1. Welcome Letter | 2. By The Numbers | 3. Climate Resilience | 4. Financial Resilience | 5. Recent Investments | 6. Pilots | 7. Pilot Fails and Lessons Learned | 8. Fails and Lessons Learned | 9. Acknowledgments
“The amount of billion dollar climate tech funds that are popping up and talent being reallocated from more extractive industries into climate tech is encouraging and just flat out necessary. Our mission is to enable all communities to prepare for and respond to climate disaster by reducing the barriers to the necessary scientific information and disaster financing."
Bessie Schwarz | Co-Founder & CEO, Cloud to Street
Welcome
Two years into the pandemic and we’re still discovering what it means to adapt in the face of crises and thrive amid change. It’s only become clearer how urgently we must act to address the accelerating climate crisis.
That’s why we are aligning all of our energy, conviction, and resources to invest in founders who are developing solutions to address climate disruption and financial exclusion — solutions in inclusive fintech, adapted agriculture, climate-smart communities, resilient food systems, sustainable supply chains, crypto, decentralized finance (DeFi), and Web3.
The world is at an inflection point, and these visionary founders are stepping up to meet the moment, approaching these challenges from many angles: from individual to community level in markets previously untouched; via emerging technologies and innovative business models; by addressing gaps in supply chains; through DeFi and governance; and by enabling people to improve their livelihoods while regenerating their local ecosystems.
We’re excited to tell you the story of our year through the partnerships we’ve developed with these entrepreneurs. We’ll share what we learned about resilience-building solutions, including never-before-seen algorithms providing weather forecasts for the tropics, West African crypto platforms with three times more female users than the industry average, and blockchain-enabled insurance in sub-Saharan Africa. We’ll also highlight what we learned from our first year of running pilots, our plans for 2022, as well as overarching outcomes and insights from our journey through the ever-evolving world of impact investing alongside our portfolio companies.
Wishing you growth and resilience in 2022,
The Mercy Corps Ventures Team
"Our vision is to create a world where Africans are no longer consumers of technology but rather shareholders. Over the last 10 years, we have experienced one of the best bull markets in stock market history, and in Francophone Africa, there is no way to capture this excess growth to which we collectively contribute. Ejara is the breakthrough that allows any African to enter the globalized world of investment from their favorite tool, their cell phone, for as little as $8."
Nelly Chatue Diop | Co-Founder & CEO, Ejara
"We are going to have to feed a population of 9 billion people by 2050, with dwindling resources. We therefore need to do more with less. By knowing what the weather is going to be with our unique weather forecast for the tropics, we are able to help the farmers double their yields."
Liisa Smits | Founder & CEO, Ignitia
Climate Resilience
The climate crisis needs no introduction. But the way we approach climate resilience does.
To us, building climate resilience means focusing on individuals and communities who are already experiencing the impacts of climate change. It means ensuring that those who are most affected have the ability to cope, overcome, and thrive despite shocks and impacts.
This requires a portfolio of solutions, and we know that many climate-focused funders and investors are concentrated on mitigation (i.e. the reduction or removal of emissions), which leaves a critical gap in adaptation and resilience. So while our climate focus is part of a global trend, how we deliver on it is more niche. We invest in and support climate resilience solutions in frontier markets, at the individual, community, and systems levels, at seed and early-stage. This year we built out a constellation of 13 climate resilience investments. We expanded our insurtech portfolio and piloted an industry-first solution with blockchain-enabled smart contracts for crop insurance for smallholder farmers across Kenya. We made our first deep science investment in a startup delivering flood tracking in near real time, recognizing that new kinds of investments require us to restructure how we evaluate benefits and risks in the due diligence process. We began enabling climate-smart communities through tropical weather forecasting and disaster analytics, and reshaping supply chains to be more sustainable and transparent beyond environmental, social, and governance (ESG) policies and greenwashing. In the year to come, we’ll continue this work while exploring how cryptocurrencies, DeFi, and Web3 can lead to new climate adaptation solutions.
Alongside our investment capital and post-investment support, we’ve been generating insights for the ecosystem so that our peers and funders can make smarter, quicker decisions in the race to resilience. This year we launched our Insurtech series, which explores the potential of crop microinsurance to protect the 600 million climate-vulnerable smallholder farmers around the world.
Catastrophic flooding events rocked communities across the globe this past year. Cloud to Street is pairing cutting edge technology with industry-leading science to predict and directly observe floods globally, at scale. While traditional flood models can take years to build and rely on fragmented, sparse, and expensive data, Cloud to Street unlocks an entirely new suite of disaster analytics tools and risk transfer products that address the massive insurance gap in emerging markets. Governments, like the Republic of the Congo, have used the company’s flood forecasting to identify floods in days instead of weeks, relocate 7,000 refugees at risk, secure millions in emergency aid, and target relief to more than 250,000 people during major emergencies. Top insurers, like Willis Towers Watson and Munich Re, are partnering with Cloud to Street to create groundbreaking parametric flood insurance products that better protect climate-vulnerable communities. For example, since 2020, Cloud to Street and Willis Towers Watson have been piloting risk transfer products in Indonesia with plans to expand in African markets.
For smallholder farmers, access to accurate weather forecasts is one of the most important tools for strengthening resilience in the face of our increasingly volatile climate. This is especially true for the 500 million farmers who live in tropical regions, which represent 75% of the world’s farmland. Ignitia provides hyper-local weather forecasts for farmers and agribusinesses in the tropics. The company’s predictive artificial intelligence, proprietary algorithms, and uninterrupted 3D multi-source data create a tropical forecast that is twice as accurate as global models. The company is currently reaching around 1.7 million farmers, such as Evelyn in Ghana, with SMS-based, 24-hour forecasts. Significantly, the service has improved quality of life for nearly nine in 10 farmers who use it (87%) and helped boost recovery for 79% of farmers who have experienced a shock in the last two years.
