"I’m the Impact Lead and an Investment Associate at Goodwell Investments," Karl Nchite tells me on an introductory call. Luke Mostert, a previous guest on the show, introduced us last year.
Karl’s job title and Goodwell’s impact focus as an investment firm intrigued me.
So, I scheduled a longer conversation with him which happened last month. We discussed impact investing and how entrepreneurs can balance profit-making with impact. Given the passage of time, he also talked to me about his transition from Goodwell Investments to founding Young African Catalysts (YAC).
Impact investment demystified
Before my interview with Karl, my mind had been consumed by a question nagging at me for a while: What exactly did impact investment mean?
As soon as I posed that question to Karl, his eyes lit up with surprise and excitement. It was clear that he had a passion for the subject, and he was more than happy to explain it to me.
“In plain English, impact investing means injecting cash into social and environmental projects aiming to create positive impact while also making returns,” Karl said and contextualised the concept by introducing Goodwell Investment to the mix.
“With Goodwell Investments, we lean more towards the social side as we focus on helping underserved communities. We achieve this by supporting entrepreneurs that aim to provide access to goods and services, financial and other, to people at the bottom of the pyramid (BoP) that have historically been exempt from such access.
We’re currently sector-agnostic, but we started by investing in microfinance institutions in India to improve financial inclusion in the country. However, as we grew, we saw the need to expand to multiple growth sectors across Sub-Saharan Africa while still focusing on serving people at the BoP.”
Started from entrepreneurship, now he’s here…
With Goodwell now in the picture, I couldn’t resist asking Karl how he landed his job at one of the leading impact investment firms on the continent. Was it by accident or design?
“After graduation, I got an offer to work with one of the big US banks as part of their Fixed Income and FX Trading team, fortunately - in hindsight - I didn’t end up going with it”, Karl explained. “Entrepreneurship had always been my goal, so after being offered the position twice, I joined two friends to co-run blx.Grooming, a startup providing grooming essentials to South African people of colour and the digital tools needed to support barbers and barbershop owners in running their businesses.
While running blx.Grooming, Karl enrolled in the Hasso Plattner School of Design Thinking at the University of Cape Town Graduate School of Business. He met key players in the ecosystem and reconnected with one of his favorite lecturers from UCT, Rowan Spazzoli, who led Strategic thinking at Africa’s top University. The professor helped him strategize his next steps, with venture capital winning as the most apt route for him to achieve his ambition.
“Thankfully, my transition to VC felt relatively seamless as the professor introduced me to a contact at Goodwell Investments, who – serendipitously – were in the process of hiring. After 3 or 4 interview rounds, I met with the entire local team and was offered an opportunity to join the firm as a Research Associate. What attracted me to Goodwell was its mission and their method of achieving it. After interviewing, the flat structure and the intense team involvement was clear - I’d have the opportunity to get massive exposure – exactly the hand-on experience I craved.”
In three years, that newbie Research Associate grew through the ranks from ESG and Impact Lead to Investment Associate. With a grin on his face like a Cheshire cat, Karl reflected on his progress at the firm.
“I started at Goodwell Investments as a Research Associate. The firm was about to invest in a tilapia fish farm in Mozambique then. And so, I had to help with due diligence, the investment memo, and some financial analysis.
Over the years, I became a Senior Investment Analyst and later an ESG and Impact Manager when the firm launched its fourth fund. The firm’s rapid growth rate had me juggling multiple tasks as the ESG and Impact Manager and an Investment Associate. I led the fund's impact activities and rethought some of its frameworks.
In my current role as an Investment Associate, I manage some of Goodwell’s portfolio companies - from providing strategic value add to helping them secure follow-on investments. Additionally, I prepare quarterly reports on those companies, regularly check in on management and observe on their boards. Of course, VC also comes with the searching part, where I get to speak to amazing founders trying to solve Africa’s largest problems and hopefully add them to our portfolio.
Recently, a big part of my job involved designing and implementing an impact scoring system that will help us quantify impact and our additionality, something impact investors struggle with. Doing this was no mean feat, but our focus was on creating an impact system that considered quantitative and qualitative factors of our impact projects and ensuring we were using globally accepted frameworks.
The current push in the space is towards standardized uniformity, this is the only way to beat impact washing. Balancing that and still showcasing Goodwell’s almost two decades in impact was what we had to do! Some of the largest impact ecosystem players like the Global Impact Investing Network (GIIN) have recognised this and invited Goodwell to participate in their industry wide benchmarking projects to increase transparency and reduce impact washing in the space.”
