Rethinking Capitalism: Why Employee Ownership is the Ultimate Competitive Advantage
“Winner takes all” capitalism isn’t working or sustainable. Employee ownership as actually a competitive advantage.
Kapil Kanungo with Incofin Investment Management shares how they’ve been able to invest where others fear to tread exactly because they are employee owned and are willing to take mission-aligned risks that outside shareholders would not. And it’s paying off.
“Despite current headwinds – this is not a time to sit down. This is a time to stand up.”
Allies he needs right now:
• Experts in impact measurement, structuring investments, and technical assistance
• Family offices that want to learn more about impact
• Peers – other impact asset managers to share best practices
Podcast Transcript
Jacob: [00:00:00] On this podcast, we highlight impact innovators and more than just talk. We believe in helping overcome the obstacles they face and propel them towards the good they want to create in the world. And we’re not going to get there alone. We’re not going to solve the world’s biggest problems on our own little islands. We need more collaboration and connection if we’re going to have any hope of getting there.
So our guest today is Kapil Kanungo with Incofin. IncoFin invests in underserved entrepreneurs in emerging economies with the goal to create more inclusive economic progress in the world, which means they’re often investing in regions and sectors where others fear to tread.
Kapil focuses on the investment side, looking at breakthrough clean water technologies, as well as supporting fundraising efforts.
Kapil, welcome to the podcast..
Kapil: Thank you, Jacob. Thanks a lot.
Jacob: One thing that really caught my attention on your about us page, it says we are a team owned company investing in our own funds. I think we’re all seeing that this winner take all style of capitalism isn’t really working or sustainable. I want to learn about how Incofin is set up as a team-owned company. What [00:01:00] does that actually mean?
Kapil: So for Incofin, everything started 30 years ago with what we call our mother fund, Incofin CVSO. Which is a Belgian retail fund with 2,600 plus retail shareholders in Belgium, people like you and I could invest with as little as 130 euros. Majority of the company that’s owned by employees, we’re a team of a little more than 90, and over 40 of us are shareholders in the company.
So what that means is that our North Star or our mission, which is creating impact in the world, is our ownership structure.
Jacob: My sense is that that’s pretty novel; most of your peers aren’t set up that way. Correct?
Kapil: No, not at all. It’s actually very unique and what we’ve seen in the last five, seven years. Is another sort of shift where a lot of the larger impact asset managers have been bought by traditional larger asset managers, and we have deliberately made a decision to actually continue being employee owned.
Jacob: Are you an owner yourself?
Kapil: I am. Yes. So if the company does well, I do well, both on the financial metrics, but also on impact metrics.
Jacob: What does that change for you? You’ve worked at other firms where you weren’t, and now you are part owner. How does that shift how you approach your [00:02:00] work?
Kapil: Great question, Jacob. I think it certainly helps in two ways. One, I think ownership is a mindset more often than not, is what people say. But if you turn that mindset into actual ownership of the firm, you help move that mindset forward. So for many of us who are working in the firm, this is not just a job. We are owners of the company and we feel very proud of the work that we are able to do.
Second, I think when you were introducing IncoFin you said that we tread sectors not many other people are able to. So last year, for example, we launched a fund on nutrition, nutritious foods financing facility, which is a fund that focuses on local consumption value chains in Africa called Incofin Climate Smart Microfinance Fund. Which is one of the world’s first funds to focus on climate adaptation and resilience through financial inclusion. The reason we’re able to take some of these bold decisions is because we’re employee owned and we don’t have a shareholder, you know, who’s watching our back and tells us these are the only sectors you can invest in.
Jacob: You mentioned of 90 employees, only about 40 are shareholders. What is sort of that dividing line?
Kapil: The idea is very simple, every employee who’s been around and at IncoFin, I think it’s either [00:03:00] one year or two years. has an option to buy stock. Some people do and some people do not.
Jacob: Okay, so it’s an optional buy in.
