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4 Keys to Starting a Truly Impactful Impact Fund

Updated: Sep 28, 2021

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For many people, COVID-19 was an opportunity to slow down. To re-think big ideas and perhaps even take action on them. For David Harlley, Jonathan Wilson, and Kwabena Owusu-Adjei, that meant (finally) launching their dream impact fund.

Third Way Capital is an early-stage impact fund investing in African small and medium-sized enterprises (SMEs). For decades, Africa has been a hotspot for Western philanthropy and foreign investment. But even before the pandemic, the continent was seeing a decline in FDI. In fact, investment flows were expected to drop 25% by the end of 2020.

However, funding in Africa has always been a challenge. In our conversation with David, Jonathan, and Kwabena, we learn how Third Way Capital is trying to change that. Plus, what is needed to start an impact fund that truly makes an impact.

1. Know the environment you’re investing in

To be a true ally through impact investing, you need to understand the environment you are trying to impact. You need to know what the challenges are for the community and what outcomes they want to see.

All three of Third Way Capital’s co-founders and partners have lived and worked in Africa. They have mentored entrepreneurs, consulted business government, and raised debt and equity for large-scale infrastructure projects across the continent.

Through first-hand experience, they know what the capital issues are, where aid and development work has fallen short, and who has the potential for turning investment into lasting economical change. With this knowledge, Jonathan says they can alter how investors see risk and opportunity in Africa.

“We can take the mystery out of it and show that the risks are not considerably different to taking on a venture here in North America if you know how to play in the environment.”

2. Identify the gaps and opportunities

A successful impact fund knows where capital is needed and where it has the largest potential to grow.

In Africa, government loans are being granted to large corporations while other organizations are providing financial aid at the grassroots level. In between lies the “missing middle”: a major capital gap for SMEs. Kwabena explains:

“Nothing makes me sadder than when you can see what is clearly a $100 million or $200 million valuation business - if they were in Silicon Valley - struggling largely because the $2 million required to be invested isn’t there.”

Third Way Capital believes this gap holds the key to building stronger economies across the continent. How? By capitalizing on one of Sub-Saharan Africa’s most prominent opportunities: its growing middle-class. If investors can help SMEs deliver high-demand goods in a localized context, middle-class consumers will have the purchasing power to buy them.

Plus, as Kwabena points out, being African today is cool. African art and culture has hit the mainstream, creating a huge demand for exported goods. By identifying these opportunities and the gap that needs to be filled to meet them, Third Way Capital can make a greater impact through its investments.

3. Don’t be afraid to break tradition

When building the fund, the Third Way team toyed with different ideas for how to structure it, including a debt fund. Ultimately, the traditional private equity structures felt too constraining for the type of investments they wanted to make. They didn’t want to be tied down by the old school mold that incentivized fund managers to lend massive tickets with big fees.

Instead, they established a unique equity investment strategy. This strategy allows them to make investments that are more aligned with what African SMEs truly need. It also attracts investors who want to be more involved than a typical limited partner (LP). David explains:

“In a nutshell, we’re not looking for limited partners. We’re looking for co-investors of Third Way Capital. People that come in with a deep commitment and expertise.”

What else makes this impact fund different from a traditional private equity fund? It doesn’t simply extract value from people who have no other way to get financing. Third Way Capital focuses on building sustainable companies that can generate long-term wealth through structures like employee ownership. This requires a more lengthy investment. Or as Third Way likes to call it, patient capital. David explains:

“If you want to build companies that are sustainable, it’s almost impossible to do that and saddle them with short terms that can be pretty crippling. Building holistically means deep investment, and it takes time.”

4. Validate your impact

At the end of the day, it can only be called impact investing if it makes a meaningful impact. That’s why impact funds must use outcome-oriented measurements to define how successful their investments have been.

Third Way Capital validates its impact with simple metrics. By focusing solely on the systemic change they’re aiming for, they narrowed in on 3 to 5 indicator sets. These indicators are often as simple as how many jobs the investment has created or the amount of water used for a certain production.

By keeping it simple, Third Way Capital hopes to measure its impact in direct correlation to the outcomes that African SMEs and entrepreneurs desire. As David says, it’s all about investing to create something good.

“Our model is giving these companies the time to build something that is good. Good for the company. Good for the employees. Good for the environment.”

Want to learn more about Third Way Capital and how they’re helping to build more sustainable African businesses? Go to or reach them directly at

Listen to the full podcast episode here and don’t forget to leave a 5-star review on Apple Podcasts.


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