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Along the Road of Impact Investing

By Emily Ziethen | Wed Nov 16 2022
Longtime Renew Capital COO Emily Ziethen Reflects on the Firm’s Ten-Year Journey
A significant amount of change, growth and development can happen over the course of a year, let alone over the course of a decade. It is with pride and a bit of nostalgia that I reflect on the 10 years since my journey to Renew Capital began. It started two years before my arrival at the company with my graduation from Loyola University Chicago, an institution which inspired me to “go forth and set the world on fire.” But my ignition was certainly that of a slow burn - it would take an internship with the U.S. Commercial Service (wherein I first discovered how SMEs can bring about private sector growth) and several years working at a U.S.-based private venture capital firm (wherein I observed how private capital investments can move economies) for me to find the perfect niche for my interests and passion for leaving the world a better place - the field of impact investing.   
When I first came across Renew Capital in September 2014, my knowledge of impact investing could be best described as basic. I had completed a bit of internet research on the (then) somewhat nascent but quickly burgeoning field of impact investing, and I was immediately hooked on its long-term potential in shifting folks away from the traditional aid paradigm and towards a sustainable approach that could create tangible change. 
What ultimately convinced me to make the leap was meeting with the firm’s managing partners, Matthew and Laura Davis, and seeing how they were (and continue to be) the living embodiment of Renew Capital’s guiding statements. I was inspired by their vision to build the best and most successful investment firm in Africa and change the way the world sees Africa - from a place of giving to a place of investing. To welcome the challenge of being trailblazers and see opportunities where others see problems. It was a call to action that I simply could not ignore; I joined the team as an investor relations analyst, supporting the growth of the Impact Angel Network (now Renew Capital Angels) and the execution of our blended finance consulting projects.
Today, I’m proud to see how much this concept has, in fact, caught fire, as noted in the 12 portfolio companies and thousands of entrepreneurs in Ethiopia, Uganda, Rwanda and beyond that Renew Capital and its Renew Capital Angels have fueled through a combination of capacity training and capital investment.
My eight-year anniversary coincides with Renew Capital’s ten-year anniversary on the ground in East Africa and with its rebrand. Last month, RENEW became Renew Capital to better depict its goal of entering half of Africa’s 54 countries by 2027. This rebrand also includes the use of a deeper, more fiery shade of orange in its marketing materials - which symbolically represents the firm’s own journey of change and development. I’ve witnessed Renew Capital grow from a small but steady flame to a virtual wildfire of ambition. And all the while, I’ve seen the firm continue to strike an equitable balance between seeking to generate positive financial and social returns.   
  • Renew Capital seeks to create a cadre of “investment-ready” SMEs that are able to quickly scale and become market leaders through a variety of capacity-building training programs (i.e., PE Investment Bootcamp, The Exec’s Program, CFO100 Program, etc.), as well as group and one-on-one coaching. 
  • Renew Capital seeks to build local ecosystems and crowd-in private investment through the creation of innovative financing structures and mechanisms, educating investors about the opportunities in Africa and ultimately adding “rungs” to the local capital market that are otherwise missing - be it through local angel networks, international angel networks, blended-finance investment vehicles, etc. 
  • Renew Capital seeks to support gender equality and women’s economic empowerment by encouraging SMEs and other fund managers to create gender-smart SME portfolios by using the newly launched SG2X Playbook - a publicly available toolkit for SME investing. 
Turning Challenges Into Opportunities 
There are still persistent and well-known challenges that SMEs must face and surmount across the East Africa region, including in Ethiopia. When Renew Capital began operations in Ethiopia in 2012, it was one of the fastest growing economies in the region. However, we believe Ethiopia’s private sector has been and remains constrained from achieving explosive, sustainable growth due to a lack of access to finance and a dearth of well-trained middle managers and executives (i.e., the missing middle, which tends to impact SMEs in particular). These capital and human capital gaps comprise the country’s “missing middle.” 
At the same time, the country faces an ever-changing and uncertain regulatory environment – Ethiopia's Ease of Doing business score in 2019, a ranking developed by the World Bank, was 159 out of 190. This means the business and investment ecosystem is simply not equipped to help the country's private sector take off and grow, which in turn can disincentivize entrepreneurs and investors from seeking to test and grow innovative business ideas. 
But what is so exciting about these identified problems is that we can turn them into opportunities. In fact, we are starting to see real indications that the government of Ethiopia is willing to explore the liberalization of the economy. For example, the country’s Homegrown Economic Reform agenda seeks to transform Ethiopia into an industrialized lower-middle-income country by 2025, which the Government of Ethiopia hopes to bring about through “structural reforms [that] aim to address bottlenecks inhibiting private sector growth” and “sectoral reforms [that] aim to address market failures and sectoral regulatory and investments constraints”1. We are starting to see the effects of this change in mindset with the opening of priority sectors to foreign investors, including manufacturing, agriculture and agro-processing, pharmaceutical, textiles and apparel, leather, tourism, information and communications technology, mining and power. The financial services sector has recently joined that list (pending final legislation, the NBE and Council of Ministers have adopted a plan to open it). We can see this change manifest in everyday life, from the growing Addis Ababa skyline to the conversations Renew Capital has with stakeholders in and outside of the country. There is a general excitement and hope for the country's potential that is electrifying to be around. 
Always Moving Forward 
The investment and development strategy that Renew Capital is implementing today is not the same as the one we were pursuing eight years ago. In fact, it’s fair to say our current investment strategy has been years in the making. We have been consistently testing ideas, questioning assumptions, validating approaches and learning from our mistakes. That strategy has paid off. As of June 2022, our angel portfolio has received 15 investments from Renew Capital Angels, mobilized $38M in capital and supported just under 3,000 full and part-time jobs across two East African countries.  
None of this would have been, nor continue to be possible without the support of our development partners – Global Affairs Canada, USAID, MercyCorps, ACDI-VOCA, DAI, AGRA and many others – who have helped support Renew Capital as we have worked to perfect our blended finance (BF) model. For those who are unfamiliar, the purpose of BF is, simply put, to leverage public sector funding in order to crowd in private sector capital that would otherwise not enter into the space (namely, due to the risky nature of the market). As such, Renew Capital’s BF projects generally try to build the local ecosystem through capacity building training programs for executives, managers and owners of SMEs in Sub-Saharan Africa; policy and advocacy work; and capital market formation activities that generate “investment-ready” pipeline and lower the costs of investing for Renew Capital Angels and other interested investors. 
 And it has been such an honor to be part of Renew Capital’s journey these past eight years, helping to design our firm’s strategic approach in how we implement said ecosystem and infrastructure building mechanisms. 
 I am hopeful and I truly believe that Africa is the next investment frontier and that, through concerted and intentional efforts made on the part of the donor and investment communities, we can shift away from the traditional aid paradigm to a sustainable, market- and growth-oriented mindset that is rooted in leveraging public and private dollars to their fullest potential. I believe Africa's private sector is becoming recognized as an engine for economic growth, and that we'll see a thriving and resilient middle class, as well as inspired and successful entrepreneurs creating SMEs generating millions of good jobs for men and women. In a word, I believe Africa's private sector represents real hope for the continent’s estimated 1.4 billion inhabitants. 


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