“We have seen improvement and differences between the time when we didn’t use the forecast and now that we are using the forecast. The quantity of our yields has increased more than before… even the seed quality has improved. Our plants look good.”
Farmer | User of Ignitia products
At the intersection of climate adaptation and financial resilience is the need for reliable data infrastructure. Although the digitization of supply chains is rapidly expanding, data is often fragmented, siloed, or invalid. Designed for both supply chain management and last-mile users, such as workers at origin, Topl’s blockchain infrastructure allows for transparency, digital identity, payment rails, and other applications that strengthen the entire system. The company’s solution is powering traceability in supply chains across the world, including FairFood’s Trace platform, which has tracked over 120,000 kg of living-wage nutmeg and 40,000 kg of living-wage coffee on the Topl blockchain. We see promising opportunities for Topl to pioneer the tokenization of carbon credits (i.e. converting the carbon credit asset into a digital token that can be moved, stored, or recorded on a blockchain) and open up new markets for the critical geospatial imagery many of our startups increasingly rely on.
Smallholder farmers are essential to ensuring food security across frontier markets. Yet many of them live in extreme poverty and are the most significantly impacted by climate change. Parametric insurance products designed to cover remote micro lots of farmland against severe weather, like those offered by OKO and Pula, are on the rise and helping to fill the $162.5 billion global protection gap.
OKO offers weather index insurance through an innovative distribution model direct to the farmer, in partnership with local mobile network operators.
Pula offers area yield and hybrid index insurance (weather and yield) and delivers them through a variety of partners including microfinance institutions (MFIs) and banks, development agencies, agtech companies, governments, and multilateral organizations. Pula also offers FieldSense, a data-powered platform that allows stakeholders to monitor, advise, and engage farmers.
Insurtech Series
We identified crop microinsurance as a crucial tool for building climate resilience years ago. On top of investing in Pula and OKO, we worked with founders of other high-impact enterprises and research partner CASE at Duke University to produce an insights series which explores the role, challenges, and potential of this promising industry. As insurtech investors, donors, governments, and other agriculture value chain players look to bolster the resilience of smallholder farmers, what role will crop microinsurance play? Dive into for everything you need to know.
The scale of land insecurity is daunting: approximately 72% of the world’s population — more than 4 billion people — live on physical property for which they do not hold formal rights or documentation. In agriculture specifically, the lack of formal land titles discourages smallholder farmers from taking on the financial risk to adopt agricultural practices that could increase their production and protect their yields. But the landscape is changing, with exciting solutions emerging in the land formalization space, such as those provided by Meridia and Suyo.
Meridia allows its agribusiness customers, like the Hershey Company and Unilever, to use its underlying surveying data to extend customary and formal titles to smallholders in their value chains. Their proprietary tech has enabled them to rigorously map over 2,500 smallholder parcels every week, and they are on track to extend tens of thousands of formal titles in the coming years.
Suyo has been recognized as a leader in Colombia for facilitating thousands of formal hard titles to households in post-conflict zones and urban settlements. Working closely with municipal governments, Suyo is conducting massive land formalization campaigns that are critical for Colombia’s peace agreement and economic development.
Land Use & Climate
Whether overtly flagged or not, land use is at the heart of nearly all discussions on climate change and adaptation. Extractive economic systems, market failures and mismanagement of our collective commons have driven us to intensify pressure on degraded land, incentivize harmful agricultural practices and ultimately, expand the destruction of our biodiversity.
“For emerging markets, access to capital should be fast and seamless. However, that is far from reality on the African continent. At Payhippo, we are dedicated to solving this by building a platform that simply works for small business owners. They onboard, we verify, then they receive the capital that they need to grow. It's as simple as that.”
Uche Nnadi | Co-Founder & CTO of Payhippo
Financial Resilience
The adoption of cryptocurrency is accelerating globally, the fintech sector is advancing, and the financial system is being reimagined. This past year has welcomed revolutionary new pathways for people to spend, save, send, and secure money. But this revolution must include the 1.7 billion people who are unbanked, and this requires dedicated attention, careful human-centered design (HCD), and a commitment to working in challenging and previously underserved markets.
While the investment opportunities in fintech that serve developed markets and mainstream users are significant, we’re focused on the next wave of solutions designed for those who have been excluded — investing in tech and platforms that will be in the hands of real users. We’re seeing a new surge of low-cost, fast, lightweight protocols, neobanks, and fintechs delivering bundled products that underbanked individuals can use instantly, intuitively, and affordably. These products are building on top of next-generation payment rails, infrastructure, and computing innovation. To prove new real-world use cases, we’ve gone beyond investing by running our own pilots and collaborating with crypto startups and protocols to responsibly test the application of emerging DeFi and Web3 tools in frontier markets. These pilots aim to provide reliable and direct access to financial services to un- and underbanked groups, such as stablecoin payments for Kenyan youth conducting digital microwork, DeFi solutions to power the digitization of Rwandan merchants, and low-cost crypto remittances and a stablecoin savings product for Venezuelan refugees.
We also recognize that financial resilience has significant overlap with climate resilience. A more financially secure individual or community is better equipped to withstand climate disruption. Through mobile-based fintech innovation, people displaced by climate change are still able to access financial services on the move. Through blockchain applications, smart contracts can automatically trigger insurance payouts to individuals when flooding occurs. Through digital assets and crypto, people are able to quickly and easily store, save, and transfer value when climate shocks hit. We’ve been very intentional about building a portfolio responsive to this overlap in 2021.
