Jeremy Mindich spends his days running Scopia Capital, a hedge fund management company with over $5 billion in assets under management. Beyond his success on Wall Street, he is deeply committed to using capital to effect social change.
In 2008, Jeremy and Sarah Williams, former director of philanthropy programs for Pfizer Inc, co-founded Propel Capital, a philanthropic and impact investment fund, which has been a long-time supporter of Root Capital. Propel invests in innovative strategies to alleviate poverty globally.
Propel recently provided Root Capital with a long-term loan that is subordinate to senior note holders. This capital is critical to Root Capital as it allows us to grow our loan portfolio and pursue our mission without being constrained by grant-funded net assets. We sat down with Jeremy, who also happens to be our board chair, and Sarah to talk about our long-term partnership and Propel’s most recent commitment.
Root Capital: As a co-founders of Propel Capital, what is the investment strategy and mission?
Jeremy Mindich: Sarah and I founded Propel Capital to explore innovative ways to deploy capital for social impact. We look for projects that are creative in their use of capital, solving for a key problem of poverty or inequality, and that are able to scale. We are willing to take on significant risk if we think that our support can catalyze a great organization with a powerful concept.
Sarah Williams: We’re not the largest funder around so we need to be creative to maximize our impact.
JM: But we punch way above our weight. We deploy a large percentage of our capital in grants every year and 100 percent of the remainder is invested in high-impact projects.
SW: We’re also flexible and we can move quickly, providing capital in the way that’s most leverageable for the organizations we’re supporting – either with philanthropic dollars or impact investments, or often both. Since we’re willing to take considerable risk with our capital, we can create opportunities for larger investors to come on board behind us with a layer of protection from Propel shielding them from loss.
Root Capital: You began supporting Root Capital in 2008. What drew you to Root Capital back then?
SW: Root was appealing from the beginning because it seemed to have such a simple solution to a huge financing gap: provide fair banking for farmers.
JM: We were always interested in projects that could transform communities. Microfinance was getting a lot of attention at the time but we wanted to find ways to create a more durable infrastructure for rural economies.
SW: We felt that Root Capital could have a profound impact on rural poverty. If farmers have enough income to get beyond mere subsistence, that has the potential to accomplish so many things at once: keeping families from going hungry, helping communities have more resources, ensuring that families can stay in rural areas and farm in a way that preserves their well-being and is good for the environment. Check, check, check – it checks a lot of boxes! As a funder, that was pretty powerful.
JM: We were also excited by the idea that if Root Capital was successful, it could be financially sustainable. That was really appealing. There will always be the need for support for financial training and other components to help these farmers run the most productive businesses, but building strong businesses can generate critical resources for a community and show financial institutions that this population is bankable. We, like Root Capital, saw the opportunity to multiply that impact by working with enterprises that aggregate these farmers and provide support for farming communities – services ranging from agricultural inputs and training to healthcare and education. And the key to doing all that that on an ongoing, sustainable basis is to move these businesses through the “missing middle” where they don’t have access to financing to a place where they are strong businesses that grow and generate more economic opportunity. For our capital to be catalytic and support Root Capital at scale, that was really exciting.
Root Capital: Why have you continued to support us and how has the relationship evolved?
JM: We have gotten to know the team extremely well. From traveling to Latin America and Africa to see Root Capital in action, to working with middle and senior management in Cambridge, we have been blown away by the depth of talent and commitment of Root Capital’s staff. It is a truly extraordinary organization. As a member of the board, I have been so impressed by the organization’s ability to manage through turbulent markets, balancing risk management with a mission to support their clients even in tough times. It is a complicated business. If it was easy, banks would be doing it already.
SW: Over the years, we have steadily grown both our grant and investment capital, always looking for where we thought our capital would have the greatest impact. We provided seed grant funding for Root Capital’s Innovation Fund to help them experiment with riskier products and now we are also offering long-term subordinated debt, which is providing flexible capital so Root Capital can stay focused on that North Star of mission that Jeremy just mentioned.
Root Capital: Propel Capital was the first to sign up and become an anchor investor with a $3 million commitment for the most recent subordinated debt fund raising campaign. Why did Propel choose to play this lead role?
JM: We really pushed Root Capital to expand their use of subordinated debt. In our relationship with the organization, we’ve always seen ourselves as a partner that can pilot and help refine funding products. Our first loan to Root Capital eight years ago was subordinated. We knew the value taking a loss position could play in attracting other investors. Recently, the organization had come to a crossroads: they could raise plenty of debt capital but they were restricted by requirements to keep first loss reserves. Traditionally that had come in the form of philanthropic grants, but at the scale they needed, that was not going to be sustainable. This was a huge gating factor for their ability to get loans into the field. Every dollar of reserves allows for $5 of potential new loans, so any way of helping build that layer of loss protection would have a big multiplier effect. Figuring out a way to use long-term subordinated debt, which could be called back by lenders at some point, as a form of reserves seemed like an innovative way to make this happen.
SW: The subordinated debt commitment to Root Capital is Propel’s largest investment. The way we see it, we can unlock a pool of like-minded capital that would enable Root Capital to grow much bigger and reach many more families and communities than we could ever help them to on our own.
JM: And that’s really what we’re all about: deploying our resources in innovative ways, both in the form of philanthropy and investment, to get others on board and generate impact at scale.
If you would like to learn more about opportunities to support Root Capital, please contact Rachel Serotta, Root Capital’s director of investor relations, at email@example.com.