. Stay tuned for our recap of this event!

When fintech founders get together

Chatbots enable customers to interact with a product or brand in ways that mimic two-way human conversations. As a computer program, chatbots have been hailed as a tool that would enable companies to serve customers in meaningful ways at a substantially reduced cost. At Accion Venture Lab, we believe customer engagement is a key factor in driving underserved, low-income individuals to both gain access to financial services and use them effectively. We’re intrigued by the investments banks and insurance companies are pouring into chatbots for customer engagement. But, we are particularly curious about what this technology can do for financial inclusion.
<h2>Chatbots for financial inclusion</h2>
As a seed-stage investor in fintech for inclusion, we are constantly on the lookout for innovative, cost-effective, tech-enabled modes of customer engagement. It’s easy to get excited about chatbots: they can be embedded into existing popular channels such as Facebook Messenger, WhatsApp, or Skype – enabling immediate reach of customers. They are available 24/7 on a smartphone or a webpage, making them uniquely positioned to provide the sort of anytime, automatic information that customers demand. Chatbots enable customers to be “delighted” by a service or a brand, leading to increased conversion and loyalty – all at a lower cost.

Here are several applications of chatbots that we’re excited about today, and what we hope to see in the near future:
<h2>“Humanizing” financial services: Making banking and insurance explicable and relatable</h2>
Trying to understand the terms and conditions of a credit card or mortgage can be intimidating. Pages of fine print with undecipherable technical terms pose a challenge even for the savviest customers, let alone for customers who have little or no experience with these products and services. This can deter potential customers from completing the process or push them to apply for something without fully understanding the service.

Chatbots can potentially help customers better understand financial services via interactive discussions on pricing, repayment terms, or coverage. The “robo-friendliness” of chatbots can help raise customers’ comfort level in making inquiries while avoiding embarrassment and without having to physically visit a branch or deal with a long wait time to speak to a customer service agent. A customer can post a question and review the response at a convenient time.

In India, online insurance players such as Policybazaar and EasyPolicy <a href="http://timesofindia.indiatimes.com/trend-tracking/When-chatbots-help-sell-insurance/articleshow/55815481.cms">found that chatbots are enabling them to better understand customers’ requirements and help the customers choose the right policy</a>, at a fraction of the cost and with a substantial increase in conversion rates, compared to human agents doing the same tasks.
<h2>Helping customers enhance their financial capabilities</h2>
Economies benefit from financially capable customers. However, financial education is consistently a challenge. Using chatbots, financial education content can be personalized and engaging. For example, users can subscribe to topics, such as budgeting, and receive information that matches their interests in a fun, conversational way. Providers can also design chatbots to send customers insights on their spending habits or automated loan repayment reminders. Bank of America has made headway through their <a href="https://www.forbes.com/sites/quora/2016/10/28/meet-erica-bank-of-americas-new-voice-ai-banking-system/#658e6a0750db">Erica bot</a>, and we’re excited for similar bots to be tailored to underserved customers in emerging markets.
<h2>Providing customers with the right financial solution at the right time</h2>
Artificial intelligence-powered chatbots can be designed to get “smarter,” developing a better understanding as they interact with users and “learn” from data from past interactions. This presents an opportunity for financial services providers to offer solutions that are tailored to customer needs. For example, if a customer makes frequent queries about his checking account balance, a bot can suggest budgeting or money management tips. Such “prompts” would enable customers to be aware of, and consider, the options that are available to them.
<h2>Helping staff deliver better services</h2>
Chatbots hold the promise of enabling staff of financial services providers to better deliver customer service. <a href="http://www.avaamo.com">Avaamo</a>, an enterprise bot platform, provides banks with bots that help sales staff in the field plan their prospecting activities and customer visits, as well as update their customer relationship management software with notes and visit reports from their smartphones. Avaamo’s bots can help field sales staff present appropriate offers to customers and clarify questions about new products – all in a conversational interface. Imagine how valuable this could be in helping <a href="http://www.accion.org/agency-banking-technology-gap-nigeria/">banking agents in rural areas</a> or microfinance field officers better serve their clients.

We’re still in the early days of chatbots making their way in transforming how customer engagement is delivered within financial services. As with all new technologies, potential challenges must be considered. In the case of chatbots, we’re particularly interested to learn more about the security and use of customer data, as well as the cost-benefit analysis of using chatbots to cater to traditionally underserved customers. In the meantime, we are excited to see more chatbot innovations in financial inclusion.

This post originally appeared on the <a href="http://partners.wsj.com/metlife/multipliers/articles/talking-the-talk/">Wall Street Journal's Multipliers of Prosperity</a>.