“This year, our service sector hiring automation platform helped over 1.5 million job seekers in Brazil and Colombia. Eighty-nine percent of job seekers we placed were from underrepresented populations. Using data science to reduce bias in hiring, we increased the share of females in our clients’ workforces by 14% and increased worker retention by 34%.”
Jacob Rosenbloom | Founder & CEO, Levee
Across Africa, entrepreneurs are integrating new technologies with financial products to scale services to previously underserved populations.
In Francophone West Africa, Ejara is building a crypto savings and investment platform with an emphasis on financial education and responsible investing. Taking a user-centered design approach, Ejara developed its mobile-based wallet to be simple to use, lightweight, and available in local languages. The wallet works seamlessly on basic smartphones, even in remote settings, and already has an industry leading ~40% female user base which is three times over crypto averages.
In neighboring Nigeria, Pivo is targeting one of the most financially excluded segments of emerging markets: the 20 million small and medium-sized enterprises (SMEs) powering the $48 billion logistics industry in a country where lack of collateral or banking records has prohibited access to credit from commercial banks, MFIs, and fintech lenders.
Despite investors’ increasing interest in emerging markets, there is still a significant unmet need for people and businesses to access the financing they require to fuel growth. We have encountered this firsthand within our portfolio. Companies that currently lend for productive assets, for example, have trouble obtaining enough capital to meet customer demand. Traditional lenders are slow, have high interest rates, and often impose rigid terms. Yet relatively small loans can make a big difference by supporting individuals to invest in their own productivity. Meet Goldfinch. Goldfinch is a DeFi lending protocol that offers credit to emerging market businesses. This new startup is bringing crypto liquidity to the real world by building a missing piece in DeFi: undercollateralized loans for real-world applications. Since launching in January 2021, they have already deployed $38M+ in loan volume positively impacting 200k+ end borrowers in 18 emerging market countries such as Uganda, India, Indonesia, Mexico, Nigeria, Thailand, and Vietnam. Taking full advantage of Web3 architecture, the company has built an impressive distributed community of lenders, underwriters, and borrowers that enable it to achieve massive scale, and has a sightline to extend upwards of $700 million in financing in the coming year, which would be a gamechanger for debt financing in emerging markets.
Emerging fintech solutions that leverage crypto and DeFi DNA can bring about positive impact for populations facing the world’s most formidable challenges. Smallholder farmers, communities in remote areas, refugees, informal workers, microentrepreneurs, and unemployed youth each confront different challenges and inequities that need to be uniquely addressed. Valiu provided crypto remittances and stablecoin savings products for Venezuelan migrants, refugees, and their families. By merging crypto with a strong focus on HCD, Valiu has been able to avoid many of the hurdles that plague other remittance startups that seek to serve individuals with limited digital and financial literacy.
In East Africa, Sokowatch piloted a new DeFi-powered service to help small-scale merchants who own informal shops to digitize their transactions, manage their cash flows, and ultimately plan better for their businesses. Similar to Valiu’s HCD approach, Sokowatch found that onboarding merchants to the new service required a human touch, and looked to trusted interpersonal channels, such as delivery agents, for support.
“The biggest impact win this year has been offering financial education workshops to credit customers through partnerships aimed at providing money management tips and access to appropriate financial service products to retailers in Nairobi to support their growth and effective debt management. We now offer credit services in three out of four East African countries.”
Daniel Yu | Founder & CEO, Sokowatch
Mobile-based solutions and new digitization models are also helping to provide decent work and income-earning opportunities in Africa’s gig economy.
In Mali, Teliman’s lease-to-own asset financing model and moto-taxi ride hailing service creates an opportunity for unemployed youth to earn a stable income, build credit, and eventually own a productive asset (a motorbike) — all paving the way to increased financial resilience.
ImaliPay’s embedded finance solution is providing informal workers with financing, savings, and credit building tools. With Imalipay’s integration, gig platforms benefit from greater worker productivity and higher retention rates while workers benefit from affordable, customer-centric financing.
“ImaliPay came through when I was in need of a Smartphone and since I got it, I am getting more focused on my work”
ImapliPay User
Recent Investments
Goldfinch is a DeFi lending protocol, providing access to loans without overcollateralization to emerging market businesses.
“We founded Goldfinch because we believe Web3 has incredible potential to expand access to capital and financial inclusion around the world, and we wanted to make that happen. We believe now is the time for the Web3 industry to start expanding it's real-world, positive impact beyond the crypto space, and that's our mission with Goldfinch.”
Mike Sall | Co-Founder & CEO
Topl is a blockchain protocol that provides traceability and transparency up and down the supply chain, revolutionizing how businesses engage with, prove, market, and monetize sustainable practices.
“Topl believes that economic and social goals can be complementary instead of competitive, and that profit should drive impact — and vice versa. By building a technology that enables purpose-driven businesses to maximize their profit and their impact, Topl fully embraces its motto: ‘You change the world. We prove it.’”
Kim Raath | Co-Founder & CEO
Imalipay is an embedded finance solution for Africa’s gig economy, providing informal workers with financing, savings, and credit building tools.
“Gig workers are underbanked and neglected by existing or traditional financial institutions in Africa. Through our proprietary technology, ImaliPay is on a mission to make it easier and simpler for gig economy workers to access, manage, and grow their finances.”
Tatenda Furusa | Co-Founder & CEO
OKO is an agricultural microinsurance provider for smallholder farmers being impacted by climate change.
“Agriculture is by far the largest source of occupation in Africa, with an estimated 33 million farms. And yet, farmers are deprived from basic financial services like insurance and loans. We are using technology to solve this issue and secure the income of those farmers.”
