Seed-stage investor Accion Venture Lab recently announced that it was adding $33 million to its initial capital pool of $10 million. That included $23 million raised from such heavy-hitters as Ford Foundation, Open Society Foundations and Prudential Financial, plus $10 million from Accion. For some investors, it’s the first seed fund they’ve participated in.
Accion Venture Lab was launched in 2012 by the nonprofit microfinance pioneer Accion with the goal of investing catalytic capital in early-stage fintech companies focused on providing financial services to underserved populations. For every dollar Accion Venture Lab has invested, its portfolio companies have raised an additional $13 in equity capital from later-stage investors, according to Accion.
While most of Accion’s investments have so far been in emerging markets, about 20% of its portfolio is in U.S.-based companies. One of the new fund’s first investments, in fact, is Austin-based Joust, which has a platform that provides freelancers, sole proprietors and small and midsized businesses with financial services to help them manage and smooth their cash flows.
Accion Venture Lab Managing Director Tahira Dosani recently talked to me about the new fund, the need for seed-stage financing and the emergence of inclusive fintech companies.
What was the impetus for starting Accion Venture?
Accion Venture Lab was created to address a huge capital gap at the early stage for startups, particularly in emerging markets. It was hard to find someone willing to be that first institutional investor for startups serving a new market. There wasn’t a lot of data, a sense of what the uptake would be like. And these were new markets for an underserved segment. Institutional investors weren’t willing to take the risk. So we wanted to address the gap that we saw. We’ve invested in over 40 inclusive fintech startups around the world.
We combine our provision of capital with provisions of strategic and operational support. Our team has expertise around financial inclusion and we bring that expertise to bear to escalate the growth trajectory of the companies we invest in.
And what are your goals for your new fund?
For many years we invested directly off of Accion’s balance sheet. We decided to raise third-party capital along with Accion’s capital to grow and scale our efforts for a few reasons. Accion was willing to continue to support us. But we needed more capital than Accion could provide. We also see it as a recognition of the importance of being an early-stage, innovative funder and of the potential these companies have to provide both impact and returns at scale.
Beyond that, we wanted to create a vehicle that would be able to bring others along with us. We have a real mix of limited partners, something that’s quite exciting. We have development financial institutions, foundations, high net-worth family offices. For many of our LPs, we were the first seed fund they’d invested in.
What’s behind the growth in fintech startups, especially in emerging markets?
It’s driven by a couple of factors. Technology has advanced. And with the rise of technological innovation in areas like cloud computing, machine learning, blockchain—all these technologies are making it possible to reduce the cost of serving lower-income customers. Someone who is lower income is likely to generate less revenue than someone who is higher income. Transaction sizes are lower. Purchasing power is lower. In order to be profitable, the cost to reach customers and serve them also has to be low.
I also think people are starting to recognize that this is a large untapped market. Low-income people, especially in emerging markets, these are people not usually thought about as a viable market. But anyone who can figure out how to serve this market will have a huge advantage.
At the same time, there is a desire to make sure people aren’t left behind by the financial system.
Read more at Forbes.