BRIEFING BOOK

Data Information Knowledge WISDOM

JACQUELINE NOVOGRATZ

Location: Forbes, New York, New York

About Novogratz .............................................................................. Debriefing Novogratz .........................................................................

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Novogratz in Forbes

"How A Sweater Changed My (Business) Life,” 04/06/09....... "Saving The World, One Loan At A Time," 03/26/09…………. “Thinking Big – And Small: Jacqueline Novogratz," 11/24/08. "The New Activist Givers," 06/01/08........................................ "Can Corporations Save The World," 11/28/06.......................

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The Novogratz Interview ………………………………………………… 24

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ABOUT JACQUELINE NOVOGRATZ Intelligent Investing with Steve Forbes

Jacqueline Novogratz is the founder and chief executive officer of Acumen Fund, a non-profit global venture fund that uses entrepreneurial approaches to combat global poverty. The firm uses philanthropic capital to invest in scalable businesses that serve poverty-stricken people with goods and services, such as clean water. Acumen Fund has offices in New York, India, Pakistan and Kenya. Novogratz began her career in international banking at Chase Manhattan Bank and she also founded Duterimbere, a micro-finance institution in Rwanda. Before founding Acumen Fund, Novogratz founded and directed The Philanthropy Workshop and The Next Generation Leadership program at the Rockefeller Foundation. Novogratz currently serves on the Board of the Aspen Institute as well as the advisory councils of Stanford Graduate School of Business and MIT’s Legatum Center. She is currently an Aspen Institute Henry Crown Fellow, sits on the advisory councils of Stanford’s Graduate School of Business and MIT’s Legatum Center and is a Synergos Institute Senior Fellow. Novogratz received the 2009 CASE Leadership in Social Entrepreneurship award, AWNY’s 2009 Changing the Game Award, and the 2008 Entrepreneur of the Year award from Ernst & Young. She has spoken at several international conferences including the World Economic Forum, the Clinton Global Initiative and TED. Her current book, which came out March 3, 2009, is The Blue Sweater: Bridging the Gap between Rich and Poor in an Interconnected World. Novogratz graduated from the University of Virginia with the bachelors degree in economics and international relations. She later earned her MBA from Stanford University.

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DEBRIEFING NOVOGRATZ Intelligent Investing with Steve Forbes

Interview conducted by David Serchuk 5/13/09 Forbes: How well does microfinance work in tandem w ith government aid? Where do they galvanize one another, where are they antagonistic to one another? Well, first, it’s important to note that we don’t actually do microfinance. So if you want to talk about microfinance we can. But essentially, it [Acumen Fund] makes investments from $300,000 to $2 million, which is not your typical $30 to $100. Yeah, that’s not micro . Our whole focus is on using what we call patient capital, recognizing that charity alone doesn’t solve problems of poverty, nor does the market alone. The idea with patient capital is that we can take money, invest it in enterprises that are delivering water, helping with healthcare to low-income individuals, and then re-measure the change both financially and from the social perspective. And you’ll see, they report back successes and failures. The idea with patient capital is we will have asked for much longer periods of time, and expect much shorter returns, and accompany the investment with a lot of management assistance. One thing you had said is that very few entrepreneu rs know how to reach emerging markets and get them the products they tru ly need for a better quality of life. Why is this, and what is the Acume n Fund doing to encourage this migration of ideas and entrepreneurs hip? Well, I’m not sure that I said very few entrepreneurs, but more that the market doesn’t recognize the potential of very, very low income markets. And the reason is really straightforward. Actually, it’s really hard. There’s a lack of distribution channels, high levels of corruption, horrendous roads and often non-existent infrastructure. And, maybe most important, you’re dealing with markets with individuals who maybe make $1 to $3 a day. And so the only way to do this effectively usually is with a fairly significant, upfront investment and building any demands whatsoever, and then providing services and products at extremely low margins with the necessity of reaching high volumes of individuals. So it’s really hard markets to figure out, to penetrate. To complicate that, we work in the basic services, like healthcare, water, housing. Especially if you’re looking at any area like health, for instance, there is often a level of subsidy that is required to make the whole thing work. And certainly health prevention, whether you’re looking at vaccines, clean water, anything that makes for a better quality of life. Human beings tend not to spend money health preventionally. We tend to spend it on top treatment.

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Clean water remains the largest international healt h issue. The UN spends $13 billion on this annually yet over a billion peo ple remain without any real access to clean water. What is your approach to thi s problem, and what real successes have you had? I totally agree with what you’re saying. What’s frustrating is that typically … [some] individuals take the stand that water is a human right and it should be given out for free. Or water is a scarcity with us and should be priced accordingly. And our approach is to say, these conversations can only get us so far, we need to experiment, we need to innovate, and we need to learn from those experiments undertaken. So in 2004 we invested $600,000 in equity into a company called Water Health International, which is a fairly simply ultraviolet filtration system that it sells at the local village level, either to the panjaya, which is a local government entity, or to an individual entrepreneur. Basically in addition to the money, we’ve provided a lot of national support. In the beginning, inputting health information was a job itself. We also use our patient capital to encourage the commercial banking sector to lend into those local areas, either to the entrepreneur or the panjaya, so that they can buy these systems in the first place. We put up our first loss guarantee to the banks using our high risk launch capital eventually and we’ve seen over the years that we were much too conservative in the beginning and have been able to negotiate a second first loss guarantee at half, where we have to take only 15%, not 30% of the potential loss. And thus far there’s been no money drawn down on the guarantee. Today, Water Help International serves over 350,000 paying customers in over 200 villages. And so, we have a model that we know can be sustainable, that we know can scale, and now we face a whole different set of choices around supporting the government, I mean, supporting the company to help the government to see if there are possibilities for outsourcing. Using it as a model for replication in other countries, in other areas, and using the company to scale itself. But over time, the idea is we will, actively somewhere in a laboratory, we will create these models and we will show the world there is a better way of doing international development. And water just remains a hard way to make money. Th ere are water ETFs, but those don’t seem to be doing too great, and hum an beings are talking about selling water now. It’s been called the next oil. It’s a big deal what’s going on in water. And at the same time are you obligated to make mone y from these things or is it certainly enough to get the water out to a lot of people and then start to build things? How long can you sustain losses on a project like trying to get clean water out before you have to try somethin g else?

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Well, many of these villages are operating sustainably. It is very hard to make money but this is where we have more options at our disposal than we have used our latter imagination to embrace. One, there are examples where, and Water Help International happens to be one of them, where we’re starting to see real sustainability when it comes to selling water to low-income families and neighborhoods in a way that covers costs. This is tricky, because if you actually go into the urban areas, you’ll often find people paying 40 to 50 times what the middle class would pay for that same, clean water. So some people make a lot of money selling water to poor people. Will that scale? I hope not. What we’re looking at, innovations that don’t have to be worldly possible, but somehow have to cover their costs in a way that is sustainable and can be monitored for the long-term. So in some cases it may be that the system itself will pay for itself. In other cases, it may be that by selling all or a portion of the water, even at subsidized levels, we can look at government participation with a private sector entity and find more efficient, effective, low-cost ways to deliver clean water to many, many people. And that’s really the idea. We have different resources at our disposal as a world. What we need is greater accountability and real focus, a thoughtful focus on both efficiency and effectiveness. Should water be thought of as a commodity or a basi c human right? How do you square that circle that doesn’t seem to want to be squared? But you know, of the hard questions of what it means to be a human being, are not usually squared. And so I would say it’s both. It’s almost tautological, this idea of is it a human right. Well, if we don’t have water, we die. And so somehow, as a world, we have to figure out a way that everyone gets access to water. Ideally, from a perspective that believes in the fundamental rights of all human beings, and from an efficiency perspective that believes that 80% of these places is connected to dirty water, it is in our best interest as a world to ensure that all people get access to safe water. And so there may be many models that we can derive once we start with an agreement on the first principle. And it may be that that progressive governments will say, we want to create a world where everyone has access to safe water, and the first eight liters that you consume in a day is free and above that, because water is a scarce commodity, we will price it. So that people make more rational choices in the way that they consume water but are protected for the amount of water that they need to actually keep themselves safe and healthy. I mean, that’s what excites me about this moment in history, that we can actually use the market as a listening device, get a better understand of what it takes, what people are willing to pay, what they can afford to pay, and then make the world more creative yet sustainable, in scalable systems that enable all people, ultimately, to have access. You have an extensive business background, and work ed on Wall Street and come from the Stanford MBA program. What are ar eas in what you do that this education totally did NOT prepare you for ? How were you still not prepared for what you’re doing now?