Simon Schwall | Founder & CEO
Payhippo is filling the SME lending gap in Nigeria by leveraging technology to identify key growth areas for small businesses, match them with the right type of capital, and provide timely financing.
"We created Payhippo to make sure small businesses can get funding that works for them. We saw that lenders in Nigeria didn't have the technology to lend to small businesses, instead using manual operations, which ultimately hurt them as they would wait for weeks to get loan offers even when promised a 24 hour turnaround. Our solution provides on-demand financing for SMEs in Nigeria. This solves working capital needs and allows these small businesses to start building their Payhippo credit scores."
Zach Bijesse | Co-Founder & CEO
Ignitia’s algorithm provides hyper-local weather forecasts for farmers in the tropics, with enhanced accuracy from artificial intelligence.
“We are going to have to feed a population of 9 billion people by 2050, with dwindling resources, we therefore need to do more with less. By knowing what the weather is going to be with our unique weather forecast for the tropics, we are able to help the farmers double their yields.“
Liisa Smits | Founder & CEO
Cloud to Street is a platform using industry leading science that allows governments, NGOs, and insurers to accurately assess, price, transfer, and respond to catastrophic flood risk.
“Our mission is to enable all communities to prepare and respond to climate disaster by reducing the barriers to the necessary scientific information and disaster financing. Today some of the most vulnerable governments and the largest insurers are using our global technology to leapfrog old flood data systems to monitor over 300 million people experiencing the impacts of climate change. The governments have provided emergency services to hundreds of thousands, while the insurers are creating new insurance tools for almost 60 million people in the developing world.”
Bessie Schwarz | Co-Founder & CEO
Ejara is a decentralized investment and savings platform in Francophone Africa with a focus on financial education and inclusion for underserved users, and encouraging responsible use of crypto.
“Over the last 10 years, we have experienced one of the best bull markets in the stock market history, and in Francophone Africa, there is no way to capture this excess growth to which we collectively contribute. Ejara is the breakthrough that allows any African to enter the globalized world of investment from their favorite tool, their cell phone, for as little as $8.“
Nelly Chatue Diop | Co-Founder & CEO
Kuunda is a “credit-as-a-service” solution for agents networks in mobile money and other sectors across emerging markets.
"Liquidity is the biggest constraint to growth for agents and micro-SMEs in emerging markets. The lack of access to financial liquidity in the market often leads to store closures, dissatisfied customers, lost opportunities, and business stagnation. These informal micro-merchants are often cash-based and undocumented, which means their access to appropriate financial products and systems is constrained. Kuunda's vision is to provide a platform where financial service providers and Kuunda provide access to the long tail of the informal retail sector with both float financing and working capital facilities that, up until now, has largely been out of reach of the formal financial sector."
Andrew Milne | Co-Founder & CEO
Pivo is the first fintech solution specifically designed to cater to the diverse and particular needs of SMEs operating in the logistics and supply chain sector in Africa, with a particular focus on female-led enterprises.
“At Pivo, our mission is to leverage the internet to build the preferred digital bank for supply chain SMEs across emerging markets. With our product, Pivo Africa, all the financial services SMEs need to grow and operate are provided via a suite of connected tools; credit, corporate accounts, payments, and insurance are built into an intuitive web dashboard and mobile app. With the audacious goal of slowly closing in the $556 billion supply chain finance gap in Africa, we will rollout a multi-product strategy that will run the entire finance lifecycle of our customers’ transactions through Pivo.”
Nkiru Amadi-Emina | Co-Founder & CEO
Emerging Impact is a product suite for emerging market fintechs and banks to build, customize, and deploy DeFi products interoperable with traditional banking and mobile money systems.
"Emerging Impact is looking to make DeFi-based financial services accessible to consumers across the Global South, starting with sub-Saharan African smallholder farmers looking to bridge the $260 billion agriculture financing gap to feed Africa's rising urban middle class. We firmly believe that by eliminating the technical literacy and digital accessibility barriers that DeFi is infamous for, we can accelerate positive economic impact globally and take one step closer toward realizing tokenized credit that can be used by emerging market consumers globally."
Robby Greenfield | Co-Founder & CEO
Kalpay is a digital payments company serving SMEs in the Francophone West Africa market, uniquely focused on providing merchants (mainly cash-based) with the ability to accept digital payments.
"Ninety-five percent of payments in francophone Africa are still done in cash, and financial services for SMEs are still very limited. I started Kalpay because I was at a restaurant in Dakar one day, and could not pay because they didn't have a digital payment option. I needed a convenient, speedy, secure, reliable and no cash payment tool. At Kalpay, we are applying technology to create a digital payment service for merchants so that they don't face this problem.’’
Dr Ibrahima Kane | Founder & CEO
“Mercy Corps Ventures’ work and impact tells the story of what we, at Mercy Corps, mean by resilience. When faced with complex and deeply entrenched global challenges, we partner with cutting-edge startups to scale innovative solutions that ensure people and communities not only survive, but have the opportunity to thrive."
Tjada D’Oyen McKenna | CEO, Mercy Corps
Pilots
This was an important year for us, as we collaborated with startups and ecosystem partners to pilot and prove how DeFi offers reliable and direct access to financial services to people living in frontier markets. We see immense potential for high-impact real-world use cases for blockchain, crypto, and digital assets, and are excited to share the outcomes and insights from our first year of running pilots in a systematic way.
CROSS-BORDER STABLECOIN PAYMENTS FOR DIGITAL WORKERS IN KENYA
We partnered with Celo, Kotani Pay, Appen, Toca Labs (Corsali), NairoBits, and Mercy Corps Kenya to test whether a stablecoin and mobile wallet could reduce costs in cross-border payments for low-income youth completing digital microwork.
