Christophe Forsinetti: Cambodia Generational Change, Regional Venture Philanthropy & Family Promises - E197

· Southeast Asia,Purpose,Thought Leaders,Start-up,Podcast Episodes English

Impact is really about a sustainable and commercially viable project providing an impact that can be measured. Most of the time that measurement is very difficult. So for that water company, it's obvious you're bringing clean water to people. But have we been able to clearly measure it? No, and that's the difficulty. You need organisations, third parties that are specialised in this to help you measure it properly. Otherwise, some people will always claim this is an impact project and in the end you never know. Measurement is the next very important piece.- Cristophe Forsinetti

Christophe is the investment director of LEAP201, a venture philanthropy foundation based in Singapore which focuses on improving the lives of vulnerable households in South East Asia in a sustainable manner. By providing early financial support to impact projects which do not yet meet the requirements of the traditional lenders and investors, LEAP201 fills up a critical missing gap in the South East Asian SMEs ecosystem while impacting hundreds of thousands of lives.

From setting up microfinance banks in Madagascar and Mexico, starting a clean water company for rural households or establishing one of the first SME focused Fund Management Company in Cambodia, Christophe has spent the last 15 years focusing on the “access to finance” problematic for impact SMEs in developing markets. Apart from his Impact related and foundation work, he is the Managing Director of Strategic Hospitality REIT, a Thai listed REIT with hotels in ASEAN.

Jeremy Au: (00:30)
Hi Christoph. I'm excited to have you here because you're speaking about impact investing and Southeast Asia and I think you have a tremendous journey, so please share about yourself.

Christophe Forsinetti: (00:41)
Hi, Jeremy. Pleasure to be here. I'm an entrepreneur. I'm a Cambodian French national. I spent a lot of time in my life in developing countries, and the impact topic has always been something very, very important for me. Went through different professional lives from setting up microfinance banks to VC shops, always for frontier markets. I’m in more traditional set ups as a listed fund in Thailand, but I'm still very involved in different impact related activities.
One of them is Leap 201 foundation, which is based out of Singapore. It's a venture philanthropy foundation and it's supporting all the ecosystem and impact projects in the region.

Jeremy Au: (01:19)
And what's interesting is that you open up by saying that you're Cambodian, French. That sounds important to you. Why is that important to you as an identity?

Christophe Forsinetti: (01:26)
I was born in Africa. My mother left Cambodia because of the war. I was raised as a French national. I was going back to France at the time and it's only many years later that I went back to Cambodia for the first time. But getting there I realised that so many aspects of my culture were related to this.
In France you can really see I'm not French. I have a difference in the culture and heritage. And having spent more than ten years now in Cambodia, it's something quite important. After all my entrepreneur journey, mostly in Cambodia. So, this is why.

Jeremy Au: (02:02)
I think there's a common story of so many folks across Southeast Asia. It has not been a peaceful place for hundreds of years. And there's also a lot of mixing and mingling of cultures as well. How do you see that growing up? Did you feel like it was like binary A versus B? How did you grow to like synthesise that over time, which you kind of hinted at?

Christophe Forsinetti: (02:21)
I was probably a bit slow in understanding all this. It came a bit later. So it's only when I arrived in Cambodia that I realised all those aspects in my personality that actually has been transferred through my mother, my family and I could really reconnect to the Southeast Asian culture. I think it's very important today because that kind of diaspora, all those people from Vietnam, from Cambodia, from Myanmar, that because I'm talking mainly about the Mekong region, but it's the same for Indonesia as well as others, that diaspora is really acting as a great bridge with the developing markets.
And Singapore, you went through that already a long time ago. But for countries like Laos, Cambodia, Myanmar and to a certain extent Indonesia, it's a moment that is very important because that's when you get connected to those other markets.

Jeremy Au: (03:12)
And you mentioned about reconnecting in terms of culture in Cambodia. What parts about it resonated with you? Because I think obviously when people think about Southeast Asia, they think about Singapore, Indonesia, Vietnam often very much. And I think Cambodia has a story and culture that isn't as visible even in the regional stage, let alone the global stage. So how would you describe reintegrating into Cambodian culture? How would you describe that for the people who are out there?

Christophe Forsinetti: (03:38)
Of course, it's one of the small country. It's one of the least developed in the region, but it has an extremely rich history. You probably have heard of the Angkor Wat temples, so that civilisation was actually pretty large in the region. People are very proud of this, but at the same time they went back to Ground Zero in early nineties.
We had the Khmer Rouge there ten years during which the country was really isolated. Everything was destroyed, intellectuals were killed, catastrophe disappeared, institutions disappeared, currency disappeared, you start from scratch with the heritage of a great civilisation, but you have nothing anymore. So it's quite difficult. People don't talk much about it. And that generation that went through that conflict is now very small.
The new generation is more like the middle class consuming and looking towards the future, and they don't have a smartphone, they want a motorcycle, they want to consume as much as the rest of the world. But there is that trauma. It's hard to adapt to that.

Jeremy Au: (04:42)
I remember going to Cambodia as a teenager and being so impressed by the history and heritage, but also very distraught, I think; killing fields and museums that kind of like talked about it. And it was kind of weird because for me as a teenager, it's kind of like to see that dynamic. And it was a very peaceful time when I visit as a tourist.
Almost didn’t seem possible that something so crazy could have happened less than 20 years ago. From that point of time, as you mentioned, not that long ago, still even from today, it's like 30 years, 40 years. Could you share a little bit more about that change of generations? I mean, about the generation that grew up then - parents and grandparents and obviously the new generation that's looking towards technology in the world. Could you share more about that flavour and that change?