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I think that when we focus on business, particularly in rich societies, things work. Language is unstirred, expectations are met. When you’re dealing with underserved markets that have underprivileged people, highly distorted markets whether it’s a mixed up government or a lack of government, you know, real corruption, you learn that a lot of your assumptions are wrong. And the importance of listening becomes paramount. So often in business, we look at, we’ll take data and we’ll make decisions based on data, assumptions about who their “client” is. In the case of maternal healthcare, you look at, well naturally, it’s the mother that’s the customer, that makes the decisions. But in truth, the mother in many areas, in certain parts of India, the mother has very little decision-making power at all. The real decision-maker is the mother-in-law. And so, to serve the mother effectively, you can pretend it’s the mother but then you’re not really gonna get very far. You’ve gotta refocus a lot of the effort, a lot of the marketing, the support of building understanding to the mother-in-law. We see very, very high rates of C sections, Cesarean sections, in India. Lots of reasons for it, high levels of malnutrition, that’s meant that women have very small pelvic areas often, so if they have larger babies, it’s very hard to deliver. Two, doctors also usually have an incentive to increase their costs and so will do C sections sometimes when it’s not necessary. Third is that sometimes the mothers-in-law will demand that their children, their daughters-in-law, deliver on the right astrological date. So again, just really understanding, really coming to grips with understanding who your client is as a customer, even if that person isn’t paying, I think is absolutely paramount and something more traditional business, which ironically talks about the customer all the time, doesn’t take into consideration this much when dealing with low-income people, particularly within the realm of international development. But I could go on and on and on. In your opinion, what can the developed world learn from the developing world regarding how to use entrepreneurship to solv e its ongoing poverty problems? That is such a great question. And the simple answer is we could learn a lot. One of my dreams is that in 10 to 15 years, many of the innovations that we are invested in in the developing world will come and help shape some of the enterprises, systems and policies in the United States and Europe. Arvind, our hospital, in Madre, India, has created a system that uses a just-in-time approach to delivering eye care to very, very poor people. It started with the ethos that many of our companies have of service to all. And so Dr. Venka Diswame, the entrepreneur, was concerned, in some ways he was like Google, you know, I’m gonna figure out the business model once I figure out what I need to do. And so he built this eye hospital and that if he was even going to make any headway in the 25 million that were blind through cataract surgeries, he really needed to increase the number of surgeries that every eye doctor did on a daily basis. So those surgeons literally stand at the end of the operating table in the theater and trained dependents do everything before and after, just the just-in-time. They’ll

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clean the wounds, they’ll prepare the patients, they will wheel the patient up to the delivery table, the doctors do, does the six to seven minute operation, and then another doctor does the, takes that patient away for the dressing and the area where they are an outpatient and spend the night. That hospital does now more than 270,000 operations each year; each doctor does on average 80 operations. I think the average in the United States is six. So even if we say, ok, 80 sounds extreme, there’s a lot of room between six and 80, right? Two thirds of people don’t pay for the treatment and yet the entire operation is sustainable. 1298 built services in Bombay uses a similar sliding scale pricing model. Once you’re taken to an expensive hospital, you pay, and when you go to a free, public clinic, it’s free. And so there are ways to build, without means testing, there are ways to build in different pricing mechanisms based on a number of variables that could help us create real efficiencies in the distribution, which is in many ways the holy grail of how you actually serve low-income people. We’re experimenting with low cost health insurance in Buxton, where we’ve sold more than 15,000, where I believe we’ve sold more than 20,000, but I’d have to fact check that, health insurance policies to extremely low-income people. What are we learning from that? Might that lead us to programs where people actually save for the health problems that people have in their lives and how that might be another area where government might be able to participate. And matching savings for healthcare that allows for more private incentives but also a public ethos that public health is a really important part of a good society. The world's economies are intertwined. How much are the problems to the developing world obvious harbingers for what could come to the developed world? Harbingers in what sense? In the developing world, they have various problems with water and we are isolated from such problems but most developed worl d citizens may not be aware of the fact that’s what going on over there m ay someday be going on over here. Well, I would be more bottom-line oriented than that even in that I don’t think it’s a question of waiting for it. I think it’s a question of already being in it. That already swine flu is one small example, but a very important example where we see a few cases in Mexico and then before you know it it’s not just in borders at the United States but around the world. We saw that scare when, it’s certainly not the first time in my lifetime, where we’ve got pandemic alerts that are being played out throughout the internet because there is this perception, which is not an incorrect perception, that disease travels in a way that was never imagined previously across international borders. Pollution travels across international borders. Terrorism. That all of these parts of life are starting to impact us to the point where I would say it almost becomes unhelpful to think of the world as divided between the developed and the developing. That we’re seeing elements

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of the most developing in the developed and we’re seeing extraordinary progress and productivity and luxury in some of the poorest countries of the world. You look at Katrina, and how that exposed in the United States, certainly an area of the country that looked like many developed areas where I have lived. And then I’d say the final thing is where you see a widening gap between rich and poor. Now you see that’s been softened a slight amount with this financial crisis. But you quickly go from there to constrained freedoms, more and more security guards, more and more gated communities, which as my 11-year-old nephew says isn’t good for anybody. What does entrepreneurship bring to the developing world that nothing else does in terms of problem solving you’re trying to address? Innovation, inventiveness, persistence, a focus on getting things right. The bottom line. Not being afraid of markets and market forces. And ways of solving a problem that involves more than listening to low-income people, what their preferences are. What can entrepreneurship do for the developing wor ld that needs doing? Well just about everything frankly. I believe that the private sector, private innovation, and entrepreneurship, will lead us to solutions to many of our public problems. And I think one of the biggest solutions, I believe, is innovation starting with a real and fierce focus on building systems that serve people in a way that is financially sustainable. We will in return see a return of government in the private sector as partners in actually taking these to real scale where we’re seeing that hundreds of thousands of people served, tens if not hundreds of millions. What can entrepreneurship not do in the developing world that only government can do? Well some of the things entrepreneurs are doing government should be doing. So I want to be clear on that. But certainly the government needs to protect basic freedoms, needs to protect our human rights, needs to protect our ability to walk down the street regardless of gender, race or religious affiliation. The government needs to help provide a safe environment so that we can pursue life and liberty and happiness. I believe that the government should ensure all children are provided with a good education. That is one area where we’re seeing private innovation doing incredible things where the government has failed. Long-term, my dream would be a world where we see that particularly at the primary school levels and we start integrating some of those models into government as well as into the private sector. Based on, one, a desire that all children have access to an education and two, the recognition that we need to make it sustainable but also affordable and accessible for all people. What is your bold prediction for the future?

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I think our future is getting better and better all the time. I am a huge optimist who feels that we have an unprecedented opportunity to face this global crisis because when systems are broken, you can argue that both financial system and that the aid system is broken, we have the chance to re-imagine and reinvent. And that is the chance in front of us. You combine that with our increasing recognition of how interconnected we are as a world, how much we need each other, how much we depend on each other, and I see a world that’s more interested in one another, is more able to solve problems, to tap into a spectacular next generation of young person who wants to see their skills used to make change in a way that probably gives me more hope than anything else.