Increased mobile phone and internet access has created new digital microwork opportunities for underemployed young people in Kenya. But high transaction costs and delayed payments are significant barriers to this opportunity — traditional money transfer services are expensive and slow, especially when receiving micropayments in very small, but frequent, tranches. Through this pilot, we trained 200 Kenyan youth to access digital microwork from global platforms using a mobile app and integrated Valora stablecoin wallet. Participants were paid instantaneously in Celo dollars (cUSD), a global stablecoin pegged to the US dollar (USD), and were able to cash-out anytime with fees of approximately $0.01 cUSD, to Kenya’s most ubiquitous mobile money platform, M-Pesa.
This pilot demonstrated that using cryptocurrency can dramatically reduce the average transaction cost for microwork payments. In this case, the average transaction cost for microwork payments dropped from 28.8% for a $5 transaction to 2.02% regardless of transaction value. This translates to a 93% reduction in transaction fees (from $1.44 to $0.10). Ninety-four percent of participants said their income increased because of the pilot, supporting their financial resilience and improving their ability to save for the future.
“With so much hype in the blockchain space it’s really refreshing to work on a project that addresses a pressing need for marginalized communities around the world. Hundreds of youth in Kenya were able to access digital jobs for the first time with lower fees and less latency than ever before. It’s a reminder that while the Web3 revolution may have started in Silicon Valley, the potential of blockchain is truly global.”
Will Le | Partner - Innovation, Celo
“I have achieved so much because of this program. I ended up starting a business because of it, so my life has changed for the better. I learned how to use Celo dollars, I learned that I can use it to transfer money from here in Kenya from one person to another, to my family members or even abroad. Valora is a great app — it’s way cheaper to send money through Valora than any other apps right now in this country.”
Pilot Participant | Female, 22
SMART CONTRACT WEATHER INDEX INSURANCE FOR SMALLHOLDER FARMERS IN KENYA
We partnered with Etherisc, Chainlink Foundation, Ethereum Foundation, ACRE Africa, and Mercy Corps AgriFin to test smart contract automation for weather index insurance with over 12,000 smallholder farmers in Kenya, driving both climate resilience and financial inclusion.
For several years, studies have suggested that smart contracts have the potential to transform the economics and experience of index insurance for smallholder farmers. Through this pilot, for the first time at scale, we integrated Etherisc’s Ethereum-based smart contract platform into ACRE Africa’s existing weather index insurance product to measure the impact on operational costs, streamlining and simplifying payouts, and automating claim inquiries. This solution incorporated real-world data sourced and delivered by a Chainlink-powered decentralized oracle network so that during an extreme weather event, the policies are automatically triggered — facilitating fair, transparent, and timely payouts.
Smart contracts significantly improved operational efficiencies, with payouts made within an average of five days compared to an average of 14 days in ACRE Africa's previous season, and an industry standard of 30-45 days. Around half (52%) of participating farmers reported increased trust in insurance as a product, a strong outcome given that insurance is a notoriously difficult product to sell to low-income smallholders.
Given such promising outcomes, we have launched a second pilot with ACRE Africa for the short rains 2021/2022 season in Kenya, with a goal to achieve full automation to further reduce payout times from from five days to 24 hours.
DEFI SAVINGS INCENTIVES FOR INFORMAL MERCHANTS IN RWANDA
We partnered with Sokowatch, IDEO CoLab’s Last Mile Money team, and Terra Money to test a new DeFi-powered service for merchants who own small, informal shops in Rwanda. The service was designed to help these merchants digitize their transactions, manage their cash flows, and plan better for their businesses.
Sokowatch runs an e-logistics platform that enables over 42,000+ informal settlement retailers in Rwanda, Kenya, Tanzania, and Uganda to order products at any time via SMS or mobile app. While the current model works, the lack of a digital trail is a key barrier to growth for both Sokowatch and its users — many shops pay in cash, do not utilize mobile money, and still make orders via a call center. Through this pilot we tested a new prepayment product in which merchants could make deposits into Sokocash, Sokowatch’s existing wallet tool which functions like a pre-loaded gift card. Through these deposits, merchants could earn a 1% or 2% bonus, which was added to their accounts for every week they kept the money stored. Merchants could then redeem their Sokocash at any time to buy stock on the Sokowatch platform. To enable this, we launched a DeFi corporate treasury where Sokowatch could hold stablecoin, TerraUSD (UST), and invest it to earn a stable yield of 18-20% per year, allowing us to explore the feasibility of financing the merchant incentives with DeFi yields.
One hundred percent of participating merchants reported that their way of doing business had improved, and 89% reported better quality of life. DeFi savings incentives are helping participants become more financially resilient and improving their ability to manage their businesses.
What most delighted me was…“When I first got my bonus a few days [after] I had deposited. And also it was avoiding the stress of making long lines in the bank to withdraw and later on paying for products… With the program, I could deposit from anywhere and it would be enough to pay.”
Pilot Participant | Female, 30
CROSS-BORDER STABLECOIN WALLET & REMITTANCES FOR VENEZUELAN REFUGEES
Our fourth pilot set out to test the impact of a cross-border stablecoin wallet and remittance service for Venezuelan refugees living in Colombia.
In Venezuela, economic and social collapse has resulted in the worst mass migration in the history of the continent. The Venezuelan families that remain in the country face extreme currency hyperinflation, high transaction costs, and limited options for receiving aid and money across the border. As a result, a growing number of citizens are depending on remittances to buy essential goods. But many have turned to unreliable, slow, and informal market remittances in the form of quickly depreciating local currency. Through this pilot, we’re providing access to secure digital wallets for receiving payments and savings for users, who are then able to send instant money in the form of a stablecoin to Venezuela with their smartphone, allowing receivers to store or convert the value to bolivars in just a few taps.
