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Book review: ‘Scaling Impact: Finance and Investment for a Better World’ by Kusisami Hornberger

Published: 5 May 2023

This “wonderfully positive” book about innovations in investment and finance is as ‘must-read’ for anyone working in impact investing, according to Christopher Walker.

‘Scaling Impact: Finance and Investment for a Better World’ by Kusisami Hornberger

In brief

  • This book is about “innovations in the practice of finance and investment that can create sustainable outcomes”.
  • Capitalism is still the best solution, but we can do better. We need to start making “changes using strategies, structures, and tools that take advantage of capitalism’s strengths and how they can work in concert to create systems change”.
  • The author argues for six key strategic paradigm shifts in investing.
  • Most insightful are his arguments for “a fundamental reconceptualization of the venture capital model to align it with the needs of small and growing businesses”.

This is a book everyone in impact investing should read. It draws on Kusisami Hornberger’s advisory work on more than 200 investment projects with leading development finance institutions, family offices, foundations, and private equity funds.

“While I never became a professor…I love coming up with unique insights and sharing them.” And he does. This book is about “innovations in the practice of finance and investment that can create sustainable outcomes” because “not all investments [are] created equal and some do more good than others.”

Reasons to be cheerful

As such this is a wonderfully positive book. “We are making significant and rapid progress to end poverty,” he asserts, noting extreme poverty – people living on less than $2.15 a day – is less than one-third of what it was 20 years ago. “This may be one of the greatest human achievements of our time.”

He also sees signs of progress on race equality. Between 1986 and 2016 in the US the proportion of Latinx families with zero or negative wealth dropped by nearly from 40 to 33%.

The author notes that global health is perhaps the area in which the most positive progress has been made. The number of new HIV/AIDS infections per million people has more than halved from 1997 to 2020, and the incidence of malaria declined by 25% between 2000 and 2019. “Life expectancy is rising globally as child mortality has halved since 1990.”

This is all quite refreshing compared to the usual gloom-laden litany found in many books.

Capitalism still ‘best solution’

The author believes capitalism is still the best solution “but we can do better”. This book, he explains, is about how we can start making those changes “using strategies, structures, and tools that take advantage of capitalism’s strengths and how they can work in concert to create systems change”.

He argues for six key strategic paradigm shifts in investing

  • Seek financial health, not financial access.
  • Provide patient capital, not venture capital.
  • Be an impact-first investor, not an ESG investor.
  • Offer catalytic finance, not just blended finance.
  • Measure success based on results, not on activities.
  • Provide capacity building, not just capital.

His arguments on impact measurement and catalytic finance will be familiar to many impact investors, but no less worthy. Nor will they be surprised by Hornberger’s assertion that “at best, ESG provides a weak signal of an investment’s full environmental or social performance or risk; at worst, it allows greenwashing that diverts companies’ attention from effective solutions to social and environmental challenges. Many companies with negative impacts but ESG facades are rewarded for good practices but don’t deliver meaningful outcomes”. Ouch.

Fascinating insights

I found his comments on financial health particularly interesting. “Greater access to financial services matters less than whether your financial services contribute to improving your life.” The impact of microcredit on the livelihoods of the poor is too often “modest”. The solution? He cites Sasha Dichter, of 60 Decibels, a pioneer in promoting listening to client voices to understand impact. Dichter says: “The first thing we did was to collect data on poverty profiles of customers, and it worked…this was the way forward.”

Likewise, Hornberger makes excellent arguments for technical assistance to investees, also known as capacity-building support. Apparently, just 44% of blended finance funds include any sort of technical assistance facility, and only 25% of impact investors have externally funded technical assistance services.

Nicholas Colloff, director at the Argidius Foundation discusses working with TechnoServe, a US-based NGO to build a particular business acceleration programme in Latin America.

Patient capital, not venture capital

Most insightful of all are his arguments for “a fundamental reconceptualization of the venture capital model to align it with the needs of small and growing businesses”.

He runs through myriad solutions. Open-ended capital vehicles, that extend the capital deployment and return runway beyond 10 years. For example, Acumen Fund is only now exiting Ziqitza Healthcare Ltd – which provides emergency ambulance services in India – after sticking with them for 18 years to see the business reach its potential.

He describes how Novastar built a complex blended capital structure with $15m in junior equity from development finance institutions (DFIs), including FMO, and $50m of senior equity from other institutional investors (BII, Dutch Good Growth Fund, EIB, and Norfund), and private investors (JP Morgan).

In Hornberger’s discourse on mezzanine financing, I discovered simple agreements for future equity, or SAFEs. Elemental Excelerator, is mentioned as an example for providing a new non-profit funding model for climate tech using two types of SAFE products.

In summary, there is a lot of wisdom and experience in this book.

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