Charm Impact – Driving positive change
Interview with Gavriel Landau, CEO of Charm Impact (*)
What prompted you to launch Charm Impact?
Back in university, when I was in business school, I took an operations strategy course, in which, Michael Porter’s essay on the creation of shared values was presented. I strongly agreed with his view about different levels of corporate social responsibility (CSR) ranging from generic (not aligned with the business), to CSR focused on the value chain (e.g. UPS improving its methods for the delivery of parcels), to strategic CSR (e.g. Toms Shoes one for one business model: buy one, give one). I felt inspired by that lecture that taught me that you can create businesses that are sustainable, and are fully focused on doing good. It is possible to create a business model in which the bottom line is 100% aligned with the mission of doing good.
After graduating I went as an English teacher to Cambodia for 3 months. Upon my return, I joined Accenture where I worked for their financial and energy clients for 5 years. I left to work in two areas for which I am passionate> renewables, and high tech. I joined, as a project manager, a UK startup focused on solar peer to peer power for the UK market. Around that time, I met the founders of Solshare, which rekindled my interest in emerging markets and access to energy.
I then decided to devote myself to promoting a meaningful step-change to the efforts to bring energy to those without access to it in emerging markets. The key question that concerned me was – why doesn’t everyone have access to electricity? I soon corroborated that access to finance was one of the critical missing pieces. It was then that I decided to focus on helping the entrepreneurs and SMEs, that are promoting access to energy, who are building companies that are commercially viable but not yet of a scale large enough to be bankable. In addition, our preference is for helping those SMEs that are locally owned and operated and even better if they empower women either as part of the founding team or within their business operations.
What problem are you solving?
I could summarize the problem statement as “access to finance for early-stage clean energy entrepreneurs in developing economies”. This echoes well with the flavor of the decade, which is climate change. We have corroborated that people want to help fight climate change, but most of them do not know how to help. Furthermore, they do not acknowledge that their contribution (no matter how big or small), always makes a difference. We are at the frontline of this change. We have an invaluable opportunity to show people the power of their money. This can be done in two ways. First by showing them how they are financing and indirectly contributing to projects. Secondly, by helping channel people’s money into transparent companies focused on doing good, i.e., sustainable and conscious companies.
What is next for Charm Impact?
After our successful recent crowdfunding campaign, we are ready to scale. We will devote the next months to curating a community. We will continue to work on finding the right investors that want to contribute to a meaningful and impact-focused business. Once we have a large group of impact investors, the size and reputation of our investor community will attract similarly minded investors. Our current challenge is to keep the momentum, continuing to scale, and to grow and deepen the investor community. We will be hiring early next year. Our immediate need is to recruit investment associates (to help us with building pipeline, managing borrowers, credit scoring). Then we will have to redouble our efforts on marketing and branding. This may require bringing inhouse some of the tasks that we have currently outsourced. For the next year, our goal is to focus on better serving our investors, creating a vibrant community, fostering communication and engagement.
Which are your products?
Our core service is enabling crowdlending. One side of this service is looking for clean energy entrepreneurs in developing economies. We conduct due diligence and retain the most promising projects. The other side is selling this as an investment opportunity (i.e., for impact investment) for investors mainly located in developed markets.
We act as facilitators ensuring full transparency and traceability, diversification, and giving investors an opportunity to choose who they back with their money. We focus on business loans that help companies in emerging markets grow. The method is quite simple: we find interesting opportunities, then make a first loan to those SMEs. After they have repaid the loan, provided that their business and financials continue to improve, we offer additional fundings. We help these SMEs scale until they have reached a size when they can attract more capital than what we can currently provide. Besides loans, we are helping such SMEs create a credit history and a credit score that eventually make them bankable. In the future, we envision being able to connect them with business opportunities and to offer technical assistance beyond finance.
What is your business model?
We provide small scale loans to clean energy startups in emerging markets. The loans are high-risk due to a lack of credit scores, financial history, and the fact that the SME’s that we support are testing new business models in new markets. Addressing these challenges requires new business models and new ways of thinking. Most people think about the customers near the base of the pyramid as inherently risky. Some people think entire countries are too risky to invest in. We are challenging core paradigms of how we measure the success of our investments by facilitating a discussion on balancing risk, return and impact.
Our crowdlending model is based on a blended finance approach: we combine for-profit impact investments with grants and/or philanthropic capital. By embedding a blended finance model into our loans, we create a buffer for the investment capital, it becomes the senior tranche, and thus less risky for the impact investor. We also derisk by hedging the exchange risk for borrowers. In parallel, we help grow the available philanthropic capital. Once repaid, this capital is reused in future projects. By becoming reusable capital, its impact is leveraged, i.e. instead of being consumed, it is redeployed. Furthermore, this virtuous circle is fostered by the fact that the borrower is pushed to become profitable rather than depend on grants. In sum, our flywheel is based on the multiplier effect on capital.
Basically, it catalyzes private investment and at the same time, it creates an incentive for the recipient companies to be more financially sustainable. We contribute to making the connections among the stakeholders. At the core, we are in the business of creating a community willing to support energy entrepreneurs in emerging markets. This requires us to focus on encouraging and nourishing impact investors and finding grants and philanthropic to derisk the loans. We are fully concentrated on making this business model easy, repeatable, and overall scalable.
What is Charm Impact’s current greatest challenge?
Our thesis and prima facie findings are that people do not think about themselves as investors. Our minimum investment is 250 pounds to make the opportunity more available to people who may not usually invest in startups. In exchange, we create a lot of value for your money both economic and in terms of impact. We have embarked on a customer journey whose goal is to help them perceive themselves as investors.
There is also a gap between the perception of risk vs. actual risk on the ground. There are a lot of reputational factors that influence this perception. For example, people fail to distinguish between the risk of real borrowers vs. country risk. This holds back some investors from backing companies and these companies from being able to grow.
Are you satisfied with your rate of progress?
If we measure ourselves, based on the frame of the 17 global sustainable development goals, we are still quite far from where I would like the industry to be in terms of achieving universal energy access by 2030. Nevertheless, we have a role to play. Covid-19 increased global inequality and created a significant number of new poor people. We need to contribute to lowering uncertainty. We can solve energy poverty and help entrepreneurs. COVID has only made these problems more evident and acute. There is less money flowing from traditional financiers to the emerging market entrepreneurs that could help us meet the goal of bringing energy to everyone. COVID has just made evident that now there is even more need for alternative finance. We will strive to continue to be at the frontline of “building back better“.
“Real people, real business, that is what we focus on”
Gavriel Landau – CEO Charm Impact
(*) I am a shareholder of Charm Impact