In the first phase of this pilot we partnered with Valiu. During this time, 90% of users in Colombia sent funds, in the form of Valiu dollars (a stablecoin), directly to a bank in Venezuela, which could then be used by family members in a matter of minutes. We are currently refining the approach for the second phase.
Pilot Fails and Lessons Learned
Our approach this year was built on our experience of running multiple pilots as part of an insurtech collaboration with Pula. While we successfully designed and delivered our first official pilots in 2021, we also encountered several hurdles in building the evidence base required to determine the true potential of these solutions. Here, we highlight some of the overarching lessons learned from 2021, and our plans for 2022.
OUR APPROACH TO SCOPING PILOT PARTNERS
Our approach to identifying pilot opportunities and partners was too narrow. We initially scoped potential pilots from our existing portfolio and networks, thinking it would make implementation easier. But this ultimately limited us to a small subset of potential solutions. In 2022, we’ll be working to expand the pilot pipeline beyond our immediate networks, and reaching the ecosystem through partner networks and strategic marketing. Stay tuned for the launch of our Innovation Fund!
SOURCING RIGHT-FIT SOLUTIONS
We sourced a lot of potential solutions, but it was difficult to find those that were ripe for piloting. Pilots require just the right mix of product and tech, target audience, partners, and reasonable budget and timeline. We often had two or three of these four factors, but it proved difficult to get off the ground without all four boxes checked. Moving forward, we’ll be refining our up-front pilot partner diligence and decision-making process to rapidly identify solutions that are primed for piloting. Concretely, we are bringing more real talk to the table in our very first conversation with potential partners, hammering down the realities of timeline, budget, and buy-in. We’re laser focused on pilot partners and solutions that we can launch within three months, and we’re no longer afraid to cross an idea off the list if it doesn’t meet all of our must-have criteria.
REALISTIC TIMELINES AND STAKEHOLDER MANAGEMENT
This may seem like an obvious one, but pilots are extremely time consuming if done well, and this can be frustrating when you’re eager to launch the potential solution. Setup itself takes a long time, and it’s crucial to realistically align with product development and tech build timelines. We’d even go as far as to say that delayed start dates can be a great opportunity. When one of our 2021 pilots was pushed by three months, it gave us the time we needed to more fully secure partner buy-in, establish standard operating procedures, develop training materials, create a robust impact framework and data collection plan, and analyze potential risks.
Once a pilot goes live, it still demands continued attention. In addition to building in buffer time for inevitable delays, we also had to tend to the pilot and partner relationships throughout the process, as interests and resources could wane. When timelines expanded, we ran a pulse check with partners on their priorities as other projects started to compete for their time and energy (such as new series fundraising), realizing it was crucial to align on incentives and expectations both before and throughout the launch.
As we move into our second year of pilots, we’re going to test what shorter pilot sprints look like and what this means for stakeholder buy-in and commitment and effective impact measurement. We’re sure this will bring a wealth of new learnings for next year’s Annual Impact Report.
INTENTIONALLY USING MULTIPLE APPROACHES
Implementing a staged or phased approach to pilot rollout allowed us to fail fast, learn, pivot, and iterate. For example, one pilot was intentionally designed with four cohorts of participants, onboarded one at a time, which allowed us to improve on training materials and monitoring processes. For another, we ran a “baby pilot” and “toddler pilot” before a full launch. Beyond iterating in the stages of single pilots themselves, we also tested different approaches through right-fit experimentation. Here we used elements of randomized control trials and A/B testing, as well as quantitative and qualitative research methods including key performance indicators (KPI) dashboards, digital data collection, WhatsApp surveys, and user interviews. In addition to high-fidelity, robust research methods, we learned the immense value of using less formal techniques to collect instant user feedback, such as participating in WhatsApp groups to observe peer-to-peer conversations and daily round-ups with our in-country pilot managers to understand emerging trends and challenges.
BUILD AND SCALE
Deciding the level of fidelity to build at was tricky. Scrappy pilots that were mostly managed by hand, such as in Excel or with manual SMS sending, often gave us the flexibility to adapt quickly and make modifications as opportunities for improvement arose. At the same time, these methods are prone to human error and limited in their scalability.
Another challenge was identifying if and when to scale up. In one pilot, we made the mistake of trying to scale up to a more sophisticated tech system partway through implementation before we properly closed the first phase — it was a mistake in retrospect but felt exciting at the time. In another pilot, numerous stakeholders were enthusiastic about scaling up immediately after the pilot concluded, but we didn’t have enough clean data or clear results to feel comfortable and ready to take it to scale.
A PILOT ESSENTIAL: TRUST
Before the pandemic, developing trust in-person was a defining feature of this ecosystem, which is built on networking and human touchpoints. As Covid-19 continued to restrict travel, in-market movement, and major convening events, we had to find new ways to foster and cultivate human connections and relationships. Through our pilots, we learned that trust in our in-market partners and teams is essential. We had to build trust early and invest significant time, energy, and resources in this process to achieve clear alignment around priorities, and worked to maintain constant communication among pilot partners, particularly to surface underlying issues as soon as they arose. We found it important to give in-market teams the autonomy and budget to iterate on the training materials after initial handoff, allowing them to modify the pilot processes as needed while also clearly communicating back why we needed to adapt the original design.
Fails and Lessons Learned
“We’re in a golden age of venture capital and don’t know how long it will last, in global markets and those we’re focused on... the critical mass is swinging further toward emerging markets more than it ever has before.”
