September 1, 2019

Executive Director at Innovation Edge, Sonja Giese, joins Alberto Lidji to discuss their impact investment platform and innovative strategies in support of Early Childhood Development in South Africa

Executive Director at Innovation Edge, Sonja Giese, joins Alberto Lidji to discuss their impact investment platform and innovative strategies in support of Early Childhood Development in South Africa.

 

Sonja joined the podcast from Cape Town, South Africa.  Innovation Edge is focused on early childhood development (ECD) investments in South Africa. They’re a platform designed to promote innovation in ECD (ages 0 to 6) set up to try to bring innovation in to tackle the multiple challenges preventing children from thriving.

 

Sonja notes that the reality in South Africa is that more than half of children are starting school without the right learning foundations in place.

 

Innovation Edge was originally set up by a group of funders who had a shared interest in ECD and had been investing in this field in a traditional grant-making way. But they were facing intractable problems and were interested in finding new ways to tackle them. They each put funds into a pooled fund and Sonja was tasked with sourcing investments that were a good fit for that fund.

 

The funders had to be very aligned; moving away from traditional grant-making and realising that there is a very high degree of risk in this type of fund, since they source very early stage ideas, often even before there being any proof of feasibility or proof of concept.

 

This is critical if you’re going to drive innovation in such a nascent area – the funders had to have similar risk appetites.  All the funders and Sonja agreed that if they weren’t failing enough then they weren’t pushing the boundaries of innovation enough. This is something Sonja found very inspiring.

 

When asked whether deal flow origination was difficult, she replied that indeed it was “hugely challenging”. Sourcing deals is difficult and Innovation Edge continue to experiment with different sourcing strategies -- they need to be very active and, at times, even co-create ideas.

 

The team at Innovation Edge is diverse. Interestingly, out of a team of 8, Sonja is actually the only one who comes from a traditional development background. Others come from entrepreneurship, start-ups; impact investing, financial instruments.  They want people who have diverse experiences, networks and ways of thinking.

 

They struggle to define the exact label for the investments that they do; and whether they’re labelled as impact investments, social investments, ESG-integrated investments really is influenced to a great deal on their target audience. They spend a lot of time trying to find “the label”.

 

At Innovation Edge, they like making very unlikely connections between people and ideas – connections that would otherwise not come together were it not for Innovation Edge.

 

As far as the types of investments they make: they like to think of themselves as an “impact first investor”. They do both investments and also traditional grant-making, if appropriate. There are instances when they’ve taken equity in some start-ups and, also, experimented with outcome-based models and other variations. They try to bring flexible resources and a flexible approach to resourcing.

 

Sonja describes their core fund as an ‘evergreen fund’. Any returns that are made are reinvested back into that fund. So, none of their investors in that core fund expect a financial return.

 

However, what many of these investors may have is a particular preference for investing in one or many of the diverse initiatives that come down Innovation Edge’s deal flow pipeline, and then they have the opportunity to make direct investments into some of these and they can then negotiate the terms of that directly.  Irrespective of the various approaches, Innovation Edge aims to stay engaged to ensure that the investment remains mission-aligned; and indeed investors may well need to be willing to forego some financial returns in order to maximise social returns.

 

Different funders have different appetites for risk. Some funders are not prepared to put in funding for something that hasn’t been proven. So part of the challenge is in connecting funders to the right opportunity. Thematically, some investors may be more interested in investing in EdTech (education technology) while others may care about other types of investment areas.

 

Sonja introduced listeners to their “Think Future” conference, which happens every two years and is due to take place later on in 2019.  She explains that at Innovation Edge, they look at their activities in three buckets:

 

1 – Commissioning Innovation (i.e. how they find and make investments) 

2 – Communicating Innovation (i.e. what they do; what they’ve learned; what tools they can share with others)

3 – Connecting for Innovation (this is vital --  they have a number of strategies to make these connections.

 

Think Future is their flagship event and characterises their approach to making these connections.

 

The first Think Future conference was held in 2017; the second is coming up in late 2019. It curates a program that stimulates unusual thoughts and links between concepts and participants. They’ll be hosting 250 participants from 20 countries in South Africa. Interestingly, half of those who will be attending don’t work in the early childhood space. The conference is about bringing new and disruptive ideas to bear on the challenges facing early childhood development. At Innovation Edge, they want people to leave the event with a fresh perspective on how they can do things differently and apply their thinking to make an impact.