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NOVOGRATZ IN FORBES Intelligent Investing with Steve Forbes

Leadership How A Sweater Changed My (Business) Life Jacqueline Novogratz 04.06.09, 5:15 PM ET

When I was 10, my uncle gave me a blue sweater. It quickly became my prized possession. When I finally outgrew it, I gave it to my local Goodwill store, in Virginia. More than a decade later, I was out on a morning run--in Africa--and I saw my sweater again. It was being worn by a little boy in Rwanda. I approached the boy and found my name still written on the tag inside.

That moment, that instant of seeing my name in that young Rwandan's sweater stands for me as a metaphor for our human interconnectedness, a symbol of how our actions every day--and inaction--affect people we may never know and never meet.

Over the past two-plus decades, I've committed my life to understanding global connectedness and issues of poverty. I left an emerging career on Wall Street to travel to Africa and "save the world," but then I learned that most people don't want saving. They want to make their own decisions and solve their own problems.

In writing my new book, The Blue Sweater, I've thought a lot about what my adventures, experiences and the people I have met have taught me. In Rwanda, I helped launch a microfinance organization in the mid-1980s with a small group of women--and I discovered a decade later that those same women had played every conceivable role in the Rwandan genocide, including being major perpetrators. Yet, at the same time, the microfinance institution had endured.

Later, at the Rockefeller, I created two programs, each focused on leadership, one focused specifically on creating a corps of philanthropists with the commitment, skills and imagination to affect significant change. Finally, through Acumen Fund, the organization I founded and run, I've seen the enormous progress that can be made through solutions to poverty that lie between the market and philanthropy.

What do I mean by between the market and philanthropy? Acumen Fund is a nonprofit venture-capital fund that invests in the poor. We believe that traditional charity or aid alone will not solve big problems of poverty. We believe that the markets alone also won't bring the poorest out of poverty. Therefore, we focus on using patient capital--funds invested for a long time with an expectation of below-market financial returns and outsized social returns.

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Acumen Fund raises charitable funds and then invests equity and loans only in companies that deliver affordable, high-quality, critical goods and services like safe water, health care and alternative energy to the poor. We hold the recipients of our loans and equity stakes accountable, giving them clear goals to meet. Over the past eight years, the organization's investments have enabled over 300,000 of the world's poorest farmers to double their yields through the purchase of low-cost drip irrigation systems; 350,000 rural Indians to access affordable safe drinking water for the first time in their lives; more than 300,000 women in Pakistan to access small loans. And through our portfolio investments, Acumen Fund has helped enable the creation of more than 23,000 jobs.

Acumen's investments have also resulted in the provision of effective emergency ambulance services in several Indian cities; in a company that produces 20 million long-lasting malaria bed nets each year; and in a new public-private toilet system that gives 20,000 people a day in Kenya access to clean, safe facilities. In total, the organization has invested more than $40 million in 42 investments in South Asia and East Africa, and that is just the beginning.

The Blue Sweater is the story of my personal journey and my part in the fight against global poverty. After more than 20 years working in Africa, India and Pakistan, I've learned that solutions to poverty must be driven by discipline, accountability and market strength--not sentimentality. Traditional charity alone can't solve the problem. Billions of dollars in aid over the past 50 years haven't made a dent in global poverty. And although markets alone can improve the lives of many, they also leave many others even further behind.

Because many of the answers to poverty lie between the market and charity, what is needed most of all is moral leadership willing to build solutions from the perspectives of poor people themselves, rather than imposing grand theories and plans from above.

I've learned that people usually tell you the truth if you listen hard enough. If you don't, you'll hear what they think you want to hear.

I've learned that there is no currency like trust and no catalyst like hope. There is nothing worse for building relationships than pandering, on the one hand, or preaching, on the other. And the most important quality we must all strengthen in ourselves is that of human empathy, for true empathy will provide the most hope of all--and the foundation for our collective survival.

I've learned that generosity is far easier than justice and that, in the highly distorted markets of the poor, it is all too easy to veer toward charity alone, to have low or no expectations for low-income people. That does nothing but reaffirm prejudices on all sides.

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I've learned how profoundly the world is interconnected, a single economy linking all parts of the globe. Extraordinary wealth has been generated by the global economy, and millions of people have been lifted out of poverty. Yet that wealth brings danger as much as hope unless and until every single one of us gets a fair chance to participate. In this moment of economic crisis, when our financial systems are broken, there has never been a better time or greater need for invention and innovation.

Everyone has a blue sweater story, an instance that highlights how interconnected we truly are. The key is to continue to find and build those connections, to strengthen communities and systems. And it's happening. There are growing networks of people--students, professionals and others who are working hard to end poverty--collaborating to take a new look at the problems of poverty. Whatever aspect of the issue concerns you most, find and engage with communities trying to deal with it. Listen. Learn. Act.

Everyone has a blue sweater story. What's yours?

Jacqueline Novogratz is founder and chief executive officer of Acumen Fund. Her book, The Blue Sweater: Bridging the Gap Between Rich and Poor in an Interconnected World is published by Rodale.

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Book Review Saving The World, One Loan At A Time Maureen Farrell 03.26.09, 12:01 AM ET

I think I know bureaucracy. I've stood in line at the Department of Motor Vehicles (better than expected) and attempted to send packages from my local post office (much, much worse).

But my first intimate, day-to-day look at it came during my first job as a "researcher" at a foundation. I wanted to change the world, and I wound up making photocopies, sometimes for eight hours at a clip. I wasn't alone. My colleagues, mostly recent Ivy League graduates, spent weeks hovered over the foundation's Xerox machine too. When we did get involved in projects, after weeks of work, many would quietly evaporate. From my golden cage of sorts, an office in an Upper East Side townhouse, I plotted my exit, a move into journalism.

I fled bureaucracy. Jacqueline Novogratz didn't. When she left a short-lived post-graduate banking career at Chase Manhattan Bank to go to Africa as an "ambassador to African women with an office in the African Development Bank," she ran head-first into institutions that didn't want her help and didn't want to be changed. Since 1986, she's been working in or with many of these organizations: the World Bank, UNICEF, the U.N. and numerous aid organizations. Her book, The Blue Sweater: Bridging the Gap Between Rich and Poor in an Interconnected World, might have been subtitled "bridging the gap between idealism and bureaucracy" or "between capitalism and philanthropy." In the book, Novogratz, now CEO of the Acumen Fund, offers a justification of sorts for her foundation that invests in entrepreneurs in developing economies.

Her start in Africa was humbling. In Nairobi, Kenya, she spent hundreds of hours examining the ledgers of a fledgling microfinance institution only to find the bulk of loans in arrears. The institution's executive director ignores her offers to straighten out the problems and mysteriously loses her report. On her next stop to work in the Ivory Coast office of the African Development Bank, the main director, a native of the Ivory Coast, attempts to seduce her and ultimately poisons her--not with the intention to kill but only to disable her for awhile.

Eventually, in the late 1980s, Novogratz lands on her feet in Rwanda and works with the female residents of Kigali, one of the country's main cities, to build a new microfinance institution and a bakery. Here, Novogratz learns some of the challenges of fostering entrepreneurship in an emerging economy--petty (and not so petty) thievery; borrowers who cause food poisoning by failing to change the cooking oil; a probable murder of a partner; and deciding whether to demand repayment of all loans. The microfinance organization, Duterimbere, chooses to push back when loans are overdue and teach the borrowers that they're borrowing from their neighbors, not a faceless charity.

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Novogratz's characters often lack for richness. So many of the women she meets "flash the most beautiful smile I've ever seen" or have warm hearts that shine through their troubles. Novogratz's descriptions of her own emotions often fall into this territory too. She falls in love with countries--Rwanda, Kenya, Pakistan--and her writing at times is overwrought, though her love does seem sincere. (If not, she wouldn't continue with her work against her endless confrontations). Upon her return to Kenya, the main hub of the African Development Bank, after a trip to see her family: "Seeing just one familiar, radiant face was enough to make me feel like I'd come home."

