A conversation with Root Capital on September 16, 2011

Participants

Note: This set of notes gives an overview of the major points made by William Foote.

One arm of Root Capital is its Sustainable Trade Fund (STF) — the core lending work supporting farmer enterprises with specialty export crops that it started with, which it intends to become self-supporting within five years. That doesn't mean it will transition to maximizing return — where tradeoffs exist, the STF will retain a willingness to trade return for social impact.

The other arm is the Frontier Portfolios, which aim to pilot ideas for new areas, such as working in post-conflict markets and investing in products targeting food security & nutrition (example: processing micronutrient-rich flour). The ultimate aim would be to eventually develop another self-sustaining model & fund.

The Strategy, Knowledge, and Innovation (SKI) team keeps track of what has been tried for the Frontier Portfolios and what has been learned. (The rest of these notes concern the Sustainable Trade Fund.)

Root Capital is interested in setting the pace on social and environmental metrics for other players in its space.

On the types of businesses Root Capital works with:

The livelihoods that farmers obtain by working with Root Capital's client businesses are better than they could get otherwise, both because of the level of income and equally important, the stability of income.

Root Capital doesn't want to undercut local sources of capital; it benchmarks against bank lending rates. About 20-25% of client businesses have incrementally graduated to other sources of financing. Root Capital tracks this for each of its client businesses.

Root Capital also tracks turnover. This year it will do about 250 transactions with about 220 businesses and about 75% of those businesses will be repeat customers. The attrition rate tends to be about 10%.

Regarding how Root Capital would use additional funds: