Liberty & Justice — Creating Empowerment in Africa
Unemployment and poverty rates in the African country of Liberia both hover around 80 percent. Women are excluded from the most productive sectors of the economy, including rubber and timber production. Although the country boasts abundant natural resources, a geographically strategic port, and a progressive government, the lack of investment capital and technical assistance has kept Liberia—and specifically its women— locked in poverty.
An innovative cooperative structure. It was in this environment that two best friends, Adam Butlein and Chid Liberty, set out on a mission to transform the global apparel supply chain from exploitation towards partnership and sustainability. They partnered with a small group of grassroots Liberian women who wanted to take an economic stand. While many of their neighbors sell garments locally, these women partnered with Liberty & Justice to launch Africa’s first Fair Trade Certified™ apparel factory, and subsequently went global. Today, their company, Liberty & Justice (L&J), is headquartered in San Francisco, CA with operations in Monrovia, Liberia and Accra, Ghana. The Liberian Women’s Sewing Project is a worker-owned corporation with 49% of the company’s shares owned by its workforce. The majority (51%) share is owned by L&J’s Liberian subsidiary; however, the profits are pledged to the Liberty & Justice Foundation—a nonprofit organization with programs in economic empowerment, education, and healthcare.
First two rounds of capital. According to co-founder and CEO Chid Liberty, who was born in Liberia but spent the first 28 years of his life in the United States, the company needed capital from its earliest days. After raising about $150,000 from friends and family, the founders realized an acute need for more cash to build a working apparel factory. Chid, based in San Francisco, networked his way through the impact investing and entrepreneurship circuit, connecting with investors and other social entrepreneurs at PYMWYMIC, Toniic, Eleos Foundation, BALLE, Investors’ Circle, Social Venture Network and others. His first outside institutional capital came from Root Capital, which after about a year of engagement provided around $200,000 in March 2010 in a deal split between debt and equity funding. Later, he raised a $600,000 equity round, a good portion of which came from Josh Mailman, through his Serious Change fund
Getting to Series A with help from the Eleos Foundation. The hurdle for Liberty & Justice was moving from that initial equity round to a true Series A round. They set out to raise $2.4 million and were engaged early on with the Eleos Foundation. According to its former Executive Director, Andy Lower, Eleos can take a lot of risks that others cannot take in working with early-stage entrepreneurs to get them over the initial “hump” of getting their model working. They have also devised a structure where they create a separate LLC for each investment for other accredited investors to invest in, with as little capital as $10,000. In addition to the pooled capital, the foundation shares their intensive due diligence to allow other investors to leverage their extensive time on the ground with the entrepreneurs.
Balancing risk mitigation and empowerment. Eleos made an early commitment to work with L&J and worked within the Toniic network to promote more interest. But the fact that the investment was in Liberia, a country with many risk factors, ended up being a deterrent to some for the deal
Andy believes a more flexible and culturally sensitive mindset is critical throughout the deal process, from initial due diligence to deal terms to impact tracking. “How many questions are you asking? Spending six months grilling the entrepreneur for a $10,000 investment is not a helpful exercise. Then when it comes to impact, you really need to concentrate on the intentions of the entrepreneur. The entrepreneurs are evolving. What are their measures of impact for? Are they for the investor’s ego? Or were they set by the grassroots community members themselves? What more can the investor do to empower the entrepreneur and empower the community they are working with? This is how we try to measure impact.”
Effective deal syndication requires sensitivity. Liberty & Justice’s Series A round closed in February 2012. Eleos Foundation invested $1.1 million though its new LLC, Liberian Fund One, which received investments from several Toniic members and external individuals. Other institutional investors came in to complete the round at about $2 million. Chid said the investment structure and leadership Eleos provided was extremely helpful. He reported that the trickiest issue in deal negotiation was valuation and encouraged other entrepreneurs to be aggressive in sticking to what they want at the time of deal negotiation. His insight as an American-raised and educated entrepreneur working in the developing world is valuable for investors to hear: “Remember when you are working with entrepreneurial teams in these less developed countries that the balance of power is very one-sided. Many entrepreneurs feel that this capital may be their only chance to continue on their path, so they will spend huge amounts of time and energy to meet your needs, often at their own detriment. Investors need to be sensitive to these factors.” His advice to entrepreneurs is even more direct: stick to your guns and remember that this capital needs opportunities like yours you as much as you need them. Andy agrees: “As an impact investor one needs to tone down an aggressive adversarial stance and find ways to use a different lens; what can I do to help this entrepreneur to empowering more people living at the base of pyramid? It’s not about my ego but impacting lives.” He believes Toniic can play a role to encourage investors to work more effectively alongside entrepreneurs.
As for the women owners in Liberty & Justice, early indications of social impact have been noteworthy. In a country where women are often forced into marriage and are frequently the victims of spousal abuse, one sixth of the factory’s employees divorced their husbands within the first half of the first year of the factory’s opening. Andy believes this is an argument for why community-based indicators are essential alongside top-down investor metrics; the latter will not necessarily capture what might be the most significant measures within that particular community. Impact investing can have the ability to create real empowerment, it seems, at many levels.
Watch the Eleos Foundation and Chid Liberty of Liberty and Justice speak about working together here. Chid Liberty talks about impacts of his company on Vimeo here and Chid Liberty talks about perceptions of downside risks in Africa in iOnPoverty series here.