The characters sometimes become a blur of radiant faces, but the sheer facts provide enough of a narrative riptide to keep you glued to the pages and enough detail to serve as a primer on how to go about affecting social change. This book should have a spot on the reading lists of MBA and public policy programs.

The author's tales of living and working in Rwanda pre-genocide in the late 1980s, meanwhile, might just be enough to keep anyone reading. She spends much of the first half of the book chronicling the bumps and successes of institution-building and entrepreneurship in Rwanda, but she barely foreshadows.

Perhaps that's an attempt to give her readers time to comprehend Rwanda as a country that's not solely synonymous with mass murder and to avoid pre-judging these women. More than a decade later, we meet two of her partners in her microfinance work again. Both have been implicated in war crimes related to the genocide. While Novogratz can't help but judge the implicated women, there's some narrative detachment. As a reader, I wanted to understand how they could have done this. As a person who knows these women intimately--yet is a foreigner who left the country for a decade--Novogratz struggles over how to deal with both the implicated women and those who lost families in the 1994 massacres.

For whatever this book lacks in emotional rawness, Jacqueline Novogratz takes us on a journey, a sometimes painful but often enlightening one. Getting a chance to walk down this unusual path that moves around Africa and takes an inside look at international institutions like UNICEF, the U.N. and the World Bank and ultimately at the author's work now--investing in (not giving to) entrepreneurs around the world--is well worth the price of admission.

The book trails off with her work at the Acumen Fund, a nonprofit "global venture fund" she founded that uses donations to finance growth of entrepreneurial companies in developing countries. Here, too, I wanted to know more. The final chapters seem to unfold in real time, and as she says in the conclusion, she's attempting to raise $100 million to invest. (She currently has about $30 million invested in various entrepreneurs.) For the readers who make it through the 250 pages of this book, most, I bet, will be following her blog, her Twitter account and her work.

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ForbesLife Executive Woman Thinking Big--and Small: Jacqueline Novogratz Ellen Grasso 11.24.08

Position: Founder and CEO, Acumen Fund

CV: B.A., economics and international relations, University of Virginia, 1983; M.B.A., Stanford, 1991. Started out in investment banking at Chase in 1983; in 1987, while working with the United Nations Children's Fund, established a Rwanda-based microfinance venture primarily focused on women. Rockefeller Foundation fellow, 1991; director of special projects, Rockefeller Foundation, 1992--1994. Launched Acumen Fund in 2001. Aspen Institute Henry Crown Fellow; Synergos Institute Senior Fellow; member of two World Economic Forum Global Agenda councils. Her first book, The Blue Sweater (Rodale Books), appears in early 2009.

What's Revolutionary: Acumen, a nonprofit global-venture fund making investments typically ranging from $300,000 to $2 million, targets companies offering market-based solutions to the problem of global poverty. Acumen's business model combines a long-term, low-interest-rate investment strategy--what Novogratz calls "patient capital"--with hands-on management expertise in the fund's primary areas of interest: health, water, housing, and energy. Money repaid to Acumen is recycled into other projects, demonstrating the sustainability that the fund advocates.

"In many ways, Acumen was started to revolutionize philanthropy," says Novogratz, "as a nonprofit venture capital fund where we would raise philanthropic money and tell our investors--and call them investors unapologetically--that they would get back [social] change, not money. We wanted to combine the best of philanthropy and the best of business, and finally get serious about taking care of poverty."

Why the Buzz: To date, Acumen has funded 38 enterprises; 33 are currently active. It has over $35 million under management, with the goal of $100 million over the next three years. Successful ventures range from a company in Tanzania manufacturing anti-malaria nets to an Indian company making drip irrigation kits marketed in India and Pakistan. Acumen board member Stuart Davidson is quick to credit Novogratz for the fund's success. "She creates a palpable culture of commitment and shared purpose," he says. "These people know they are part of something larger than themselves."

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Philanthropy The New Activist Givers Richard C. Morais 06.01.07, 6:00 PM ET

Steward Leonard Jr., chief executive of Stew Leonard's, the famous grocery store chain in Connecticut, was with his family in the Caribbean when his 2-year-old son, Stewie, drowned in the pool. ''You really are emotionally tired after such a tragedy, and you don't know what to do with this grief you have,'' says Leonard. ''My wife and I said, 'Let's create a foundation and see if we can help others.' The foundation became a way of healing for the entire family. It still is.''

The Stew Leonard III Children's Charities have, among other things, financed swimming lessons for tens of thousands of disadvantaged children, produced an award-winning children's book called Stewie the Duck Learns to Swim, and have found countless other ways to help families that have similarly suffered a child's drowning.

The Leonards are part of the growing Give Now movement spearheaded by activist organizations such as the Wealth & Giving Forum. ''Traditional philanthropy was defined as waiting until you were really old and very rich and writing a lot of checks,'' says Daniel Schley, chief executive of Foundation Source, a backroom-services specialist that helps family foundations become more efficient. ''But the real power, drive and momentum in modern philanthropy is coming from people in their 40s and 50s who generated a great deal of wealth at an early age and have decided to leverage that wealth in philanthropy.''

These young activists are mostly coming up through the high-finance and tech industries. They are highly engaged in their causes, investing not just money but also time, energy and oversight. By our conservative estimate, these activist philanthropists will be pouring between $1.9 trillion and $2.6 trillion into philanthropy over the 20 years that began a decade ago, roughly 35% of the total giving during this period. But the results-focused nature of this philanthropic capital will make it far more important than the charitable giving seen during the last century.

Exclude Warren Buffett, and 21 Americans, according to The Chronicle of Philanthropy, each gave at least $100 million to charities in 2006. The top 60 donors gave a median $60 million each, compared with the $33 million median given the previous year. At the other end, America's 71,000 grant-making foundations disbursed $41 billion, a 12% increase over 2005, and an inflation-adjusted 228% increase over what was disbursed in 1996.

Behind this impressive growth is a new wave in philanthropy that is not only activist but also mindful of "return on investment." Imagine a 1960s flower-power protest organized by flinty-eyed hedge fund managers. They first showed up in numbers during the dot-com boom of the 1990s, and many of them believed their

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''venture philanthropy'' or ''social entrepreneurialism,'' were inventions of the ''New Economy.''

In reality, philanthropy's first industrializing phase took place in the late 19th century and early 20th centuries when the likes of Carnegie, Mellon and Rockefeller used their hard-headed business skills to tackle society's most severe problems. John D. Rockefeller's Sanitary Commission of 1909 and the Rockefeller Foundation he created in 1913 pretty much eradicated hookworm in America and laid the groundwork for the nation's public health system.

But there is a difference. ''Rockefeller viewed his philanthropy through the lens of his business, and it really mirrored the Industrial Revolution. It was highly centralized, it was top down, it was based on experts and it was big picture,'' says Jacqueline Novogratz, founder of the Acumen Fund, which invests in companies offering services to the world's poor.

''Wealth today has been created by a world view dominated by fast-moving networks, open information, bottom-up entrepreneurialism," she says. "So it's less likely to see [philanthropists like Bill Gates] going in at the top of a problem, but more likely for them to find entrepreneurs they can back, and business models they can use, from the bottom-up of the market.''

Mario Morino and his Venture Partner Philanthropy is a prime example of this new bottom-up activism at work. Morino built software firms--including Legent, sold to Computer Associates for $1.8 billion--and cashed out in the mid-1990s. Raised in Rust Belt Cleveland and grateful for the education he received, he immediately created the Morino Foundation as an educational philanthropy.

His rambling mission statement written in 1995 talks about using ''network interactive communications'' in the ''Knowledge Age'' to ''empower'' the disadvantaged. It reflects the dot-com hubris of the time, and Morino inevitably got a reality check. A teacher once stood up at a conference and bluntly told Morino and the other superhighway do-gooders that her classroom didn't even have a phone jack. Another added that she taught out of a garage.

