Impact Investing in Mexico

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For his Summer 2010 internship, David Auerbach (MBA 2011) worked at IGNIA Partners based in Monterrey, Mexico where he worked on metrics and evaluation of  social and environmental Impact as well as conducting due diligence  and financial valuations on potential entrepreneurs to invest in. This is his report from the field.

IGNIA is an impact investing venture capital investment firm that supports high growth social enterprises that serve the base of the socio-economic pyramid in Latin America. By providing effective responses to the enormously under-served needs of low income populations, both as consumers as well as active participants in productive value chains, IGNIA empowers entrepreneurship and generates social impact while creating attractive financial returns for its investors.

I sat in the front row of Paul Asquith’s Introduction to Corporate Finance class because, more than anything, I thought his emphatic declarations around the “art of finance” would be more likely to stick in my brain. Strategy…Valuation…Execution. What’s the market? Cash is King. Question assumptions. The numbers don’t lie, people! Learn these rules, love these rules.

The CEO of IGNIA Partners, Alvaro Rodriguez Arregui, often explains that one reason people in the West have such a difficult time understanding the challenges of development is because they don’t actually spend any time in the field. You have to experience firsthand their daily challenges to really make sense of why economic development doesn’t happen overnight. That was a big reason why I came to Ignia this summer – I wanted to put what I was learning in the classroom into practice in the field.

I’ve certainly had the opportunity to see firsthand the challenges of impact investing while living and working in Monterrey, Mexico. First, I got to travel to Puebla to conduct a site visit MeXvi, a portfolio company which provides self-construction solut ions for low-income housing. Second, I attended the annual LP meeting, where each entrepreneur provided Ignia’s investors with full updates on their successes and failures.

And, finally, Ignia gave each intern the chance to work with a company in the Ignia pipeline. As a small company that has generated a lot of attention in a nascent industry, Ignia has an impressive supply of companies knocking on its door in search of funding.

My company was in the medical industry and has great visions of expanding throughout Mexico. Ignia entrusted me from day one. I had to conduct market research on the company, evaluate the business model, assess whether it fit with Ignia’s mission as social investment fund, set up phone calls with the entrepreneur, and then, finally, conduct a site visit.

The site visit, in particular, was rewarding. Representing the company, I couldn’t passively listen to the sales pitch that was being thrown my away. Rather, I had to ask tough questions about the business, the management, its social vision and its potential for growth. I had to gain a feel for the entrepreneur about how well our fund could work with him. Thankfully, I had Prof. Asquith’s exhortations in the back of my mind providing some guidance to a tricky challenge.

Ultimately, when I presented to the managing directors and the investment team, there was consensus that the company did not quite fit our mission. It was tempting – the model was great and the entrepreneur was both a visionary and detail-oriented – but, from a social perspective, it was not what we were looking for.

Through the whole experience, I appreciated the responsibility entrusted to me by Ignia, as well as the chance to really witness in practice the evaluation process and decisions around making impact investments. Investing in companies that serve the bottom of the pyramid really is an art more than a science, and I look forward to using my second year at MIT-Sloan to hone my skills in this next big idea in development.

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