The tipping point for John K. Coors came one evening in a Kenya farming community two years ago.
The great-grandson of Adolph Coors, founder of Coors Brewing Co., had recently established the Children of Hope Home to help care for orphans and abandoned children in western Kenya. To support his efforts, a group of doctors and dentists volunteered to provide basic medical and dental care for the children and people in the local village, so an empty wing of the orphanage was converted into a temporary clinic.
When Coors opened the door for the first day of the clinic, 5,000 people were lined up as far as he could see. Doctors and dentists worked nonstop for three days and treated more than 1,000 people. When Coors finally had to shut the door to the clinic, several thousand people were still waiting.
“For me, that was catalyzing,” says Coors, CEO of privately held specialty ceramics manufacturer CoorsTek Inc.
Active in for-profit business and charitable and philanthropic works in Africa since 1994, Coors says the experience reinforced his belief that “philanthropy or the non-profit approach to economic development is not achieving the results any of us would like to see.” Feeling there had to be a better way to address poverty in Africa and the rest of the developing world, Coors says he began “the process of working with other families to try to address the issue the way we know how, through free enterprise.”
The result is the One Thousand & One Voices (1K1V) initiative. Part private equity fund, part jobs-creation and economic development program, 1K1V seeks to combine elements of the traditional private equity investment model with the philosophy that free-market capitalism is the best way to help others help themselves by creating jobs and economic prosperity.
1K1V is in the process of raising its first $300 million from wealthy families in the U.S., Africa and other parts of the world. It says it currently has more than 10 family investors in the U.S., including Coors and Charles Widger, founder and executive chairman of Brinker Capital, who also sits on 1K1V’s board of directors. The other investors wish to remain anonymous, according to 1K1V. The fund has not yet filed registration documents with the U.S. Securities and Exchange Commission, but is likely to be structured as a limited partnership.
Investing in 1K1V is by invitation only. Families will be handpicked based on their support of 1K1V’s underlying values, according to Hendrik Jordaan, chief executive of 1K1V and former global head of private equity investments and buyouts at Morrison & Foerster. 1K1V has not disclosed the minimum investment, but says it anticipates 20 to 40 families will join the first fund of $300 million, though not all will invest the same amount.
The plan is to buy minority stakes of between $10 million and $15 million in small to medium-sized businesses in Sub-Saharan Africa, including Kenya, Ghana, Nigeria and Mozambique, that have earnings between $2 million and $15 million.
“These are not start-ups, not venture capital plays,” says Jordaan. “These are companies that have demonstrated that they can be cash-flow positive but may be short of the capital needed to take their business to the next level.”
3D Investing
One way 1K1V differs from traditional private equity models is that it will employ a “three-dimensional” approach to investing that delivers what it describes as patient, intellectual and relational capital.
Patient capital means 1K1V will wait as long as it takes for its investment to bear fruit, for both investors and portfolio companies.
1K1V is being structured on an evergreen basis to allow for broad flexibility and enable the fund manager to be as patient as need be, according to Jordaan. The fund will return capital to investors based on successful investments, but participation in 1K1V will require families to accept a longer-term investment horizon, though Jordaan did not specify what the minimum term is.
“In some of the deals we do, we may be able to drive significant growth and exit relatively quickly. Some deals we may need to hold more than 10, 15 or 20 years,” says Jordaan. “It’s fact-and-circumstances-driven and case specific.” Families will have opportunities to exit, “but the exits will likely occur on a more patient basis than traditional funds,” he adds.
The long-term horizon will be perfectly acceptable to 1K1V participants, says Widger. “Many of the investing families will be putting up intergenerational capital,” he says. “The current generation may pass from the scene, but the next generation will inherit the investment. Many younger people today like to be part of investments like this that make a meaningful social difference or impact.” The “no forced exit” aspect of investing in 1K1V is not only distinctive but also attractive to younger members of investing families, he says.
Having only families participate in 1K1V eliminates the institutional pressure to impose an artificial time line on exiting an investment, Coors says.
“Families who are engaged in a business understand time lines better,” he says. “We also understand that it’s hard to know when a company will grow rapidly. Sometimes the lag phase can be longer for some companies, so being patient is how you get the best return. If you’re forced out, you lose the upside. We want to make sure we maximize the upside both from the return for the investors and the health of the company.”
Intellectual capital will draw on the business expertise of investing families to help guide companies to faster growth and greater profitability. If a family investor is in the same industry as one of the portfolio companies, “We may ask that family to get on the phone with the CEO of the portfolio company and help think through strategic issues,” Jordaan says.
Similarly, the notion of relational capital may involve family investors using their global business relationships and contacts to open new sales and distribution channels or make introductions to prospective new customers or suppliers.
