2022 Annual Impact Report Supporting visionary entrepreneurs to deliver impact at scale

Introducing our Resilient Future Thesis

We are living during a period of dramatic advancements in technology and connectivity. Across the globe, these innovations are accelerating progress toward economic development and increasing purchasing power in emerging economies.

At the same time, never before have we seen such extreme global upheaval, shocks, and instability. Climate change is a key driver of many of the changes occurring at the global and local level, across every economy, sector, supply chain, and industry. But climate change is also creating unforeseen opportunities. Evolving consumer preferences, technological developments, and new legislation are leading to the creation of new solutions, product categories, and market opportunities. There is a $23 trillion climate-smart investment opportunity into frontier markets by 2030.

Financial services are critical tools for building resilience, but global and local shocks have exposed the existing inequity and exclusion within our current financial system. When people are able to access, use, and afford a range of financial services, they are better able to cope with shocks and disruptions that come their way. Currently, 1.1 billion unbanked adults own a mobile phone and could be reached with financial services, and serving unbanked women would generate $330 billion in banking revenue.

As we reflect on these opportunities and threats posed by climate change, we are acutely aware that climate-vulnerable and underserved households, small businesses, and workers have the most at stake. These populations often lack access to inclusive and equitable tools, infrastructure, information, and markets that could enable them on their path to prosperity and economic growth. Without access to these resources, they are unable to adequately prepare for, withstand, and respond to climate disruptions.

We’re leveraging the opportunities created by this transformative moment by investing in and supporting founders who are building a more inclusive and resilient future. Here’s how.

AgriAku

AgriAku is an agri-specific digital marketplace in Indonesia bringing transparent pricing for input purchases and output sales, resulting in higher income for farmers.

Verqor

Verqor's platform provides cashless credit, inputs, and other agricultural services to farmers in Mexico, and provides connectivity across key industry players, including suppliers, manufacturers, and buyers.

Kwanza Tukule

Kwanza Tukule is a logistics company that optimizes the supply chain for informal street food vendors in informal settlements, 66% of whom are women.

Cinch

Cinch is a Kenya-based land management enterprise that brings economies of industrial scale to the individual acre by aggregating land parcels held by smallholder farmers and managing them with economies of scale.

Open Forest Protocol

Open Forest Protocol allows landowners of all sizes to launch forestation carbon projects through their blockchain-powered measurement, reporting, and verification (MRV) platform.

SympliFi

SympliFi is a digital cross-border lending platform that leverages new technologies such as digital wallets and (later) blockchain to support small businesses in emerging markets in accessing affordable credit.

Stable Foods

Stable Foods is an end-to-end platform providing an innovative irrigation-as-a-service solution. This brings a first-of-its kind irrigation solution to smallholder farmers for as little as 17 cents a day.

Complete Farmer

Complete Farmer is a digital agriculture platform that utilizes predictive analytics and individualized farm advisory to improve farmer production and incomes, and offer increased accuracy and transparency to value chain stakeholders.

Ndovu

Ndovu is a wealthtech platform built on blockchain for users across Africa, allowing low-income individuals to start planning for their future.

Rest of Portfolio

active and exits

ALIGNMENT TO THE SDGs & Industry Standards

At Mercy Corps Ventures, we recognize our role in contributing to the $2.5 trillion funding gap to achieve the UN’s Sustainable Development Goals (SDGs). Through our investments, we are committed to making meaningful contributions to the SDGs. Our portfolio companies have social and/or environmental impact baked into their business models and we map each of our investees’ impact outcomes directly to the SDG targets. While our portfolio indirectly contributes to nearly all of the 17 SDGs, we specifically focus on these 9 SDGs when selecting investments.

Fails & Lessons Learned

1. Addressing the Market Downturn | 2. Team Culture at Scale | 3. Adapting Our Impact Approach | 4. Scaling Our Venture Platform | 5. Integrating a Climate Lens | 6. Broadening Pilot Pipeline | 7. Refining Our DEI Approach

1) Building for resilience in a bear market: What does the future hold for emerging market innovators?

