Investing for Impact: A Q&A with Vidya Vasu-Devan
Last month, Vidya Vasu-Devan became the new director of the foundation’s Strategic Investment Fund (SIF). We spoke with her about the role of SIF at the foundation and her plans for the fund’s future.
First, why does the foundation have the Strategic Investment Fund? What can SIF do that can’t be accomplished by regular grantmaking?
Our overarching goal at the foundation is to ensure that everyone has the chance to live a healthy and productive life. If you look at the areas we focus on--like global health, agriculture, financial services, or education--we need an array of innovative platforms and approaches to help address specific challenges that disproportionately affect the world’s poorest. Our SIF team makes investments for a specific charitable purpose, aiming to help direct the latest products, technologies, and services to improve the lives of those most in need.
The foundation works with a wide variety of partners to encourage that innovation, including companies in the private sector. Because these companies don’t always have the market incentives to invest in making products for people who can’t afford them, SIF uses high-impact financial tools, like equity investments and volume guarantees, to fund innovation and help make those products more affordable and accessible to the world’s poorest. It’s really about expanding the tool kit of ways that we have to work with the private sector and making sure we have the flexibility to do what makes the most sense to achieve our charitable mission.
You mentioned expanding the tool kit. Can you give me some examples of the tools available to SIF?
Sure. For example, one unique tool the SIF team relies on is volume guarantees. Often, the logjam that prevents existing high-quality, safe, and effective health interventions from getting to people who need them is that companies don’t necessarily have confidence about the level of demand for their product in the developing world. This creates a chicken-and-egg issue, where the company is afraid to “go big” on a potentially life-saving product until they know the demand is there, but they won’t see the real demand until they scale up and offer affordable pricing.
Because the foundation has considerable financial resources, we can take risks that other entities can’t. Our huge network of global partners also gives us a good sense of the marketplace and what types of products are needed at what volumes. So we can make a guarantee to a company and say, if you make this product available at this affordable price, you will sell a certain number of units (and if you don’t, we will take the risk of making up the gap). That might give them the comfort to lower prices or increase volume so that their product is more affordable and accessible to developing-world purchasers. We’ve historically used volume guarantees to support increasing the availability of affordable vaccines, contraceptives, and HIV drugs.
Other times, alongside investors of many different flavors, we make equity investments in companies to help them build out a particular product, service, or platform through a strategic partnership and ensure that it reaches the people who need it most. As an example, we invested in bKash, the leading mobile payments platform in Bangladesh, to support growth of an agent network and development of financial products that specifically focus on low-income customers.
We can also make flexible loans, with lower interest rates and payback terms to set incentives for the company to ensure that it is reaching the customers who can really benefit. These loans can be used to fund the building of manufacturing facilities or to make a health or agricultural product. Or they can help a business that needs working capital in order to grow so it can reach more people in need.
All our investments incorporate something we call “Global Access,” which is a set of terms that ensures that whatever the company is building is being made available at an affordable price and in an accessible way to the specific populations we are focused on, here in the U.S. or around the world.
How do you go about choosing to make a particular investment and deciding when that is more appropriate than a grant?
The guiding star in everything we do is impact. We work closely with technical experts at the foundation to think about opportunities and where it makes sense to deploy these tools. Then we talk to the target company about what type of vehicle--whether it’s a grant or an investment tool--makes the most sense in order to achieve both our goals and theirs. Every opportunity is a little bit different. We sit with the program teams, look over the facts and circumstances, and make that determination jointly.
Generally, people expect investments will turn a profit. Is that SIF’s goal as well?
We never make an investment for the purpose of achieving a financial return. We always want to be a good steward of the foundation’s financial resources, so we negotiate terms that are reasonable and consistent with market practice, but what we’re really maximizing for is charitable impact. Achieving maximum impact is how we select the companies we invest in, how we manage those investments, and how we structure our partnerships. Any returns that come back get recycled into the overall grant-giving pool for further impact and investments.
Can you give me some examples of SIF investments that demonstrate the strength of its approach?
Absolutely. For example, a Kenyan business called M-KOPA sells solar-based home lighting kits that would be too expensive for customers to afford off the bat. M-KOPA’s insight was to offer these valuable products to families on credit, charging a small down payment and the equivalent of US$0.50 per day; at the end of one year, the customer would own the asset. We thought this was an interesting financing mechanism for asset purchases for low-income people who may be very creditworthy but don’t have any credit history.
However, working capital was a real challenge for M-KOPA since they needed to pay for inventory up front while receiving payments from customers over one year. So we made a working capital loan to help the company scale its inventory and grow its business, and specifically brought on a commercial bank to invest alongside us, with the hope that they would continue to finance this business over the long term. When that loan was paid off, it was refinanced by other commercial sources, and the foundation took a step back. By using a loan to crowd in other commercial sources of funding, we were able to help demonstrate that this was a creditworthy business that also served low-income populations, and that impact-oriented businesses are investable.