“In each case, we are looking to unlock and unleash value through the influence, contacts and relations these families have held for decades, for the benefit of the portfolio companies in which we invest,” says Jordaan. “We believe that all the value and influence these families have can be brought to bear for the benefit of job creation globally and generating significant profits, while doing so in a new model that traditional private equity has shied away from.”
Africa’s Untapped Potential
Africa is perfectly positioned for the 1K1V model, according to Jordaan and Coors. Slightly more than 1 billion people live in Africa; the United Nations Population Fund (UNPF) estimates that number may reach 1.9 billion by 2050. Much of the population is shifting from rural areas to urban locations. The UNPF predicts that Sub-Sahara Africa’s urban population will double between 2000 and 2030.
The International Monetary Fund estimates that Sub-Sahara Africa’s economy is likely to expand 6.1% next year—the fastest growth of any region in the world after emerging Asia—fueled by China’s demand for gold, copper and oil. The World Bank predicts direct investment into Sub-Sahara Africa will rise to $54 billion by 2015 from $37.7 billion last year.
“From an investor standpoint, Africa is quite interesting,” says Coors. “It has enormous potential, with people beginning to move into the middle class for the first time. If you think about China maybe 30 or 40 years ago and what’s happened over that period of time, I could easily imagine the same thing in Africa.”
“The investment thesis to us is focusing on the undeniable growth of the middle class across multiple countries within Africa,” Jordaan says. “Six of the 10 fastest-growing economies in the world are in Africa. You’re seeing more political stability and more investor-friendly environments across the continent.
While none of these countries is free of risk, just like most of Europe is not free of risk, these are countries that represent compelling investment opportunities in many industries and sub-industries.”
Private equity investors seem to agree. In a survey this year by the Emerging Markets Private Equity Association (EMPEA), private equity investors chose Sub-Saharan Africa as the world’s most attractive investment region for the first time. The region jumped from fifth in last year’s survey, topping the BRIC (Brazil, Russia, India and China) markets, none of which made the top three. EMPEA surveyed 112 limited partnerships, with disclosed global private equity assets under management of almost $430 billion.
“Generally speaking, the opportunity for private equity is quite abundant in Sub-Saharan Africa,” says Chinesom Ejiasa, director of private equity at the U.S. Overseas Private Investment Corp. (OPIC), which has $630 million of private equity invested in Africa and the Middle East.
He cautioned, however, “investors need to be very specific about where they’re looking. Each country is evolving at very different paces, so investors have to be more detailed in their analysis of each country to know where the opportunities exist.”
Some investors setting their sights on the region include the biggest global names in private equity. Carlyle Group has raised $500 million for an Africa fund and opened offices in Johannesburg, South Africa, and Lagos, Nigeria, in the past two years.
Dubai-based Abraaj Group, the largest buyout firm in the Middle East, has a presence in Nigeria, Kenya, South Africa and Ghana, and is reportedly finalizing a deal in the Ivory Coast.
True Believers
1K1V is more than an investment vehicle, Coors says.
“A Thousand and One Voices represents a movement that is already under way of families that are frustrated by the lack of progress they’ve seen through their philanthropic efforts and are looking for an approach to really begin moving the needle on the issue of grinding poverty that we see around the world,” he says.
“One of the unique elements of this movement is the bringing together of leading families around the world who collectively can do much more than any single family,” Jordaan says. “A Thousand and One Voices connotes that the movement is not finite. It’s always about the next voice joining the movement.”
Widger says the free-market approach to creating prosperity will be more effective than philanthropy or charity because committed capital also requires accountability.
“Government programs and charitable giving don’t have the kind of accountability that private capital brings to initiatives and projects,” says Widger. 1K1V is “an intelligent model because it looks to private equity, and private equity creates jobs. It will do a better job of creating prosperity in Africa than charitable giving has done.”
Yet the same bottom line applies to all investments.
“This is a for-profit endeavor,” says Jordaan.
“The way I look at it is if we are not doing a good job of creating returns, that means we are not helping businesses to grow and we’re not creating jobs,” says Coors. “They all tie together. You can’t have job creation and poor returns.”
1K1V plans to have investment teams in the U.S. and South Africa and says it will use proprietary tools to predict and measure impact. The fund expects to close its first deal in Africa by the end of this year and then widen its investment focus to other developing markets, including Latin America, Southeast Asia and Eastern Europe, Jordaan says.
“Market-based economies produce prosperity,” Widger says. “So where you have stable governments in place in Africa, I think we can do some good and make some money. It’s about families who have had some success in life and through the generations committing capital to help other families in a market-based system. I think that’s pretty cool.”