Can chatbots like Siri advance financial inclusion?

Micro, small and medium enterprises (MSMEs) in Kenya face an estimated US$2-5 billion funding gap, representing one of the largest constraints to the country's economic development. Kenyan MSMEs struggle to get access to affordable working capital and to meet stringent bank requirements – such as a proven track record and collateral – when seeking working capital. Those that do meet traditional banks’ criteria usually face lengthy approval and disbursement time frames, as well as costly terms. Furthermore, a recent government cap on commercial lending rates will likely mean <a href="http://www.reuters.com/article/kcb-group-results-idUSL5N1GM0EW">even fewer loans to MSMEs</a>.

This financial hindrance stands in direct contrast to Kenya's reputation as the Silicon Sahara – a supportive environment for flexible, fast-moving, tech innovators. Kenya is home to a number of tech and innovation hubs and incubators, like <a href="https://ihub.co.ke/">iHub</a> and <a href="http://nailab.co.ke/">Nailab</a>. As the birthplace of M-Pesa, <a href="http://www.economist.com/blogs/economist-explains/2013/05/economist-explains-18">the biggest name in mobile money</a>, some even say Kenya is <a href="https://www.bloomberg.com/news/videos/b/f966dd74-872d-4b82-b2ef-d0cb4c0e148a">paving the way for the future of mobile payments</a>. What if Kenya's most promising innovators could use digital technology to close the funding gap, or at least make it a little smaller?

<img class="size-large wp-image-7607 aligncenter" src="http://blogs.accion.org/wp-content/uploads/2017/03/Kopo-Kopo-business-model-1024x597.jpg" alt="Kopo Kopo business model" width="1024" height="597" />

<a href="https://www.accion.org/venturelab">Accion Venture Lab</a>, Accion’s seed-stage investment initiative, partnered with two early-stage companies, Umati Capital and Kopo Kopo, which are trying to do just that. Venture Lab provides seed capital and strategic and operational support to innovative startups such as these that expand financial access to the underserved. Both Umati Capital and Kopo Kopo are fintech innovators working to serve the so-called missing middle, those MSMEs caught in this massive funding gap. Kopo Kopo <a href="http://www.accion.org/kopo-kopo-mobile-money-kenya/">enables small business owners to accept mobile money payments</a>, as well as other tech-driven financial services to help small businesses grow, like their <a href="http://www.accion.org/kopo-kopo-fintech-small-business-owners/">merchant cash advance product</a>, which is based on digital transaction data. Umati provides invoice discounting and supply chain financing that serve as an affordable and swift solution for businesses to convert unpaid or outstanding invoices into cash, helping them manage their supply chain and ease pressure on an already tight cash flow. This means that Umati Capital helps businesses bridge payment gaps that arise after they sell goods to buyers, but before they collect payment for the sale. The company does this by enabling businesses to convert unpaid or outstanding invoices into cash via their digital platform.

Whereas Umati works with actors in the agriculture value chain and Kopo Kopo works with a variety of urban merchants, both bring innovation to acquisition and underwriting. The two companies offer capital that takes the business cycle of their customer base into account, which is innovative, compared to other existing credit products. Banks usually have more rigid product offerings that do not cater to the vast variety of small business needs, such as natural ebb and flow of a farmer or restaurateur's business.

<img class="alignnone size-full wp-image-7608" src="http://blogs.accion.org/wp-content/uploads/2017/03/Umati-business-model.jpg" alt="Umati business model" width="975" height="891" />

Moreover, both companies have found creative ways to underwrite credit for segments that usually have few low-cost, convenient options. For example, By factoring customers’ electronic receivables, Kopo Kopo can anticipate their repayment capacity and recognize any unusual or suspicious variations. This transforms a customer’s transaction history into a pseudo-credit history. When entrepreneurs aren't able to access financial services from traditional institutions like banks, they are limited in their ability to grow their business, and many turn to informal sources of credit, such as friends, family, or loan sharks. Companies like Kopo Kopo and Umati provide a much-needed alternative, which is good for the entire economy since in emerging markets, most formal jobs are with MSMEs, which create four out of five new positions.

These two Kenyan startups are using technology to make high-quality financial products available to MSMEs. However, similar to the MSMEs they serve, startups like these are themselves in need of broader support: advice and mentoring, well-targeted research, more conducive regulatory environments, capital investment and debt financing.

This article is part of our global series on MSMEs in seven key countries where we work. <a href="http://www.accion.org/bridging-the-small-business-credit-gap-through-innovative-lending/">Read the paper Bridging the Small Business Credit Gap Through Innovative Lending</a>.

Nancy Widjaja

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