Lessons from a failed startup journey
As Karl continued to regale me with stories about his work at Goodwell, I couldn't help but be intrigued by the challenges that he had faced in his career. One particular story stood out to me - the story of blx.Grooming, a company that Karl had founded with his partners.
"Blx.Grooming was a real passion project for us," Karl said, a hint of sadness in his voice. "We wanted to revolutionize the way barbershops operated in Africa by providing them with digital infrastructure for inventory management, supply chain management, and payment systems."
He paused for a moment before continuing. "Unfortunately, things didn't go according to plan. We struggled in key areas, and despite doing some things ahead of international players, such as Squire in the US, we just couldn't make it work."
I could sense the disappointment in Karl's voice as he spoke about the failure of blx.Grooming. But he quickly shook it off and continued, "But in retrospect, it was a much-needed experience. It taught us valuable lessons about the importance of a balanced and strong team and understanding the contexts of our users. It also taught me that you need a team of people with different, unique skill sets for your startup to succeed. You must also understand your strengths and weaknesses, then come up with a plan to strike a balance. Above all, you need to grasp the pain points you’re trying to solve on an in-depth level. The closer you are to the pain point, the easier it is for you to create a long-lasting solution.
As Karl spoke about the lessons he had learned, I couldn't help but be impressed by his resilience and determination. Despite the setback, he had taken it as an opportunity to grow and learn, which was a true testament to his character.
Listening to Karl's story made me realize that failure was an inevitable part of any journey, but how we respond to it is what matters. And Karl's response was a shining example of turning a setback into an opportunity for growth and learning.
Social enterprises can balance impact and profit
In a continent riddled with environmental, social, and economic crises, building a social enterprise that solves these issues and helps millions of people across the globe while also generating profit sounds great. But it is no child’s play. On the one hand, you’re trying your best to create meaningful solutions that solve real problems. Simultaneously, you’re also striving to make money. That’s almost like a catch-22.
But if there is anything working in Goodwell Investments has taught Karl, it is this: social enterprises can balance impact and profit. When asked how, Karl replied, “To be honest, striking a balance between impact and profit is difficult. But it’s doable if a business’s foundation is solid and has a mission-aligned business model. First, as a founder, you must define what impact means for your end client. Then ask, how does this impact get quantified? What are the relevant KPIs for measuring your progress? You can’t improve what you don’t measure.
Once you achieve clarity, charge a fair price for the target market. By fair price, I mean prices your customers can pay comfortably. Here, your industry will determine your pricing strategy. Take the agricultural sector, for instance. Agri startups often offer offtake agreements and then loans or credit to help their smallholder farmers comfortably produce the needed output. Then, to complete the virtuous cycle, sell the produce back to the agri startup. This strategy serves both parties as well as the end-client at the end of the funnel.
On the part of farmers, their desired tools are provided and their income guaranteed, while the startup locks in a good price and empowers a large community. You have to be innovative with your business model. Figure out what works for you.”
The role of impact investment in making Africa green
Africa contributes only 3% to the global GHG emissions, yet our people will hurt the most in a fast-warming planet. In the event of climate change, the continent is expected to heat up 1.5 times faster than the rest of the world, with 35 of the 50 countries most vulnerable to climate change located here.
Luckily, Africa has an unquestionable green energy potential that can prevent such a terrible outcome. According to the International Renewable Energy Agency (IREA), the continent could reach 310 GW by 2030, making it the next renewable powerhouse.
Different stakeholders — from Development Finance Institutions and donors, Private Equity managers, Institutional Investors, and Foundations — actively contribute to accelerating that potential. In 2022, Bloomberg Philanthropies announced a new $242 million investment to support clean-energy adoption in 10 developing countries, including Kenya, Mozambique, Nigeria, and South Africa. But despite these efforts, green growth remains a pipe dream.
Curious about this puzzle's limitations and possible solutions, I nudged Karl for his thoughts. Hear from the man himself:
“Green growth has been slow to start in Africa mainly because of systemic issues. First, many African communities are heavily reliant on crude oil, coal and other extractive minerals due to the dominance of these resources and their contribution to job creation. Which is okay, however, Africa’s downfall has been focussing primarily on the extraction and not the processing - which would yield much more for the continent. And so, trying to achieve a green economy immediately will displace a lot of communities and have a much larger negative effect on millions of people than rectifying the current flaws in the system and gradually transitioning to a greener ecosystem.