But Morino is intensely earnest, and in one 18-month period, he interviewed 700 philanthropic sources across the country. The software executive noticed that deeply committed and competent community leaders periodically emerged out of the ''volunteer'' armies that were the backbone of America's charity work. These charismatics were the nonprofit equivalent of entrepreneurs, and they tackled the hardest issues in the toughest neighborhoods and built dynamic charities in the $500,000 to $2 million range. But these natural leaders with insider know-how did not have the networks, resources or ''managerial discipline'' to lift their charitable institutions to the next level.

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In 1999, Morino visited General Atlantic Partners, the top-drawer private equity group, and suddenly had an ''epiphany'' to bring the management, capacity and brand-building techniques of private equity to the philanthropic sector.

''Grant making is generally program-based, often with tight restrictions on how the grants can be used for overhead, so the ability for a nonprofit to take that money to improve itself managerially was very low or didn't exist,'' says Morino. ''Therein lies one of the fundamental problems [of the philanthropic industry].''

So Morino set out to fill this hole by personally spending $9 million to establish Venture Philanthropy Partners with two partners, and then raising a $30 million fund with 26 high-profile investors, including Jean and Steve Case of AOL fame. Some of these investors take up board seats on VPP's investments; others make their high-powered Rolodexes available to the nonprofits. The mission: ''Alter the status quo for children in need of opportunity'' and ''create a different, innovative approach to philanthropy.''

VPP committed its resources to 12 charities in the Washington, D.C., area, collectively serving 47,000 children. VPP's chief executive oversees the private equity approach: top-to-bottom reviews of the hand-picked charity; identification of expansion opportunities and management goals; and clear targets backed by quarterly reviews to ensure benchmarks are getting hit.

VPP's approach is slowly paying off. One of its brightest stars is See Forever Foundation, which set up an inner-city charter school that cases the juvenile courts for kids in trouble, and then stands over them (until 7:15 p.m. at one school, and on Saturdays at another). Expanding further with VPP's backing, See Forever provides tiny classes, hot meals, emergency housing, counseling and after-school tutoring. With 275 kids under its wing at the moment, See Forever's inner-city ''no-hopers'' have an 85% graduation rate.

Mary's Center for Child and Maternal Health is another VPP investment. Nurse Mary Gomez originally started her charity in 1988 as a center where undocumented immigrants from Central America, too afraid to visit hospitals, could safely get natal care and pediatric services. Mary's Center has since developed into a cheery, one-stop mecca for any Washington-area immigrant trying to make his way in America. It offers everything from HIV/AIDS testing to English lessons, as well as delivering babies, teaching teens family planning and assisting its immigrant clients in the myriad of government offices they have to deal with.

''Many of our clients come from cultures where it is acceptable to hit children,'' explains Gomez. ''One of the things we teach them is that you can't do that in America. We had one case where a woman had her children taken from her by Child Services just because she didn't understand the rules or what was going on.''

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By 2004, however, Gomez and her four-member management team had hit a ceiling. They had $8 million in revenue; a staff of 111 served 11,000 clients. VPP concluded its rigorous vetting process and began sinking management time and resources into Mary's Center. Two years later, Mary's revenues are up 50%, staff is at 136 and 14,000 clients are being served. More important, a new 10-person senior management team, including an experienced chief operating officer and a development office, are busy opening two new sites in Virginia and Maryland.

In the halls, Gomez warmly greets a newly hired site manager she's never met before. ''See, I am learning to delegate,'' she says.

VPP, after a period of building its own capacity and reflecting on lessons learned, is raising a second, $50 million fund. Morino has personally invested $25 million in philanthropic causes so far, and expects to sink another $9 million into VPP. His goal? ''Bottom line, if we could help sway the needle from loyalty-based giving to merit-based giving--and [as a result] there was more effective allocation of public funding--that would be a huge accomplishment,'' he says.

Of course, the octogenarian check-writers remain a vital source of charitable funds as America ages. Paul Schervish and John Havens at Boston College's Center on Wealth and Philanthropy say $45 trillion will have changed hands through estate settlements in the first half of this century, the largest intergenerational transfer of wealth in U.S. history.

But this other in-your-face crowd is the fast-rising group to watch.

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Corporate Citizenship Can Corporations Save The World? Carlye Adler 11.28.06, 12:00 PM ET

In areas of Sri Lanka devastated by the tsunami of 2004, hundreds of children attend new schools and thousands are served by a mobile medical clinic courtesy of Hasbro, the Pawtucket, R.I., toymaker. In China's Pearl River Delta, 300,000 women migrant workers have been trained in labor rights, legal services and life skills, thanks to San Francisco-based Levi Strauss & Co. And in Africa, Asia and other tropical regions, new cases of lymphatic filariasis, also known as elephantiasis--an incurable disease that puts 1 billion people at risk of disabling deformities--may be eliminated by 2020, in great part because of a billion-dollar donation by London-based pharmaceutical giant GlaxoSmithKline.

All across the globe, corporations are making their mark, not only with visible stakes (such as a new Golden Arches, which goes up somewhere in the world roughly every day), but also through more unlikely investments aimed at improving the planet's education, health and environmental problems. For better or worse, companies are trying to save the world. It's a phenomenon that goes by several names: corporate social responsibility (CSR), corporate responsibility or corporate citizenship. But no matter what you call it, the idea that companies should consider their impact on the world--while simultaneously pursuing the traditional quest for profit--has been gaining traction over the past decade and has now reached an all-time high.

In 2005, corporate donations grew by an unprecedented 22.5%, amounting to $13.77 billion, according to the Glenview, Ill.-based Giving USA Foundation. Nearly 1,000 companies now publish sustainability reports--that's up from zero ten years ago. Since Levi Strauss established the first supplier code of conduct in 1991, Mattel, Nike and about 1,000 other companies now also adhere to voluntary codes of conduct for labor practices, according to the nonprofit organization Business for Social Responsibility, headquartered in San Francisco.

"It was slow to start, but we saw some maverick small companies with phenomenal growth rates, in part because people tuned into the values of these entrepreneurs and bought their products," says Deborah Nelson, executive director at the San Francisco-based Social Venture Network, citing ice cream do-gooders Ben & Jerry's , the earth-embracing Body Shop International founder Anita Roddick and natural toothpaste titan Tom Chapell , of Tom's of Maine . Nelson believes that recent events such as the Sept. 11 terrorist attacks, heightened attention to global warming, and the fact that celebrities like Angelia Jolie and Leonardo DiCaprio have made being responsible "cool" have caused the trend to trickle up to the corporate giants. "Mainstream companies are waking up," she says. "It's not just a space for pioneers anymore."

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Case in point: Wal-Mart Stores, long considered by many activists to be among the most reckless companies, found environmental religion. Last year, the company announced it would invest $500 million annually in energy-saving technologies, reduce solid waste by 25% over the next three years and urge its 60,000 suppliers to produce goods that don't harm the environment.

Now that corporate giants with balance sheets worth more than many countries' economies are embracing CSR, can the once lofty and intellectual idea that businesses can save the world become a reality? The late Nobel laureate Milton Friedman famously said, "The business of business is business," and that mantra still resonates with many today.

Tom Borelli, senior fellow at the National Center for Public Policy Research, says companies are ill equipped to tackle the world's problems. He cites BP as the "poster child" of CSR gone wrong. Indeed, BP has had its share of troubles lately, including a pipeline leak in Alaska, a plant explosion in Texas City and an oil spill in California. "BP became obsessed with image campaigns that diverted money and management attention from its core business with tragic consequences for its workers, the environment and shareholders," says Borelli. "BP should have put money into safety and maintenance, not glitzy PR; their real responsibility is to safely and effectively produce oil."

