Executive Director at Innovation Edge, Sonja Giese, joins Alberto Lidji to discuss their impact investment platform and innovative strategies in support of Early Childhood Development in South Africa.
 
Sonja joined the podcast from Cape Town, South Africa.  Innovation Edge is focused on early childhood development (ECD) investments in South Africa. They’re a platform designed to promote innovation in ECD (ages 0 to 6) set up to try to bring innovation in to tackle the multiple challenges preventing children from thriving.
 
Sonja notes that the reality in South Africa is that more than half of children are starting school without the right learning foundations in place.
 
Innovation Edge was originally set up by a group of funders who had a shared interest in ECD and had been investing in this field in a traditional grant-making way. But they were facing intractable problems and were interested in finding new ways to tackle them. They each put funds into a pooled fund and Sonja was tasked with sourcing investments that were a good fit for that fund.
 
The funders had to be very aligned; moving away from traditional grant-making and realising that there is a very high degree of risk in this type of fund, since they source very early stage ideas, often even before there being any proof of feasibility or proof of concept.
 
This is critical if you’re going to drive innovation in such a nascent area – the funders had to have similar risk appetites.  All the funders and Sonja agreed that if they weren’t failing enough then they weren’t pushing the boundaries of innovation enough. This is something Sonja found very inspiring.
 
When asked whether deal flow origination was difficult, she replied that indeed it was “hugely challenging”. Sourcing deals is difficult and Innovation Edge continue to experiment with different sourcing strategies -- they need to be very active and, at times, even co-create ideas.
 
The team at Innovation Edge is diverse. Interestingly, out of a team of 8, Sonja is actually the only one who comes from a traditional development background. Others come from entrepreneurship, start-ups; impact investing, financial instruments.  They want people who have diverse experiences, networks and ways of thinking.
 
They struggle to define the exact label for the investments that they do; and whether they’re labelled as impact investments, social investments, ESG-integrated investments really is influenced to a great deal on their target audience. They spend a lot of time trying to find “the label”.
 
At Innovation Edge, they like making very unlikely connections between people and ideas – connections that would otherwise not come together were it not for Innovation Edge.
 
As far as the types of investments they make: they like to think of themselves as an “impact first investor”. They do both investments and also traditional grant-making, if appropriate. There are instances when they’ve taken equity in some start-ups and, also, experimented with outcome-based models and other variations. They try to bring flexible resources and a flexible approach to resourcing.
 
Sonja describes their core fund as an ‘evergreen fund’. Any returns that are made are reinvested back into that fund. So, none of their investors in that core fund expect a financial return.
 
However, what many of these investors may have is a particular preference for investing in one or many of the diverse initiatives that come down Innovation Edge’s deal flow pipeline, and then they have the opportunity to make direct investments into some of these and they can then negotiate the terms of that directly.  Irrespective of the various approaches, Innovation Edge aims to stay engaged to ensure that the investment remains mission-aligned; and indeed investors may well need to be willing to forego some financial returns in order to maximise social returns.
 
Different funders have different appetites for risk. Some funders are not prepared to put in funding fo