Kapil: Yes and it’s mostly colleagues who are either new to the firm or, who have other constraints and don’t want to buy in.
Jacob: And how do you see that being a competitive advantage for your firm?
Kapil: Certainly, in the way that I said, we are able to make decisions that other people are not. We can have a very patient view because we don’t have quarterly reports that need to go out to a larger shareholder.
The other example I’ll give you is The Water Access Acceleration Fund. It’s a resounding success that funded private equity into water growth stage companies in emerging markets in the water sector. I’d be lying if I said that fundraising for it was easy. It was a difficult sector. We’ve used blended finance. We have the support of several investors. But it was still a tough road, fundraising. And I think if we were not employee owned, it would be difficult for us to actually make sure that the project was concluded. At some point, shareholder pressure would come in and say that, maybe this doesn’t see the light of the day. But we were able to invest time and energy to build something that is so sector forward and is essentially building an entire ecosystem around water [00:04:00] investments in the world.
Jacob: Was your firm always structured in this way or did they transition to employee ownership?
Kapil: The way that we know it now, it’s been set up this way.
Jacob: So let’s shift gears really quickly to what is the big purpose that you’re trying to accomplish in the world?
Kapil: First is we invest in entrepreneurs, which means we don’t provide advice, we’re not advisors. We provide them with actual capital that they need. Entrepreneur is important because we believe that entrepreneurship changes the world. We believe in this form of capitalism where people can build something and can move their life forward. So that’s important.
Inclusive progress is important. Inclusivity traditionally was always economic. But I would say over the last decade or so, a lot of our focus has actually been on gender inclusivity. We are advisors, to I think the world’s largest gender fund, if I’m not wrong. It certainly was the largest gender focused microfinance fund, the global gender smart fund, GGSF.
Sustainable transitions. And there I think the idea is that whether or not we like it, we are transitioning to a different world with climate change. The reality is, what happened in Los Angeles just a few weeks ago or a few months ago was heartbreaking. We believe that we need a world that’s more sustainable [00:05:00] and we want to support that. So that’s our big vision.
Jacob: So if you filled in the blank here, if we only had, Blank. we could achieve blank. What is this big goal?
Kapil: I have this Utopian vision. I personally don’t like the term impact investing or sustainable investing or responsible investing, because if X is responsible investing, are you telling me that everything else is irresponsible? It’s not.
So I would like to live in a world where a hundred percent of investing. Is actually responsible or sustainable or impact investing. If we only had impact investing in the world, we could solve all issues around economic challenges and issues around sustainability.
Jacob: With the big purpose that you’re trying to accomplish, why haven’t you already accomplished it? What’s standing in the way?.
Kapil: That’s a tough one. I mean, that can take the entire podcast, but I would say there are a few things. One is there’s not enough money today that goes towards the SDGs. I mean, it’s a reality. The gap financing we have to achieve the sustainable development goals keeps increasing year after year. So I’d say one, there’s just not enough money going into the space.
Second, I would also say that the understanding of [00:06:00] how do we measure impact? And how do we move from output-based measurement to outcome-based measurement. something everyone is learning. That’s the other big piece that’s missing.
And third, just linking back to the first one, we’ve tried to do a lot of funds on the blended finance side. Because institutional capital needs to meet philanthropic capital or catalytic capital. Together, this is how we create more impact. And again, we’re not seeing enough capital or enough innovation on that side of the spectrum.
Jacob: You know, sometimes this is a helpful exercise, imagine we take money off the table
Kapil: Yeah.
Jacob: What are the problems you’re trying to solve with that money? That’s hard when you sometimes locked into thinking, well, we need to fundraise cause that’s what you do.
But if you’re thinking about what is the value we’re trying to create, with money off the table, what would actually be. a win or a breakthrough for you.
Kapil: If you take money off the table, what would be a win for me? Is that every micro entrepreneur who are trying to build something exciting in their community to solve problems for their small communities? All of them are able to achieve their dreams. For me, that’s a big one.