In response, Sarah Howell, director of corporate communications at BP, said in an e-mail statement to Forbes.com, "These events are unacceptable to us, and we regret and apologize for them." She adds, "We have $7 billion dedicated to our U.S. safety and integrity effort, and earlier this year announced plans to spend an additional $1 billion over the next four years to improve operational integrity and process safety in our U.S. refineries."

Borelli, who is also the portfolio manager of the Free Enterprise Action Fund--a mutual fund that uses its institutional shareholder standing to challenge company management on the financial impact of CSR--takes it a step further: "When you boil it down, there are two economic systems: socialism or capitalism. CSR is the viral agent of socialism. Social welfare should come from government and investment from corporations."

Many argue, though, that in today's society, working to improve social welfare is just another investment that corporations can--and should--make. More and more, the lines that have divided the public and private sectors are becoming blurred. Take Steve Case , the co-founder of AOL , who is now trying to change the way both for-profit businesses and nonprofit entities operate. He's promoting a model in which each borrows a page from the other.

Case is so bullish on this "sector-blending" idea that he poured $500 million into Revolution , a for-profit venture that "builds businesses that are changing the world." The private holding company invests in early-stage, consumer-oriented

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businesses in health care, sustainable living (think car sharing) and resorts. He's similarly applying lessons he learned in business to the Brain Trust Accelerator Fund, a for-profit venture capital fund that makes investments in promising companies that develop therapies for brain diseases. Brain disease charities (including Accelerate Brain Cancer Cure, the one Case started with his brother, Dan, who has since passed away) will be given a portion of the management fee and carried interest in the fund that would usually have gone to the general partner. "We are trying to blur the lines and look at philanthropic efforts with an economic angle--with recurring revenue streams that make it more scalable and more sustainable," Case told Forbes.com. "Major challenges need swing-from-the-fences entrepreneurial thinking. The private sector leads in terms of being innovative."

Could Case, whose visionary thinking has been right before (the AOL-Time Warner merger notwithstanding), be right again? He's certainly not the only one who sees power in blurring the lines. In its early stages, Google earmarked 1% of its equity for its foundation. Post IPO, its philanthropic dollars are valued around $1.5 billion, which will be used for projects such as improving water quality in Kenya, advancing literacy in India and helping develop affordable goods and services for the billions of people in the world who live on a few dollars a day.

That last effort comes in the form of supporting the Acumen Fund, a nonprofit venture capital fund. Acumen has invested in low-cost mortgages in Pakistan and rural health clinics in Kenya, and it is about to fund affordable private ambulances in India. Not only did Google.org give Acumen its largest single grant to date ($5 million), it also invited the nonprofit to work from its New York corporate office. It's an idea that makes sense to Acumen, whose very DNA was built on blurring the lines between the nonprofit and for-profit worlds. (It was founded 2001 with seed money from the Rockefeller Foundation, three individual philanthropists and the Cisco Systems Foundation.) "Organizations are merely structures for how things can happen," says Jacqueline Novogratz , founder and CEO of Acumen. "There are new ways in the 21st century to use the power of the marketplace combined with more human ethos."

In this new world of corporate citizenship, many enlightened firms have also found that behaving with "more human ethos" is also good business. "In order to make a profit in this day and age, companies are not going to exist if they don't have corporate responsibility," says Alan Hassenfeld , the chairman of Hasbro . "You have to do the right thing," he says, claiming it helps to recruit and retain employees as well as keep customers.

Many believe, in fact, that CSR will only become a realistic and sustainable way to effect change when it proves to be driven by the bottom line. And the nonprofits that work with corporations don't think that makes the efforts any less sincere, or appreciated. "It doesn't make sense to throw stones at Goliath," says Gillian Caldwell, the executive director of WITNESS, a human rights organization

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that was founded by musician Peter Gabriel and initially funded by the Reebok Human Rights Foundation. "Companies can do well by doing good, and that's OK. It will take a collective commitment to do what we can to ensure the sustainability of the planet."

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THE NOVOGRATZ INTERVIEW [00:08] Steve: Aid’s Unintended Consequences Hello, I’m Steve Forbes. It's a pleasure to introduce our featured guest, Jacqueline Novogratz, founder and CEO of the Acumen fund, a non-profit venture capital fund that seeks to raise the world out of poverty by unleashing capitalism's innovative, opportunity-creating forces. Jacqueline will tell us how living standards can rise around the globe. But first – It's time to rethink how we give foreign aid to the world's poor. I was recently involved with the launch and promotion of a book called "Dead Aid," by former Goldman Sachs economist Dambisa Moyo. She believes that direct foreign aid to African countries has bred dependency and corruption and trapped nations in poverty. Here's an example from Moyo's book -- an African entrepreneur who tried to sell low cost mosquito netting to help combat malaria found himself put out of business by government aid programs that gave away the nets for free. Sometimes our good intentions have unintended consequences. Over the last six decades, western governments have spent $1 trillion on aid to Africa and yet per capita incomes are below where they were in the 1970s. Without private industry and a business culture, all the aid in the world can't get Africans ahead. Moyo wants to cut off all aid within five years. Some African leaders, such as the President of Rwanda, are so intrigued that they've met with her to discuss the possibility. Hopefully microfinance, of the sort that Moyo supports, and venture capitalism, like Jacqueline Novogratz practices, can succeed where our trillion dollars in aid have failed. That would be a great victory for capitalism and humanity. In a moment, my conversation with Jacqueline Novogratz. [01:54] Let Them Save Themselves Steve Forbes: Well, thank you for being with us. And you once made the observation that you wanted to save the world. But when you went out in the world, you discovered that if people can save themselves, they'd be happy to do it. How did you build on that insight? Jacqueline Novogratz: I did indeed go to Africa for the first time thinking I was singlehandedly going to save the world and discovered, as you said, that people

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don't want to be saved but want to solve their own problems, make their own decisions. And so it took a long time. But ultimately it created an organization called Acumen Fund, which is a non-profit venture capital fund. So that we use the discipline and the rigor of the market, understanding how hard it is to accelerate markets in highly under-served markets where people make $1, $2, $3 a day. The idea is the market is the best listening device that we have and that, while aid has not solved the problems of charity nor has markets alone the problems of poverty, that we could actually use what we call patient capital, a way of investing at below-market returns, leave the money for a long time, combine it with a lot of management support, and build businesses that we can grow and scale that deliver water, housing, healthcare, the basic services to very low-income people. Over time, both build that so that they're reaching millions but also show it to governments, show it to corporations so that ultimately we change the whole game around what it takes to enable people to make their own decisions. Forbes: Why don't you think markets have worked in these particular areas of the world? Novogratz: In the poorest countries? Forbes: Whereas in other parts the world like South Korea once had one of the lowest per capita incomes and now one of the highest. Why has it not been able to take off in certain parts of Africa, Pakistan, even parts of India? Novogratz: It's a great question. It's one of the questions. I think Paul Collier does a great job in writing about it in his book The Bottom Billion. One of the big missing elements, of course, is trust in terms of what it takes to actually build markets. Two is the resources that are available. You're looking in some countries in Africa particularly where you've got very, very low education in terms of your workforce, unbelievable problems with distribution, no infrastructure, high levels of corruption, and so, and then needing to import all of your raw materials even to make something in many cases. We've seen this with what we're doing with long-lasting malaria bed nets in East Africa. And so a lot going against you to actually get started in the world that is increasingly interconnected. And so I think that makes it hard to get these things going in the first place. Forbes: When you visit some of these countries, you certainly don't see a lack of entrepreneurial energy, activity. Novogratz: Not at all. [5:00] What’s Missing?