In our 2021 Annual Impact Report, we talked about being in “a golden age of venture capital” and not knowing how long it would last. Now, we’re facing a global market downturn, and we don’t know how long this will last either. But if history is any guide, structural inflation, geopolitical tensions, and cascading crises will lead to a less bullish period that will last for some time to come.

When we’ve spoken to portfolio companies about the downturn, most entrepreneurs remain optimistic. There is still money flowing into early-stage startups, as venture capital firms have raised funds that will be deployed over the next few years, so a downturn can take longer to manifest in this stage of stage funding than elsewhere. We are, however, seeing some dry-up of capital in growth stage rounds where investors are becoming more discerning. “Tourist VCs” are discontinuing investments in emerging markets, and angel investors are pausing investments as they face reductions in personal wealth as well as unclear sightlines to exits from the startups in their portfolios.

Beyond the challenge of raising later-stage capital, we know that timing is key — both in our portfolio and across the industry. Despite the current downturn, we’re witnessing positive growth among many of our portfolio companies that wouldn’t necessarily have been possible five years ago. For example, companies developing solutions to meet the moment of increasing consumer awareness and demand for transparency and sustainability in global supply chains are perfectly positioned for the current market. Companies in our portfolio and beyond are adapting their products to reach larger market segments (including the mass market) that can take them to break even faster. The sharpest founders in our portfolio are being more prudent about cost management, more thoughtful about who to hire (and when), and more creative about raising funding to shore up balance sheets — even if terms are not as founder-friendly, recognizing that taking more expensive capital today will still translate to higher valuations tomorrow (if the capital is deployed wisely).

So what does this mean for the year ahead? In an economic downturn, some of the excesses, such as the plethora of high-interest, unsecured consumer digital credit companies or get-rich-quick NFTs and crypto fads, will likely see more user flight, and credit quality will deteriorate more quickly. Companies that offer products that improve the productivity and livelihoods of their customers are better positioned to withstand market disruptions, while extractive and inequitable models are more likely to face the steepest losses.

We believe that the most resilient companies are those that create the most resilient users. Companies that help their users achieve true productivity and livelihood gains from digital financial services and climate adaptation solutions will see their customers become more resilient to shocks in their own lives and businesses. Over time, these companies will have more loyal customers with greater purchasing power, which can drive better unit economics and revenue growth.

“A bear market is a time to build and get the best work done — to be truly what users need. Once the economy stabilizes, these will be the companies in the best position because they've spent this time really listening to their customers and adapting their product offerings to respond.”

Scott Onder | Senior Managing Director, Mercy Corps Ventures

Without the tailwinds of the last few years, founders will need to reach product-market fit sooner to be able to raise funding rounds. Companies with a deep focus on customer feedback, user experience and education, distribution, and integrated products and product design are more likely to achieve this. Startups are more likely to survive the downturn if they are execution-focused, data-driven, and able to pivot. Having a strong internal team culture of realism, transparency, and no-nonsense accountability will also be key to keeping things moving during difficult times. Gone is the era of cheap capital to subsidize and incentivize customer acquisition and retention. Thus, pre-seed companies are quickly trending toward demonstrating sustainable unit economics.

While we have seen some fintech startups and unicorns spiraling downward, financial services remain critical enablers and, broadly speaking, strong market opportunities. During this challenging time, there is a push and trend towards valuable solutions: crypto is moving to real-world use cases, lending is moving to productive use of capital, blockchain for carbon credit is moving to onboard the end producers on the ground, and more.

2) Maintaining company culture through growth

For startups, moving from pre-seed and seed stage to Series A involves a sequence of significant changes akin to starting a new company. Companies are conceptualized and founded with a set of assumptions about market needs and how to deliver on them. The core founding team is in close proximity to users and pursuing a minimum viable product. Many initial assumptions about market needs are proven invalid, and the team uncovers insights that take the product in unexpected directions. As they gain experience in market, those assumptions are tested and constantly evolving, requiring shifts not just in tactics and strategy, but in culture and growth mindset as well.