 

Over the years, Innovation Edge has developed some invaluable internal tools, which revolve around the strategies they’ve used to source and stimulate an ecosystem in ECD; tools for tracking the progress of their investments – they have a tool that tracks investments from source to scale – which has 7 steps with a set of questions that must be answered in every step.

 

At Innovation Edge, they view these tools as a public good – they’re more than happy to share these tools with others across the globe. “it is an absolute delight” to share these tools with others. Part of the rationale is that when others engage with Innovation Edge’s tools and give feedback, it helps Innovation Edge grow, learn and add value. They welcome collaboration at all levels and from every geographic corner.

 

Some of their main international funders include: the Omidyar Network, the UBS Optimus Foundation and ELMA Philanthropies. (NB: you can listen to The Do One Better! Podcast interviews with both the heads of UBS Optimus and ELMA Philanthropies at Lidji.org). Despite Innovation Edge’s focus on making investments in South Africa, Sonja notes that international funders help foster a cross pollination of ideas.

 

When asked what success looks like in the next 10 years, Sonja noted that there are two things that they’re hoping to achieve:

 

1 - Pipeline: they want to really demonstrate their ability to take highly impactful innovations from source all the way to sustainable scale. This is very challenging to do in a field such as ECD.

2 - Purpose:  this focuses on target 4.2 of the SDGs (UN Sustainable Development Goals), which tracks the percentage of children who are developmentally on track before they enter school. For Innovation Edge, they’ve really aligned their goals to that specific SDG indicator. They’d really like to see many more children starting school with the right foundations for learning. 

 

They’ve commissioned a tool to track child outcomes to answer this question. It’s now been standardised for the South African population; it’s available in all 11 languages and it’s been widely used. The other thing they’ve done is to partner with business and with the South African Government to motivate the use of this tool to actually establish an ‘Early Years Index’.  They’d like to do a national sample of children every 3 to 5 years to be able to track whether over time they’re getting progressively close to the ideal of having 100% of children starting school on track.

 

The tracking of returns on investment is challenging. They’ve developed some metrics that they believe can be generically applied across a diverse portfolio. Over the past 4.5 years since they’ve been making investments they’ve made 36 investments and these are focused in three types of things:

 

1 – Product / service

2 – Platforms that are already at scale where they leverage the platform for social impact

3 – Data tools and insights

 

For each one of these they have clear targets of where different types of investment should be at different stages of their cycle. These can be targets around prototypes – having a good working prototype – a viable revenue or funding model, a strong team in place etc -- and ensuring that over time they’re moving to becoming sustainable and scalable.

 

On the topic of Social Returns and Outcomes, Sonja notes they focus on:

 

1 – Achieving greater efficiency / effectiveness in government systems. If you achieve this you could have potential to impact the lives of millions of children. 

2 – Impact to shift the ways in which ECD practitioners or teachers are operating in the classroom; or the way parents are engaging with their children. Actual change in behaviours that will improve outcomes.

3 – Child outcomes – they look at 7 developmental domains and they look at the way their investments have improved these outcomes.

 

The team at Innovation Edge work closely with management teams and this can be very time consuming. An interesting observation is that the financial investment is actually the smallest part of the ‘value-add’. Typically, their investments are not very big; they give around $80k in an initial investment round and then they can do repeat investments but typically the value they bring is much more hands on, by sitting on boards, helping organizations navigate complex government dynamics and relationships, business modelling, legal support, networking and strategic support. Sometimes they really are very operational and that’s why they don’t ever anticipate their portfolio growing very large -- they aim to make 6 to 10 investments per annum.

 

Sonja’s key takeaway for listeners: It’s important to find those connections between what you’re good at and what’s needed.  She notes that people tend to compartmentalize their lives. For instance, one might be a very successful business person and then in their spare time they might do some work for a charity that is completely different from the skillset they’ve developed in their business careers.  At Innovation Edge, what they’re trying to unlock is the way to connect these different things – where she sees that people can really add value is in that ‘aha’ moment between what their core competences and skillset are and the desperate need that there is out there. It’s at this point that people can really make exponential contributions.

 

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