Daniel Block | Investment Principal, Mercy Corps Ventures
In the past year, the impact investing market has exploded. At the same time, we’ve seen leadership challenges across portfolio companies, have grown significantly ourselves as a team, and had to navigate the evolving landscape of building trust in a virtual world. So what have we learned at this critical juncture for impact investing, our portfolio companies, and our own journey?
THE CHANGING LANDSCAPE OF VENTURE CAPITAL AND IMPACT INVESTING
Microfunds, local funds, and angel investors are cropping up at speed. Simultaneously, global VC firms are vigorously expanding into emerging markets and, depending on the sector, displaying a willingness to invest at an earlier stage. This is a hugely positive development for startup ecosystems and we embrace the opportunity to co-invest with smart money that brings insights about the market and strategic support for founders. We’re seeing certain sectors, like fintech in the African market, attracting more capital than ever before, and we’ve found that deals are oversubscribed where they haven’t been previously. This is leading to significantly shorter timelines to close deals, driving up average round and valuation sizes, and pushing investors to make bets earlier and/or in previously under-invested regions (such as French Africa) in the hunt for alpha.
We have been trying to stay agile during this bull market, reevaluating where we play, and always asking ourselves where, and how, we add unique value. As we aim to construct a total portfolio of approximately 50 investments in the coming 18 months, we are focused on refining our theses, processes, and post-investment support to ensure we can execute deals efficiently and deliver tangible value to companies throughout their lifecycle.
WHAT LEADERSHIP AND GROWTH MEAN FOR STARTUP SURVIVAL
When we make an investment at the pre-seed and seed stage, it is largely based on our belief in the founding team. The lifecycle of a startup requires its founders to be self-aware, attract and retain top talent, and continually grow as leaders. Doing so in an emerging market with entirely new business models is a tough task, let alone in the midst of a pandemic and the economic roller coaster it has triggered.
Leaders are stretched thin and teams are operating beyond their limits. Founders have needed to think about their organizational structure beyond the C-suite — to focus on their hiring game and lay the foundation for growth, particularly when the process of identifying and onboarding talent, and that talent subsequently adding value, can take up to six months. Those who have dedicated time to building right-fit, second-tier management have boosted their resilience.
The companies that have maintained strong communication with, and management of, their boards and/or advisors have also endured, or even thrived, through the stresses inherent to early stage growth and pandemic-related challenges. Founders have different approaches to relating with their boards and investors, but we believe they are most effective when the communication channel is consistent and transparent, and outcomes are focused. This drastically increases the likelihood that these stakeholders will add value, feed into strategy, and react quickly when called upon for support or additional capital.
Finally, as investors we’ve had to remember that our own leadership is not always about the high-level, but also about rolling up our sleeves and plugging in beyond the term sheet. To date, we haven’t had a specific mechanism to support founders with talent management, recruitment, or organizational development. While we know we can’t do everything for everyone, we will be considering where we can move beyond advisory and board engagement in this area.
TAKING A COMMITTED APPROACH TO GENDER EQUALITY
By and large, the venture capital system is set up to exclude or completely overlook female founders. Only 2.3% of venture capital funding went to female-led startups in 2020. While 50% of our portfolio companies are led by females, well above industry standard, we recognize that we can always do more.
There are a variety of reasons female founders have been left behind, including investor biases, lack of diversity in fund decision-making processes, co-investors sharing deals, and accelerators focusing on what investors want. But female founders are critical players in solving the most pressing issues of our time, particularly as they relate to women. We’ve observed and heard from our partners in the ecosystem that many female founders are near investment ready but missing the networks, feedback, and support they need to get over the final hurdles. We want to focus our pre-investment support on these founders and partner with them to overcome the common barriers. This is a new focus, it’s a work in progress, and we recognize we’re not an accelerator or incubator, instead offering the extra strategic support that helps those excluded to become investable.
Beyond pre-investment support, we will be integrating a gender-lens investing (GLI) approach across our investment lifecycle in the coming year. This will include embedding gender across our theses to ensure we reflect important gendered aspects of climate resilience and financial inclusion; conducting rigorous due diligence on the gender impact of a venture’s product or service; targeting female-led enterprises for investment; providing post-investment support to enable ventures to integrate gender considerations into their work; and driving gender-focused impact management and targets. We are taking on this GLI approach because we know this improves ventures’ financial and impact returns.
While we know that taking a holistic approach to GLI will take time, we are quickly working to build team capacity and are firmly committed to learning along the way. Our position as an early-stage investor means that we have significant opportunities for intervention and support; startups at this stage are in an excellent position to integrate gender considerations into their product/market fit and business model design, governance, strategy, impact model, and talent, which could scale their gender-responsive impact significantly over the longer term. At the same time, these startups are stretched thin in terms of resources, making it vital that we offer robust frameworks and support that can enable GLI solutions that deliver the greatest value for each startup, tailoring engagements to the individual needs of each portfolio company in order to meet entrepreneurs and small teams where they are.
REASSESSING OUR ROLE IN THE FUTURE OF WORK SPACE
We know that youth unemployment is trending toward a catastrophe in the decades to come. In sub-Saharan Africa alone, 18 million jobs need to be created annually to absorb new workers entering the labor market, yet only 3 million formal jobs are currently being created. For the past five years we’ve tried to invest in companies directly responding to the challenge of building “jobtech” solutions (for both formal and informal sectors). The space has proven challenging. Only a few of the startups we’ve looked at have succeeded at scale — many struggle to reach low-income youth or other underserved populations in a commercially sustainable way. Some have developed approaches that meet crucial needs, but have little chance of being profitable. The business fundamentals are difficult, particularly for startups in the job matching space: there is an oversupply of low skilled job seekers, and fragmented demand. Everyone defines the future of work or jobtech differently, and this makes it challenging to incubate and catalyze the next wave of creative business models or startups responding to the youth unemployment challenge. We haven’t seen a huge pipeline of innovation in this space that’s ready for seed investment, and the potentially scalable solutions that did once exist (including a few of our portfolio companies) have been ravished by Covid-19.