Whether intentional or not, a company’s culture is codified during this seminal period in pursuit of their minimum viable product, and can take many forms, largely reflecting the founder’s style and approach. As a company embarks on the growth stage, what we might consider the biggest moves, such as adding or retiring product features, or pivoting from one business model to another, can be relatively simple once the demand signal is clear, but culture can be easily overlooked.

Being intentional about culture is critical. The best companies not only consider their culture and are cognizant of when it is forged, but recognize that it will evolve in potentially unexpected ways. As a startup pivots and adapts as it grows, getting a team to embark on a new narrative, a new sector, or a new market can create tension and fragmentation. Any team culture is dependent on long-term visibility and trust, which can be shaken when the founding premise is challenged.

In our 2021 Annual Impact Report, we reflected on the importance of founders building strong organizational structures and smart teams beyond the C-suite. But it’s not just about building the right team — it’s about building and maintaining the right culture while scaling, too. Over the course of 2022, we saw that the startups able to maintain their culture were the ones capable of articulating how short-term changes still aligned with their long-term vision and north star, and where founders acted accordingly.

“A fast-growing company has to level up all the time — you are never the same company you were three months prior. If we, as founders, don't understand how to do this, then how can we hope to inspire our team to do it?”

Hedvig Alexander | Co-Founder & VP of Community & Impact, Powered by People

At Mercy Corps Ventures, we’re metaphorically going from our seed to Series A and experiencing a lot of the same growth challenges as our portfolio companies. We’ve doubled in size as a team over the past year and are now fully remote, based in nine countries across multiple time zones. This means we’ve needed to be intentional about establishing and nurturing our own culture of transparency, collaboration, fairness, and good humor. We’ve also needed to set up the right structures to maintain this culture, whether by making time in our weekly team meetings to get to know each other beyond work, sharing monthly key objective updates to maintain alignment, or establishing more regular mechanisms for team members to share feedback, express gratitude, and, just as importantly, have fun!

3) Adapting our impact approach to emerging business models

Last year, we set out to explore new frontiers in fintech for climate resilience and in Web3 technologies. Where are there market and impact opportunities underappreciated by other investors? For example, how can fintech be leveraged to help climate-vulnerable communities withstand shocks and transfer risk? How can financial services be embedded in other products and services to drive affordability, access, and productivity? How can Web3 propel financial inclusion for underserved populations? We’ve looked at new spaces, like regenerative finance (ReFi) and decentralized finance (DeFi) lending, and have been formulating theses around them, making some early investments and prioritizing our learning in these areas.

With each new sector or business model we explore, we’ve been challenged to adapt our impact measurement and management (IMM) approach and refine how we integrate IMM into each stage of the investment lifecycle. For example, how can we measure climate adaptation outcomes related to financial services? We believe that people who have greater access to credit, savings, and insurance are better equipped to adapt to climate change and withstand extreme weather shocks. With a company like Verqor, which is offering digital credit to farmers in Mexico, we’re looking at how access to credit (along with access to high-quality inputs and advisory services) is contributing to higher crop yields and income for farmers. Agricultural credit and crop insurance are also key tools to help farmers de-risk the adoption of regenerative practices, which ultimately boost their climate resilience.

It's our job to find, invest in, and support startups on the furthest edges of innovation. This means the impact use case may not always be proven or 100% clear, and we’ve had to get comfortable with investments that don’t fit the traditional B2C model (where end user impact is generally more straightforward and measurable). For example, Floodbase has supported numerous national governments and organizations to monitor, prepare for, and respond to floods, yet the company is one step removed from the people who are relocated or directly assisted as a result of their product offerings.

