By Danielle Beurteaux
The next time you run into a Starbucks for a caffeine lift, take a moment to consider where that coffee comes from. In Tanzania, coffee is an important crop, grown mostly by small family enterprises. It’s also labor intensive, and farmers have had difficulty getting a good price for their beans because of quality issues.
That’s where Root Capital comes in, says Jeremy Mindich, 44, co-founder and managing partner of Scopia Capital, a $1 billion long/short equity fund in New York City. Root Capital is a Cambridge, Mass., nonprofit social investment fund that invests in small businesses so that they can grow into larger, more profitable enterprises. The fund is a pioneer in financing the missing middle—the segment of small companies that are too big for a typical microfinance loan but are too small, too risky or are too far from conventional banks. “There are all these small businesses that don’t get capital, and they really need it,” says Mindich.
While he’s a fan of microfinance—which typically lends to single proprietors—Mindich points out that helping businesses that hire and expand can potentially transform entire communities. This year, Root Capital will loan $75 million. The borrower repayment rate is 99%, borrowers take financial education classes, and many loans are guaranteed by innovative purchase agreements with companies including Starbucks, Green Mountain Coffee Roasters, and in England, Marks & Spencer. “We’ll provide the financing to make sure you get good product as long as you assure us that you’ll buy it if we can produce it for you,” he explains.
In 2006, Root Capital loaned $225,000 to a coffee grower cooperative in Tanzania to buy 22 coffee washing stations, which depulp the coffee cherries and deliver a consistently higher-quality product. The farmers now get 1,900 Tanzanian shilling per kilogram of coffee, a healthy increase from the 1,000 they got before. “Now they’re getting paid a fair price for their coffee,” says Mindich.
Mindich discovered Root Capital in 2007 when researching social investment. He was impressed with the sophistication of Root Capital’s risk management and how the group ensured protection for its lending capital. He got involved financially in 2008 and became a board member earlier this year. Willy Foote, Root Capital’s founder, says Mindich’s background as an investor makes him the perfect person to explain Root’s investment strategy.
“I find him one of our best-hidden assets,” says Foote.
4Mindich had a role model for his social investing. His grandfather, after witnessing the post-World World II devastation in Europe, helped several businessmen start companies. Mindich says many of these companies went on to be successful. “There are so many people out there who could do great things if they just had a little bit of access to some sort of capital,” he says.
