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10/21/2010

A Toniic for Impact Investors


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A small but growing group of high-net-worth individuals are redefining the meaning of investing as they commit increasing portions of their wealth to projects that yield desired social and environmental outcomes as well as financial returns. These pioneer “impact” investors face many challenges, including the task of undertaking time-consuming due diligence and monitoring of investments in far-flung locations, navigating unfamiliar legal systems, and often assuming the heightened risks associated with going it alone without the support and knowledge-sharing of trusted advisors or coinvestors.

Since they founded the KL Felicitas Foundation in 2000 to invest in projects around the world that support social entrepreneurs and rural communities, Charly Kleissner, a former Silicon Valley entrepreneur, and his wife, Lisa, have taken on many of these challenges. Their experiences and their desire to create a more supportive infrastructure for investors like themselves in the impact space led them to create Toniic, a new organization whose goal is to increase the flow of capital into early-stage impact investments by bringing together like-minded, experienced investors for idea, due-diligence, and deal sharing.

The seeds for Toniic were sown last December when the Kleissners gathered together an informal group of active impact-investors to discuss how they might collaborate. This spring the group incorporated with the support of 5 co-founders and a handful of additional founding members. Together they raised funds to hire a CEO. Toniic now has 16 individual members and 2 institutional investors in the US and over a dozen of serious prospects. One of the US institutional investors is First Light Ventures, an independent fund within the Gray Ghost Ventures’ family of initiatives.

“At this stage of our development, we are not after hundreds of members,” Kleissner maintains. “Our short-term goal is to put together three to four dozen members in Europe, the US, and India. We are seeking people who have already accomplished something in the sector, who have done something unconventional in questioning the investment status quo. We will listen to each other’s stories to learn and to inspire each other.” But this will not just be an intellectual exercise. Members must be willing to share their deal flow and due diligence, to collaborate with other members, and to commit to making at least two impact investments a year of a minimum of $25,000 each. The goal is to attract investors who can commit somewhere between $100,000 and multiple millions of dollars to an impact investing portfolio.

In India Toniic members are drawing on the knowledge base of Dasra, which works with successful social enterprises, Indian philanthropists and impact investors to bring together knowledge, funding, and people to catalyze social change. In East Africa it will be working with partners of the Wire Group, the organization leading the Toniic effort in Europe. Kleissner notes that Toniic is in talks with a potential partner in China as well.

The organization itself will operate as a hybrid business model--part for-profit, part not-for-profit--and some of it’s members understand that some of the deals they invest in require “concessionary” rates of return or hybrid types of investments, i.e., combinations of grants, subsidized capital, and commercial capital. “If you want to enable poor or disadvantaged producers in Asia or Africa to meaningfully participate in the global economy they have to produce something that can be sold through normal distribution channels,” says Kleissner. “Having subsidized capital for training is absolutely necessary to tie these producers into the value chain.” He notes that investors who accept below-market rates of return for some of their investments will enable market rate investors to participate, thus catalyzing projects that would not otherwise get off the ground. It is important to note, however, that many Toniic members would not invest in these "concessionary"  deals, but only look at commercial type of return opportunities.

Kleissner takes the view that the global capital markets must undergo a radical transformation to address the critical environmental and social issues facing humanity and the earth’s ecosystem. “Current business models including all their internal processes and incentives are aligned to perpetuate the existing system, that is the innovator’s dilemma,” he reports. Impact investors, many times, must therefore work outside this system to affect change, incubating new business models based on more holistic value systems. “First we have to show that we can achieve the impact we want,” says Kleissner. “If we can show results the transformation of the markets we desire will happen. Our role is to incubate it.”

Kleissner hopes that within two or three years Toniic will have dozens of members transacting in concert across three or four continents, and will have achieved a track record of successful exits and a track record of social and/or environmental impact. “At that point we should be able to invite additional capital like institution capital to come in,” he says.

–Susan Arterian Chang is a financial writer and is the content developer for Capital Institute.

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Comments

Waste of time. Check investor's circle

The U.S. is definitely going in the right direction, it is very positive to hear more venture capital focusing on sustainable social projects that will help the community, rather than just the investors involved. I wish the best.

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