So when we make new investments in solutions for systems-level change, how do we accurately measure the trickle-down impact of B2B, B2G, or B2B2C business models that don’t directly interact with the end user? How do we continue balancing the need to efficiently deploy capital while taking the time to learn about new spaces that we believe will have a positive social impact, even when that impact is indirect, long-term, or not yet strongly evidenced? We’re continuing to adapt and fine-tune our own impact approach while collaborating with peers and key ecosystem partners to tackle these thornier IMM-related nuances. In 2023, we’re particularly excited about joining the GIIN’s IRIS+ Climate Adaptation and Resilience working group as well as the CIFAR Alliance’s Metrics and Measurement working group.

4) Trialing new approaches to scaling our Venture Platform

In our 2021 Annual Impact Report, we reflected on the evolution of our post-investment support. This year, we officially launched our Venture Platform: our offering beyond investment, providing high-value structured support to give ventures an unfair advantage on the path to scale, profitability, and impact. This launch formalized the support we provide to portfolio companies and includes how-to guides for other impact investors looking to build their own venture platform.

Our unique approach is to deliver support that is right-fit for impact-focused, early-stage startups in emerging markets. As we evolve our Venture Platform offerings, we have a few guiding questions to help us define what we offer: Would this allow companies in our portfolio to grow smarter and faster? Do we believe we’re in the position to develop a high-quality unique offering? Will it lead to positive impact at scale and more resilient, productive users? This ensures we are delivering the best-in-class support to companies — support that they are not able to access elsewhere.

As our portfolio grows, scaling our Venture Platform effectively is critical to our continued success as investors. We know that companies and founders have different needs and capacities when engaging with us, and are at very different stages along their growth journeys. To account for this, we have developed structured venture engagements that can be easily adapted to the needs of any given startup. This includes optimizing how we prioritize, design, and monitor post-investment support engagements to support founders where we can be most catalytic, as well as standardizing our most popular Venture Platform engagements.

We’ve started to prioritize the level of post-investment support we offer to each of our companies by considering several factors. For example, is this the founder's first experience as an entrepreneur? Does the company have limited access to support (other investors, grants, advisors, or internal team)? We also consider our own strategic alignment as investors. For example, how much do we expect to learn from the investment? Is it an investment in a new business model or sector for us? Are there opportunities for collaboration within the portfolio? To allocate our resources to support our growing portfolio, we developed a weighted scorecard that analyzes these factors and results in a three-tier categorization of our portfolio companies.

This year, we will focus on developing and adding new offerings to our Venture Platform suite as we continue to work internally on the operational steps to make our support more effective, channeling our resources to the companies that need them most.

5) How do we go beyond climate-focused investments and integrate a climate lens into our Venture Platform, insights, and beyond?

To us, climate resilience means more than investing in new companies with a climate adaptation angle. It means recognizing that our current portfolio companies, climate-focused or not, will face climate-specific impacts on their markets, business models, and end users.

In 2022, we started investigating how we might design climate-specific offerings within our Venture Platform. We define “climate resilience” as the ability of individuals, households, and communities in emerging markets to withstand disruption, build for a more equitable future, and thrive. For example, we want to support ventures in ensuring their end users can withstand natural disasters, short-term extreme weather events, and/or longer-term changes in climate patterns, and we want ventures to tap into new market opportunities, pivot to respond to changing consumer preferences around sustainability, and build resilience into their internal operations.

As a first step, we sat down with portfolio companies, peers, and other investors to better understand how their customers, businesses, and products could be better supported to respond to climate risks and opportunities. For example, climate risks for an emerging market startup could include the physical geography where their customer base is located and related environmental risks from climate shocks. It could also mean potential business continuity risks such as supply chains, staff availability, regulatory risks around climate requirements, and consumer preferences such as divestment.

We’ve already heard an array of responses and concerns from portfolio companies as climate disruptions become more frequent and intense. When asked about disruptions to business models due to climate change, a portfolio company working with smallholder farmers said, “There is a risk that customers become poorer and poorer despite our help.” Recognizing an information gap among their users, the startup pivoted their model to provide more advisory services to help farmers respond to climate change, including best practices for adapting crop production to the changing environment.