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Forbes: People trading, people willing to do things. Is it lack of institutions that is unable to turn this energy into a sustained growth or what? Novogratz: It's partially a lack of institutions. It's a lack of access to capital. We've seen, even with microfinance, where people will get access to very small amounts of capital, there's a real missing gap anywhere between $100,000 and $2 million that just isn't available. Banks won't lend unless they see 200-or-300% collateral, which, tautologically, makes it impossible for entrepreneurs who have nothing to actually start something. But it goes beyond that in terms of having access to markets. In many countries in which we work, or many regions in which we work, you've got middlemen who will buy from the low-income people at the price that they have decided they will buy and then will turn around and really capture the true margins because they have access to markets. And so another question is how do we create a more direct link between the producers and markets? Forbes: A quick question before we get to the unique things we're doing. Will cell phones help solve that problem? Novogratz: Cell phones will absolutely, to an extent. In Pakistan, where we work with farmers, selling them drip irrigation systems, extremely low cost. It's incredible to watch their productivity rise. But then many of them are still beholden to the artemisinin, or the middlemen. Forbes: Right. Novogratz: And so even though they have the cell phones and they know at which markets they could sell for higher prices, they don't have the power to negotiate with those markets directly. And so we need more intermediaries that provide fair prices and real opportunities for small holders to export even in the context of exporting from their community. It doesn't have to be exporting internationally. [06:55] The Difference Forbes: Now, you recognize that philanthropy alone does not work. When you give bed nets away, you're hitting the local bed net maker who might create a thriving business doing this. And you mentioned that markets alone you don't think can make the breakthrough. So what is Acumen Fund doing differently? You say patient capital and accept low market returns. But cite a few examples, as you've done in your book and elsewhere, where areas like water and other areas where you've established businesses and how you hope that's going to be models for others to build on this and get some real momentum going.

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Novogratz: Well, I'll start with bed nets, since you raise it. And one thing I just want to be clear on is we actually believe in the creative destruction of markets as well when the net value for the poor is positive. And so when there was this opportunity with long-lasting bed nets, we knew that some of the local bed net manufacturers might not make it. But many of those bed net manufacturers employ ten or 15 people. Sumitomo had developed a chemical that you could impregnate into a polyethylene-based fiber. So unlike the traditional bed nets that were on the market, polyester-based and would fall apart after three or four months, had to be dipped, this would enable people to buy a bed net that would last for five years, never have to dip it in insecticide, and would actually kill the bugs on contact. But nobody would lend. Nobody would lend to local African entrepreneurs. So we worked with Sumitomo, UNICEF and helped find who we thought was the most extraordinary bed net manufacturer with the traditional nets and financed the technology transfer and then provided a lot of management assistance on the side. Now, that company employs 7,000 individuals now, mostly low-income women, making 20 million bed nets per year that provides protection to 40 million Africans. In water as well, we look at these draconian solutions rather than seeing where there might be opportunities for the market as a listening device but recognize the need for patient capital. The conversation is always water is a human right and should be given to everyone free or water is a scarce commodity and should be fully privatized, when, in truth, we have a world in which 1.3 billion people have no access to safe drinking water. And so we looked for an entrepreneurial solution. Who was experimenting with what it would take to sell low-income people affordable water and found that in Tralance Addy, who had started Water Health International. In 2004, we made a $600,000 equity investment in this start-up company. Forbes: And that, by the way, you mentioned earlier in terms of finance. You focus on the area, you said, between $300,000 and $2 million that fall between and there is nothing there. Novogratz: That's right. And certainly at that start-up level, $600,000. But then we provided a lot of management support, including working with the company to do a redesign of the plant itself so that it could scale because the original one was too large, too cumbersome for the local villager. Forbes: Who do you bring in to help in terms of imparting these management skills?

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Novogratz: In this case, we brought an Acumen fellow, a very young man named Ankur Shah, who had a background in architecture, McKinsey, was at the Kennedy School. I think that there's a whole generation of highly skilled individuals who are willing to share their skills by working hand in hand with these entrepreneurs who are really on the ground doing the work. And so Ankur worked with the team. They did a redesign together. And then we saw that the banks wouldn't lend into the low-income markets for water because the banks had no history. And so we used, again, our philanthropic money as patient capital to put up a first loan, a first loss guaranteed to the banks. We knew that we could afford to lose if it meant that we could open up a lot more traditional capital into these markets. And so we first negotiated a 30 percent first loss. Forbes: Now you have it down to 15. Novogratz: And we got it down to 15. And now Water Health International has raised about $40 million in additional capital, more traditional forms of capital. And they now have 350,000 customers. So we have a model for how you sustainably sell affordable water to low-income people in ways that they value. And we're hoping now to both, again, work with state governments to see whether or not there might be outsourcing to the private sector as well as looking to other countries that may be interested in this kind of a model. [11:45] Handling Local Governments Forbes: You mentioned the problem of corruption, also. Anywhere, governments are very jealous of their own prerogatives. How do you get governments to be cooperative instead of parasitical when they see something that works and, ah, patronage? How do you bring out the best in government instead of the worst? Novogratz: Well, you know, we've seen a lot of the corruption in the private sector, too, so it's on both. I think it's, one, taking a stand that this is who you are and that, again, with patient capital, we can afford to wait and do things in the right way. And, second, I think when any community, including government, sees success that really works, there's an excitement about providing support. So with A to Z bed nets. Forbes: So they can take credit. Novogratz: And, you know, we're happy to share credit with anybody who wants that credit. Because at the end of the day, it's the results. Forbes: Right.

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Novogratz: And so President Kikwete's government in Tanzania has done incredible things to help facilitate this company's expansion. I've learned so much about the power of a single manufacturing company that scales. Once you're at 5,000, 6,000, 7,000 employees, a lot changes, including how energy is directed into a local community because, of course, you need it, how Customs works, and even taxation and distribution issues so that now you're starting to see a local manufacturing environment that has dramatically improved because of a single company. Forbes: Do you feel that, as these things multiply, that those will create forces that create institutions that then can sustain growth, that also fights corruption because you have an emerging middle class that says this is not tolerable anymore? Novogratz: I do. And that's where storytelling also gets important. And I thank you for interviewing me. Nothing inspires like seeing success and certainly success in one's own community. And as you said before, we have incredible entrepreneurs in every country on this planet. And so to find those role models, to support them, and then to really dig in and understand the knowledge that we can gain from them and tell the stories to government, to other entrepreneurs, to international investors around what is possible, knowing that there will be knocks along the way I think is part of the shared journey we need to take. And I think it's the best way we will see international development start to take root. Forbes: On the water front, you mentioned the success you've had there. But you've also mentioned that you can go to urban areas where people, poor people will pay 40, 50 times more than somebody in a middle-class area, suburb, or the like. Is that kind of success entrepreneurs looking at and saying, "Here's a huge opportunity?" Novogratz: Well that's really a complex story because where you see in slum areas the 40 to 50 times, it's often a mix of local mafias that aren't mafias in the United States sense but more family companies that see a real opportunity that are connected to government and that take advantage of the corruption in government being willing to look away. And so it's a highly distorted market that allows for 40 to 50 times price points, which makes it harder for the individual entrepreneur to actually make inroads. That's where I think, again, these intermediaries and finding strength in investing approaches to protect the entrepreneur becomes really important, also. [15:23] Measuring Success

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Forbes: Can you briefly outline some of the actual hard-nosed yardsticks, you might say, that Acumen Fund uses that is not just philanthropy but, even though it's patient capital, you have things that determine this is going to work, this isn't going to work, timeframe? How do you know whether something is worth sticking with? Novogratz: Well, it's interesting. We were just talking about this on our team. The first thing that we do is Acumen Fund doesn't make grants. We only invest equity or make loans. And so while they may be at below market rates and some of our equity will obviously not, may really surprise us, the expectation is that we will see a return on our capital. And so that provides a real discipline in and of itself. We have monthly metrics. Acumen Fund has built a metrics platform that we call Pulse. And right now we have 50 social investors, foundations as well as investors looking for real financial returns, using this and testing it as a system on a monthly basis to track revenues, many of the things that a financial organization would track, but also then the social impact of the work that we're doing as well. We are a believer that you bet on winners, and that while you have to see the most important social impact ones that may be at risk of failing and support them, we also have to have the guts to cut them off and move our money to where we will see real success stories. And we've done that hopefully in a really thoughtful way where we've also committed to sharing our failures and talking about them with those who support us. Forbes: Could you quickly cite a couple of failures where you learned and then were able to achieve successes precisely because you saw this did not work the way we did it and we learned from it and here's how we proceeded? Novogratz: Sure. One of the early investments that we made was in an affordable hearing aid. The incredible entrepreneur, who we adore, we're still good friends with, who managed to create a digital hearing aid for about $32 that tested as well as the $3,000 model on the market. We thought this was a home run. It would be easy to break the market and find real access to low-income people. We underestimated a couple of things. One was there was no real distribution set up for low-income people around hearing aids. Two, we really underestimated the connection low-income people make with hearing aids and productivity, unlike glasses or cataract, intraocular lenses, which make a major difference. If you're going from blindness to sight, you can become an income earner.