There’s a clear need for more substantial work to stimulate innovation, prepare startups for investment, and build an enabling ecosystem around this nascent sector. That’s why our Mercy Corps colleagues recently set up the Jobtech Alliance — to build community and knowledge, and promote a more conducive environment to stimulate successful startups focused on the future of work.
While we’ve stepped back from directly targeting the job matching and edtech space through investment activities, we’ve refocused our efforts on the pieces of the employment puzzle that we do well: payment rails, embedded financial services, and resilient supply chains. We’re working with startups that support the vastly growing microenterprise, SME, and gig work sector, such as ImaliPay’s credit building platform for informal workers, and the global outsourcing of digital work, by piloting stablecoin as a cross-border payment method for microworkers in Kenya.
THE EVOLUTION OF OUR POST-INVESTMENT SUPPORT
We have always tried to ensure that our tools, engagement, and expertise serve the needs of our portfolio companies. We went through a journey of identifying and addressing recurring bottlenecks for the stage and type of investments we make (early stage and tech-enabled, with ambitions for rapid scaled impact). And so our post-investment support has evolved over the last few years, with 50+ engagements in 2021, to become a whole suite of offerings — from a core stack of fundamental services, to a growth stack focused on customer insights and fundraising, which includes piloting new solutions and partnering with ecosystem stakeholders on research that finds answers to tough questions.
We start by rapidly assessing the right-fit engagement with entrepreneurs. Our core stack features “must-have” company fundamentals, including pre-investment support, strong finance systems, impact/customer measurement, and market analysis (including the favorite of investors — unit economics). We’ve also evolved our growth stack to have a robust customer insights offering, ESG analysis, and fundraising support. We will continue to iterate, take feedback from portfolio companies and partners, improve current offerings, and develop new ones.
"We obviously think about impact measurement, but we've never had the framework to speak about it as clearly. The work that MCV has done allows our entire team, across the countries we work in, to have a common reference on the link between our daily operations and the value we are trying to create. We couldn't be happier!"
Boost, on their 2021 impact engagement
Of course, evolution brings its own share of challenges. We will have to figure out how to strategically time engagements so that ventures have the skills and bandwidth to make sustainable change. For busy founders and fast-moving companies, it’s often hard for venture growth work to stay top-of-mind. The important yet nonurgent work of streams like impact measurement can quickly fall off the priority list. For us, this means exploring how to stage the work so it is a right-fit to the stage of the company, its capacity, and its needs. We’ve found this increases the chances that companies act on recommendations. We’ve trialed front-loading a big-lift workstream as opposed to delivering ‘quick wins’ that don’t rely on heavy venture engagement (i.e. postponing customer feedback research and sharing a list of recommendations instead). In other words, when ventures are low on bandwidth, we have to make a tradeoff between what we believe would be most impactful within the organization versus what will lead to the actual completion of the engagement. Stay tuned for more on our Venture Platform in 2022!
Farewell
The reality of investing at the pre-seed and seed stages across a range of emerging markets means that, undoubtedly, some startups may not make it. But that doesn’t make it any easier when our portfolio companies close their doors. Confronting a myriad of challenges, founders and their teams put their heart and soul into building their companies, and we’re proud to work alongside them in this journey. This year, we bid farewell to two of our portfolio companies:
- Lynk - As projections on the impact of Covid-19 set in, the Lynk team and board made the tough decision to wind down. The business fundamentals were difficult and Lynk tried and tested every game-changing option. Mercy Corps will continue to share learnings and approaches to platforms dedicated to the future of work through the Jobtech Alliance.
- Valiu - As this report was being finalized for publishing, the Valiu founders and board made the challenging decision to wind down the business due to operational risks in Venezuela and wider industry developments. We’ll be sharing our comprehensive learnings and insights on Valiu’s closure in the coming months.
While it’s inevitable that startups will fail, how they fail and say goodbye makes all the difference, and Lynk and Valiu have been committed and rigorous with their communication to, and support of, both users and employees. We commend both teams on their grit, transparency, and passion.
Acknowledgments
Mercy Corps Ventures is one of the most active seed stage investors in frontier markets. Our venture support has helped 32 companies raise over $125 million in follow-on capital. This success is possible thanks to the support of the Mercy Corps board and leadership, and country and program teams.
We’ve also been fortunate to be able to recruit interns and consultants who have brought immeasurable value to the table. We’d like to say a heartfelt thank you to consultants Eva Hoffman, Hebe Foster, Ann Kim, Ellen Carey Maginnis, Philippe Abraham, Joana Petrova, Dani Nurick, Stephanie Fleming; interns Wendy Foo, Saba Alemnew, Carolina Ortega; and Georgetown University capstone students Joon Park and Ronald Sullivan. Thank you also to Joe Meginnes for legal advisory, Morrison & Foerster for generous pro bono support, and Donna Rocco for exceptional financial and accounting support.
Institutional Donors
Mercy Corps is part of the Celo Alliance For Prosperity. Celo contributed funds for a stablecoin pilot in Kenya and we’re excited for many more collaborations to come.
Ecosystem Partners
Thank you for your time and attention.
Our vision is a world where people and communities can withstand disruption, build for the future, and thrive. We're grateful to have you along for the ride as we work together to identify, pilot, and capitalize innovative solutions designed to build climate resilience and financial resilience for underserved populations in frontier markets.
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