Another example that many are familiar with now is the mRNA vaccine sector. Well before COVID-19 hit the globe, we made equity investments in two companies--CureVac and BioNtech. Both are now in the COVID-19 vaccine space, but at the time, we looked at their mRNA technology and realized it had a lot of attractive features: mRNA vaccines have potential to be cheaper, faster to deploy, and easier to deliver in tough environments. They also have a lot of flexibility, so you could potentially create a vaccine covering multiple diseases within one product.
We looked at this technology and thought, “Hey, this could really be game-changing.” The companies we invested in were primarily focused on cancer vaccines, which is great, and we thought there was potential to apply this technology to infectious diseases. So we made fairly large investments to help advance the mRNA platform and test and validate them under different conditions. We also secured rights to develop vaccines against infectious diseases that disproportionately impact lower-income people in Africa and South Asia, like HIV, TB, malaria, and others. These have been highly fruitful partnerships, and both companies are also doing amazing work on COVID-19 and cancer as well.
Speaking of COVID-19, what role has SIF played in the foundation’s pandemic response?
Like everything we do at the foundation, SIF has been focused on how we can use our resources in the most high-impact way to help people living in low- and middle-income countries. The world has done an incredible job on innovation in response to COVID-19. We’ve seen vaccines, diagnostics, and drugs brought to market in record time. We have focused on how to make sure these lifesaving products are available to everyone globally. Obviously, there is limited capacity, and everybody is scrambling to get their manufacturing up, but how can SIF play a role in accelerating that?
So that’s where we focused. We completed deals related to vaccines, antibodies, diagnostics, and some procurement, all structured around incentives to get these products out to lower- and middle-income countries on a faster timeline. As soon as these interventions are deemed safe and effective and are approved, we want to help get them out to people.
As the new head of SIF, can you talk about how you expect the program to develop moving forward?
I’ve been on the SIF team for over eight years and have worked across many different geographies, sectors, and types of investments tools. I’ve seen firsthand how this flexible model can drive impact for people. So I’m very excited to take on this role and hope to focus on three things going forward.
First, SIF has made over 80 investments in the last decade and we’ve learned a lot of lessons along the way. I hope to double down on the approaches that are proven at this point to work. For example, we’ve made significant investments in the biotechnology sector to tap into the world’s best technologies and point them toward challenges like infectious diseases and maternal and child health. The COVID-19 experience has proven there’s a huge amount of global interest in some of the areas we’re focused on, like infectious disease, vaccine technology, and diagnostics. Seizing upon that interest, and the type of partnerships that come out of that, is one of our key goals.
Another area that’s shown lots of potential is the volume guarantee portfolio. We plan to continue looking for opportunities to apply our unique position as an organization that understands these markets and can take on a lot of risk, so we can break that “chicken-and-egg” deadlock and ensure access to lower-priced innovations for low-income countries.
Third, many of our investments are focused on developing products. But the delivery side--how to effectively finance, build supply chains, and actually deliver products to people who need them--is “the other hand” needed to maximize impact. We want to explore this delivery side of the equation further and figure out what catalytic and high-impact investments we can make, many of which will be in companies on the ground in Africa or Asia. So we’re looking at tech-enabled health care delivery, agriculture, and financial services businesses to find the right approaches that can scale and serve everybody regardless of income.
Can you talk about how SIF works to promote gender equity in your investments?
The foundation has spent a lot of time focused on gender equity, and at SIF we’ve gathered a lot of information over the last 18 months to determine what our approach should be. We started by looking across our portfolio to assess what the gender balance looks like at the companies we invest in--their management team, board of directors, and employee base. We also talked to these companies to understand the challenges they face on gender equity and where we can help. Do they need help with recruiting, or putting policies in place to ensure women are treated fairly in the workplace?
From there, we’re figuring out how to best use our role as an investor to promote gender equity and encourage a company's commitment to gender diversity. For example, when assessing what investments SIF should make, we’re actively considering how those investments will help women in the markets we care about. In addition, we often have the right to nominate independent members to the boards of the companies we invest in. We’re passionate about leaning on that to get more women on boards and helping companies run very inclusive and broad searches to consider female candidates, because these are very influential positions that can make a difference. When companies are looking for recruiting help, we hope to connect them to our network to identify high-quality candidates that can further promote gender equity.
There is more to do, and we’re trying to figure that out as we go, but we want to make sure we’re using our voice proactively, following the data, and learning from companies as we continue to promote gender balance.