In response to the question, “How do you think about climate resilience in your business at the moment?,” another portfolio company providing credit to smallholder farmers told us, “Since our business is about lending, one of the main risks is climate conditions that can be unfortunate for the farmers, sometimes losing all their income in cases of extreme weather conditions. To mitigate those risks of lending and keep affordable rates, we have to think about increasing the climate resilience of farmers.” Some companies haven’t been thinking about it at all. One founder stated, "Keep bringing this to our attention. Sometimes it’s not front of mind from a business perspective, even if I think about it personally.”

With this in mind, we’ve been leveraging our insights function as another tool to continue to build momentum toward understanding and creating climate adaptation and resilience for underserved users, in all sectors and models. For example, there has been limited data on the climate resilience of small businesses in emerging markets, so we undertook a research initiative to better understand the impacts of climate shocks on micro-retailers in two markets in Africa, and the tools needed to drive their resilience to increasingly severe disruptions. Our four-part article series lays the groundwork for innovators, investors, and funders to understand the opportunity to positively impact 162 million small businesses globally with right-fit products and services.

"Many impact investors face the issue that companies (and other investors) see impact as separate from business growth. But they are one and the same. So the challenge for embedding a climate lens in our Venture Platform will be similar — we will need to work hard to integrate climate resilience into the mindsets of all founders we work with, and develop relevant support mechanisms for them."

Hebe Foster | Platform Associate, Mercy Corps Ventures

We are working with urgency and diligence to embed a climate lens throughout our approach, including the launch of new pilots that explore the crypto and climate nexus.

6) To Web3 and beyond: What we learned from broadening our pilot pipeline in 2022

Our pilots responsibly test, de-risk, and build the evidence base for promising, cutting-edge Web3 solutions in frontier markets. Last year, our challenge was how to source diverse pilots in the first place. We thought scoping from our existing networks would make implementation and scale easier, but this approach was too narrow and ultimately limited us to a small subset of potential solutions.

To broaden our pilot pipeline, we launched our Crypto For Good Fund (C4G). This opened us to innovative solutions and new geographies, and invited more active engagement with the global “crypto for good” ecosystem.

As expected, this process was imperfect, and we have learned many lessons we’ll be applying to a second C4G Fund round in 2023. First, we need to be sharper in how we design the application process to ensure we are getting the right information, faster and clearer. For example, some companies thought we were offering grant funding in crypto, which we were not. Simultaneously, there appeared to be much more traction for pilots in Africa than in Asia and Latin America, which could be a reflection of the language and tactics we used to market the Fund to applicants. Secondly, we learned that we need to budget more time to review proposals and provide feedback to pilot partners. We received nearly four times the applications we expected, with pilots pitched in over 50 countries across emerging markets.

Expanding into new geographies and use cases helped us continue to push the boundaries of how Web3 can be deployed for good. We ran two pilots in Kenya in our first year, and we continue to see a lot of innovation in this geography. However, solutions that work in Kenya may not work in other countries, which may not have the strong mobile money penetration and vibrant startup ecosystem that Kenya does. In 2022, with the help of C4G, we launched pilots in Mozambique, India, Cameroon, and beyond. To continue testing the limits, we have been deploying pilots focused on more nascent use cases such as token-based economies for public goods and NFTs for asset ownership.

As we step back and reflect on the year, we’re thinking critically about how to stay at the frontiers of innovation. In order to test ideas on the cutting-edge, we need to know where the edge is. Finding it can be challenging. A successful pilot starts with the selection and design phase, which we are constantly evolving. Currently, we pilot across a range of business models and use cases, from small business lending to carbon finance. Do we narrow our focus or remain broad in scope? And how do we incorporate a climate lens? Do we need to be more prescriptive at the pilot proposal stage and have a stronger point of view on what we think will be most impactful? These continue to be fundamental questions and tensions we want to explore. Stay tuned for the launch of C4G in 2023.