Beyond this, there is an issue of where climate funds should actually go. For instance, when rich nations pledged $8.5 billion to help South Africa cut coal emissions, there was an ensuing battle over whether the funds should go to Electric Vehicles, hydrogen of state-owned utilities, solar, etc.
On the flip side, many green ventures are small and can’t scale successfully due to little to no funding. These are some of the issues that have limited the green growth of many African countries. Fortunately, if key players like governments and private investors can cooperate to execute good policies and increase funding, then green growth is highly possible. Sure, it won’t happen overnight. Regardless, it’s possible.”
Closing the financial inclusion gap in Africa
Beyond the environment, impact investment is key to making Africa financially inclusive. Goodwell Investment is a firm that has exemplified this. Karl explained, “Fintech companies like MFS Africa and Paga are doing a great job in closing the financial gap in Africa. On Goodwell Investments’ part, we played a vital role in the early stages of those companies as we provided some of the much-needed cash investment and support.”
And while these companies have achieved a great deal quickly, there is so much to be done, particularly by impact investment companies. In Karl’s words, “Infrastructure in the fintech sector has come very far in the last few years, this can be seen with the increased ease in which startups in the sector pop up as well as continued growth of the sector. Compared to other sectors like healthtech and talent, where a lot of that infrastructure is still needed. So the next crucial move for impact investment companies like Goodwell will be to direct large inflows of funds to those sectors and the needed infrastructure development, that’ll provide Africa with the opportunity to leapfrog developed markets, just as we did with mobile money”.
After an hour of intense conversation on impact investment, I flipped the script. “What would you have done differently if you could restart your career?” I asked Karl, who was engrossed in the impact investment-focused discussion.
“I’d have doubled down on honing hard skills like modelling early on. It’s a relatively easy step and solid foundation there can guide a lot of how you think about the viability of different opportunities. . Especially now, with the influx of AI tools that’ll make it easier to get in-depth analysis - the foundation is evermore critical!”
Speaking of AI, 2022 was a year of awakening for the technology as it came with several technical breakthroughs — from DeepMind’s release of AlphaCode to OpenAI’s launch of ChatGPT, which has taken the world by storm. Although these are a welcome development, they pose a major risk to the middle and lower class, the end recipients of most impact initiatives. A report from PwC estimates that 1/3 of all employment is at risk of automation, with the poorly educated being the most affected.
Karl doesn’t share that pessimistic outlook, though. Giving his reasons, he said;
“The fears around AI are valid - especially around the potential sentient power. However, we should remember this is usually the case with every new disruptive technology. Indeed, the rise in AI will lead to a proportionate elimination of several jobs, but more jobs will be created simultaneously. So investors should be looking to actively invest in talent and edtech startups that will train people on how to use the new technologies and get them jobs afterward.”
Impact investment, bye! Startup, hi
All good things must come to an end. Not even Karl’s job at Goodwell is exempt from this trite. After three and a half years, Karl is stepping away to focus fully on Young African Catalysts (YAC), a tech-enabled ecosystem he co-founded with Luke Mostert.
Karl told the story behind YAC, “about four years ago, I met Luke at an event for people in the venture ecosystem. We stayed in touch and did a lot of deal sharing and intros to other players within the ecosystem. Unfortunately, COVID-19 happened, and several networking events were paused immediately. At the end of 2021, when the lockdown had subsided, Luke reached out to me with an idea to create a community empowering young investors under the age of 35 working for African-focused funds and looking to catalyze investment across the continent. Initially, we focused on deal sharing, but so much has changed as we now have over 60 members representing 50 African funds.”
That was the pilot. Now, YAC is transitioning to an ecosystem and fund model, empowering talent and unlocking fundraising in the African venture ecosystem. To kickstart this, it is launching a fellowship to help aspiring VCs easily break into the industry. It’s also focusing on venture scouting to support first-time founders or those early in their journey.
There are several solutions similar to YAC. So how exactly does it stand out? In Karl’s words:
“YAC provides a unique experience that can benefit emerging talent interested in the African ecosystem. Through our vocational fellowship, aspiring fellows can learn from leading African Venture Capitalists and work collaboratively with African startup founders currently raising capital. This is unique in the fellowship landscape as it allows aspiring talent to learn directly from the professionals they aspire to emulate. This aligns with our philosophy for Young African Catalysts by Young African Catalysts.
Our curriculum is specifically designed to incorporate these two critical elements and culminates in the chance to showcase your talents and ideas to VCs in a Demo Day post the fellowship to secure an internship with them.”