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Hearing loss doesn't impact your income quite as much. And so there was a reticence. Also, we underestimated human vanity that exists at every level of the economic spectrum. And people didn't want to wear the hearing aids. And so while, from a non-profit perspective, we could have claimed success, 10,000 people were given or bought hearing aids in the short term, from the perspective of what Acumen Fund is trying to do in identifying those innovations that really can scale and can be sustainable, it was a failure. And what we learned was we were too excited about the technology. And we didn't understand the business model first and foremost. And so that's where we look now rather than the next cool technology that will enable, theoretically, people to get access. Show us the business model. Show us how this is going to be designed, distributed, priced, and marketed in a way that will really impact low-income people and allow them to participate in their own decisions. [19:09] Learning From Developing World Forbes: You've made the point that this divide between developed and developing worlds is perhaps an artificial one, that each can learn from the other. Can you cite the example of the Indian group that is doing cataract operations and doing so on a scale that would raise eyebrows here, you might say? Novogratz: Absolutely. Dr. Venkataswamy, who unfortunately died a couple of years ago, back in 1958 was frustrated with the way that cataract surgery was being done in India. He wanted to eradicate blindness altogether. That was his goal, not profit. And yet he saw the power of business. And he was passionate both about McDonald's as well as about just-in-time inventory. And so he created a eye hospital that was a combination of both, recognizing the power of storytelling, efficiencies, and just-in-time approaches to delivering eye surgery. And so the doctor essentially stays at the end of the table in the operating room. And young women dress the patient, get them ready, bring them to the doctor. The doctor does a surgery, on average, in six minutes. And then another young person takes the patient away to be treated. At Aravind Hospital, doctors do on average 80 surgeries per day with the same level of efficiency as well as infection rates as you'll see anywhere in the world. And this year they will have treated over a million people, 300,000, who've been given the gift of sight, which, as I said before, is the gift of life really in a place like India. We could absolutely learn from this. And we're experimenting in other areas in Pakistan with health insurance that costs about $6 a year and what the coverage is and whether you have buy-in or not.

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In many of these countries where 50% of the population is under the age of 18, there's a lot going for good health. If we could focus on prevention and still focus on allow the insurance to cover catastrophic, we would do a lot for poverty and a lot for income in the long term. Forbes: What would you tell an entrepreneur, you mentioned before when you go into some of these areas, don't expect to see what you see in many other parts of the world. Based on your experiences, what would you tell an entrepreneur who wants to go and make a profit? How do you go here and have a chance of success and in a positive way? Novogratz: The most important is understanding the local context and finding a local partner because it's all new territory to understand. And what you think you see is not always what you see at all. And second is what all entrepreneurs do better than just about anybody on the planet, and that is persevere, that you're going to have enough capital that you will be able to fall down a number of times and move from there. And then the third is what we say all the time, particularly, again, with this idea of technology because what comes through Acumen's door most often from the West, and we typically invest in local entrepreneurs, is "I've got the greatest water filter" or "I've got the newest concrete for building houses." And we say, "Help me understand that from the perspective of a person who makes $1 or $2 a day. How are they going to hear about it? Why are they going to value it? How are they going to pay for it? And how does this design fit into the way they live their lives?" And if they can't answer any of those questions, they're probably not the right entrepreneur, even if they have the right product. And, again, that's where I would go and find the local knowledge and the local understanding, the local partnership. [23:03] Know The Customer Forbes: You mentioned we always say "know your customer." Cite quickly the example of sometimes the customer is the mother-in-law. Novogratz: Yes. In fact, Nicholas Kristof and I are having a little conversation about this because he was talking about in Africa, the customer is often the husband when it comes to a mother giving birth. We're 50% owners of a low-income internal healthcare hospital that is now building a new hospital every 35 days in the state of Andhra Pradesh. It's an incredible small hospital, 30-bed hospital, that is providing real high-quality maternal health services at one sixth the private sector price and above government, obviously, but in a way that you really see women value. The thing that we underestimated was how important the mother-in-law is. We thought that, clearly, the woman who was carrying the baby would be the real

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point of contact and would be the real decision maker. But, indeed, it turns out to be the mother-in-law who makes all of the decisions around quality. She may consult with the husband around decisions on price, but on quality. We also found out that India has one of the highest caesarian sections in the world for a whole variety of reasons, including the physical pelvic structures of many low-income rural women, financial incentives that push many doctors to go for the much more expensive C-sections. But there was a third variable, which is that some mother-in-laws want their daughters, even some of the poorest, to give birth on the right astrological date. And so it raises lots of questions for hospitals around choice. And rather than saying, "No, you cannot make that choice," to integrate real consulting around what those choices entail and create a more informed customer and a healthier service provider. So it's all fascinating when you let the market teach you and when you really look at low-income people as customers, what a better job we could be doing. Forbes: What is your bold prediction for the future, especially as we try to get out of this credit crisis, which has hit everyone in the world? Novogratz: Well, I'm a huge optimist. And I actually feel that this is the moment for real imagination, real change. We've seen breakage in financial systems. We've certainly, as you said before, seen a broken aid system. And we have never been more connected as a world as we are today, with the next generation that I see as full of optimism, full of skills, and full of a recognition that we're all we have. And so I think that all of this turbulence is going to lead to much more integrated solutions, a convergence where we're looking at corporations, seeing social responsibility and corporate responsibility as part of their mandate, non-profits that are starting to act more and more like businesses, and a convergence that will allow these joint solutions, understanding where the market works and what the limitations of the market are and where government and other forms of support can work together much more effectively so that we can create a kind of efficiency as well as equity so that every person on the planet can have access to those goods and services so that they can make their own choices and solve their problems. I believe that's where dignity starts. Forbes: And one final question. How did you get the funding for this since you were breaking the mold, in effect? You weren't doing one or the other. You were doing your own mix. Novogratz: That's right. Well, luckily, I was situated at the Rockefeller Foundation when I was first starting to put Acumen Fund together. And I had started something called the Philanthropy Workshop. And there were some

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amazing individuals who had gone through it, philanthropists who were learning more strategic ways of doing philanthropy, using the market. And so one was a woman named Tae Yoo, who was at Cisco. And she and Cisco also provided seed funding. Two other individuals, Cate Muther and Stuart Davidson provided seed funding. So we were off to the races with a significant chunk of capital. I insisted on running Acumen Fund from the beginning as a business and so wanted growth capital right from the start. And then went out to 20 founding partners, people who would commit $100,000 to this idea. They largely came from the financial sector as well as from being entrepreneurs themselves. So this idea really resonated. And we had the financial backing to prove that you could build companies that serve the poor. And today have about $40 million invested in 40 companies in Pakistan, India, and East Africa, have created over 25,000 jobs, and have seen literally tens of millions of very low-income people get access to clean water, the houses, the affordable and alternative energy, and, in many ways most important, healthcare. So it's been an incredible journey. But, in many ways, I think we're just getting started, Steve. Forbes: Terrific. Well, thank you very much. Novogratz: Thank you very much.