Jacob: What allies do you need right now?
Kapil: Several, we’re very open to partnerships of [00:07:00] all kinds. I mean, of course, the clear answer is people who are looking to move their money into impact. But even outside of that, people who have experience with knowledge-focused services. You know, if there are things that we can learn from in terms of how do we do impact measurement or how do we manage our investments better or how do we continue providing technical assistance? So for us we don’t just provide finance, we also provide technical assistance. Which is oftentimes equally, if not more important than finance.
Category one is clearly, asset owners. This will include family offices, institutional investors, people who are excited to learn about the impact investing industry. Whether or not they make a choice to invest in the industry is a different question altogether. But I would say that’s number one for us, because we think more capital needs to flow into the sector. Today, the sector has become big, but it’s still way beyond the potential that it needs to hit.
Second, if you come down one level, you’re talking about our peers. We are doing exciting work, and Jacob, you speak with many of my peers that I may not know. And I’m sure, many of them are doing exciting work that I’m not aware of. So peers doing work that is complimentary, we would love to learn from them and hopefully also share our experiences because again, as [00:08:00] an industry, we’re still quite tiny. So there’s a lot to learn from each other and build together an industry that’s better for tomorrow.
The third one, some people call it service providers, some people will call it consultants, but the whole idea here is, people who are active in the impact industry in some way or the other. It could be structuring instruments; it could be expertise with risk; it could be expertise with technical assistance. We contribute quite actively to almost all forums out there in the impact ecosystem and love to continue our engagement there.
Jacob: If somebody wanted to learn more, either on the investment side or an expert, where would you direct them?
Kapil: Right to me, we’re very reachable. If you go on our website, you can find our email IDs. Everybody at IncoFin is very open to having conversations. If you just reach out to us, very happy to talk.
Jacob: if you had to leave a final statement, why would an investor consider your firm over all the other millions of options? What is it about Incofin? That they should learn more?
Kapil: Again, I would break that down into three things. One, I think we are sector focused, but geographically diverse. We’ve invested in 60 plus countries around the world. So really world class in terms of diversification.
Second, [00:09:00] is global anchorage, but with teams locally. We’re headquartered in Belgium, but we have offices in Bogota, Nairobi, Chennai, and Delhi, which means that we get the best of both worlds. Some of our global functions set in Belgium, give us a bird’s eye view on where the markets are moving. But most of our investment team actually sit in the regions, which means that we get access to the best pipeline.
And number three is that we can offer a range of instruments to investors. We have strategies that are capital protection. I spoke about the nutritious food financing facility, which gives capital protection plus decent return. But on the other hand, we also have something called an India progress fund. It’s a private equity fund that does quote unquote market returns with impact. So we can straddle effortlessly across all kinds of instruments.
Jacob: I don’t know if the repercussions are being felt as much in the EU, being US based there’s a lot of uncertainty about a number of things towards sustainability. I’m not saying it’s necessarily the silver lining on negative things, but what’s the good that you see in the future?
Kapil: I think one is just to acknowledge, it’s extremely unfortunate what’s happening on the sustainable investment side of things with the global headwinds, especially coming from the [00:10:00] US. But that said, many of the conversations that we’ve had with our partners, we see them almost, re-energized of sorts. To say that, this is not the time to sit down. This is the time to act up and this is a time to direct more resources towards impact.
I would say a year ago, if you’re having a conversation with anybody in the impact, everyone thought it was almost a given that the industry will keep growing which can sometimes mean that, you know, lethargy can kick in, but now I think it’s a strong wake up call for people to see that we need to make extra efforts if you want this to grow and if this is something we believe.
Jacob: Those of you listening, if you have any expertise in this area or know people that might be a great connection, please reach out and connect with Kapil. Looking forward to continuing the conversation, and let’s help you bridge those challenges you face and drive more of the good. that you’re trying to make in the world.
Kapil: Thanks a lot, Jacob.
Jacob: All right. Thank you.
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