From Accidental Banker to ‘Patient Capital’ Leader: Distinguished Alumna Describes Creating New Kind of Capitalism

“Investment is the tool, but what we really need is leadership with moral imagination,” Jacqueline Novogratz said about finding ways to end world poverty.

The founder and director of the non-profit venture capital firm, Acumen Fund, Novogratz described to a University of Virginia audience Thursday the need for a new kind of capitalism that takes into account people’s selflessness, and not just selfishness. She said neither the market system nor charity alone can solve the today’s challenging problems.

“There are no rules or maps for this work,” she said. Novogratz, who graduated from U.Va.’s College of Arts & Sciences in 1983 with a bachelor’s degree in economics and international relations, received the 2013 U.Va. Distinguished Alumna Award, sponsored by the Women’s Center, at a luncheon that was part of a Women in Leadership & Philanthropy conference.

At the later public presentation in the Nau Hall Auditorium, “Investing in Social Entrepreneurs to Create a World Beyond Poverty,” Novogratz described highlights of the journey that has taken her to some of the most destitute villages in Africa and India, from wondering how to dedicate herself to saving the world to someone leading an organization that respects people’s dignity and invests in them.

Acumen uses an approach called “patient capital” that makes investment decisions based on what will help the most people – have the most impact – instead of bringing a high return for stakeholders. This new kind of investing tolerates more risk than others for a longer period to give entrepreneurs more time to establish sustainable businesses that help the poor by providing clean water, clean energy and jobs, for instance, or by being involved in education, agricultural improvements or health care.

Rather than acting from the top down, Acumen uses a model that works bottom-up: involving low-income people as part of the solution, seeing investment as an important tool for change and keeping track of strong metrics of accountability while allowing for positive outcomes that are hard to measure. 

It’s also called “impact investing,” since the investments support ideas and businesses tackling some of the biggest social issues of our time.

As she approached her college graduation, Novogratz wanted to take a year off, she recalled telling her parents. They encouraged her to go through the interview process just for the experience. Thus she became an “accidental banker,” she said, taking her first job with Chase Manhattan Bank because it offered her travel opportunities.

From there, Novogratz founded and directed the Philanthropy Workshop and the Next Generation Leadership programs at the Rockefeller Foundation. As a UNICEF consultant in the late 1980s, she also founded Duterimbere, a micro-finance institution in Rwanda.

Prior to starting the Acumen Fund in 2001, she saw that aid money often didn’t make it to its intended recipients, and even if it did, projects rarely lasted. Micro-financing might help small operations, but it wasn’t enough to transform a village or community. Acumen provides a wide range of management services in support of nurturing a company to scale, in addition to patient capital.

“Patient capital is a third way that seeks to bridge the gap between the efficiency and scale of market-based approaches and the social impact of pure philanthropy,” she said. Because it is so new, it’s hard to come up with ways to measure the impact beyond accounting, but more important that ever, she said.

Besides learning her new jobs along the way, she had to learn to accept the devastating reality of the worst in people. Several years after she left Rwanda, the country went through a bloody revolution and genocide; soon after she founded Acumen, the Sept. 11 terrorist attacks took place in New York.

“Justice is harder than generosity; it’s messier and it takes longer,” she said.

On the positive side, Novogratz gave examples of the kinds of companies Acumen supports, including one started by two alumni of U.Va.’s Darden School of Business that burns rice husks to generate electricity.

Two other men designed solar lights for home use in Indian and African villages that had no electricity. A man in India who had a company of nine ambulances was able to build it up to 1,200 and serve 2 million people. Another person developed a mobile app to detect counterfeit medicine, which gets dumped in emerging countries and results in people dying because they didn’t get the real medicine to treat tuberculosis or malaria, for example.

The Acumen Fund has invested more than $80 million in 73 companies in South Asia and Africa that focus on delivering affordable health care, water, housing and energy to the poor. These companies have created and supported more than 58,000 jobs, leveraged an additional $365 million and improved more than 100 million lives.

She listed the qualities that philanthropic leaders of today and the near future – especially students – need to have: really listening to the people who you are trying to help, learning from mistakes and accepting failure, yet maintaining hope and determination, and treating everyone with respect and seeing their dignity.

In presenting the Distinguished Alumna Award, Sharon Davie, director of the Women’s Center, said, “So many faculty, students and community members said you couldn’t have chosen a better person.”

The Women’s Center created the award in 1991 and has honored such accomplished U.Va. alumnae as news anchor Katie Couric; war correspondent Kimberly Dozier; former Arizona Gov. Janet Napolitano, now head of the U.S. Department of Homeland Security; and astronaut Kathryn Thornton.