Christophe Forsinetti: (05:28)
It's funny. It's one of the countries where that change is the most obvious. If you look at it everywhere in the world, I would say in one of the countries where it went the fastest is Cambodia, where only 15 million people. But really we're going from having no landline, no phone, no infrastructure, nothing to 100% of penetration for a smartphone.
People are directly going from not being educated and growing rice for generation to using an app and selling it online. And this is really a country where one of the few…you'll probably see this in Africa next. But this is one of the countries where the level of development was very limited very recently. And with the use of technology, it's really accelerated.
We haven't seen that before and it's one of those countries where it's happening and I believe you will see it even more in the future in countries like Africa, incredible leapfrogging, thanks to technology, which, by the way, drives a lot of impact.

Jeremy Au: (06:34)
And it's interesting because there's generational change towards opening up and the economy, it’s also quite correlated with your re-entry back into Cambodia and being an entrepreneur in Cambodia. So could you share more about those early days? What was it like to build and be a business person in Cambodia?

Christophe Forsinetti: (06:53)
So it's funny, when I arrived in Cambodia, of course, in Cambodia at that time and still today, everything seems possible. You look in the street and you have a business idea every minute because everything is lacking. I arrived and I thought, wow, we have a little bit of money we going to invest in so many of those projects, sit on the board, look at the company growing, and wait for the dividends to come.
Three or four years down the road, you realise that wow, it's really not working like this. Entrepreneurs are street smart. They are very good in terms of operation, but they're not trained on having proper structured governance and therefore they don't have access to finance. So you realise that when you invest and at the time that's what we were doing. When you invest in a project you need to support them for everything apart from operations.
So they're very good. They're going to sell, they're going to make the business work. But no policies, procedures, no audited accounts, therefore no investors, no board, no structure, no governance, none of this. And if you want these businesses to grow and to really scale, you need to do this for them. So you need to have a team because you're working on small projects, but you need a big team to work on small projects that, by the way, don't distribute dividends.
So there's a problem in the model. That was a big issue. I learnt a lot. We invested in health care, pharmacies, waste management, water, fertiliser. So great learning curve. But after five years you really understand, well, it doesn't work. Those projects are too small. They require too much time and resources. How can we make it work? That's when you understand that you need to strengthen the ecosystem and that takes a bit of time.

Jeremy Au: (08:39)
That requires patience because you've been there since 2007 and there's already like 15 years and counting. How do you think about that timing or patience that you need as an entrepreneur while building in Cambodia?

Christophe Forsinetti: (08:54)
Clearly, after a few years I realised my timing was not right. I was thinking, Well, we've got to do private equity in Cambodia. And actually we were doing venture building and incubating businesses. I was lucky enough to get involved in a few initiatives in the region, so I was able to work on developing microfinance and leasing businesses in Laos, Myanmar, Thailand, Cambodia, which gave a bit more scale and made it commercially viable, but still remaining involved in those projects in Cambodia and now with the Leap Foundation really trying to support those projects, those impact projects at the regional scale.
So indeed, Cambodia was a bit small, so the idea was to do it regionally because those are the same problematics to reach the scale that is necessary to spend a lot of time.

Jeremy Au: (09:49)
Yeah, and that's interesting because you have been involved not just in venture building but also in Micro-Insurance, in Cambodia, in waste management as well, in a different venture as well as water treatment. I think it's commercial because you're providing services, but also very impactful to have. That's like fundamental.
So how do you see that of what is an impact investment? Is in creating jobs, a form of impact. So how do you think about the definition of impact investments across Southeast Asia?

Christophe Forsinetti: (10:19)
You're right. It's the big question. I can give you an example. So a water treatment to distribution company that I started seven years ago. It's an impact business for sure. Basically, we bring clean water to the people that don't have access to clean water. So we go in rural area, we lay piping and metres and that's really an incredible improvement in their life.
So obviously this is an impact project. But because of a lack of resources, we've never properly measured that impact. So what is the impacts? It's hard.
Impact is really about a sustainable and commercially viable project providing an impact that can be measured. Most of the time. That measurement is very difficult. So for that water company, it's obvious you're bringing clean water to people. But have we been able to clearly measure it? No, and that's the difficulty. You need organisations, third parties that are specialised in this to help you measure it properly. Otherwise, some people will always claim this is an impact project and in the end you never know. Measurement is the next very important piece.

Jeremy Au: (11:39)
Let's talk about that because as someone who's been a social entrepreneur and working with organisations, I've worked with both nonprofits, social enterprises and of course for profit slash start up. So when you think about that, how do you think about investing in impact? Is it measurement a key aspect that's really important for you? What aspects would make you qualify say this is an impact investment versus an investment that's not a right fit?

Christophe Forsinetti: (12:05)
Well, you start with the initial metrics health care, education, basic infrastructure, access to finance, financial inclusion, energy, water, those kind of things already are a kind of a pre-screening. There's also the level, the reach, the level of impact you're going to have if you invest a couple of million dollars. But you have an impact on 500 people, can that really be called impact?
I'm not sure. So that's another component that you have to have in your matrix. And in the end, you have to be able to measure how the end customer of your business, how the life of your end customer is improved in terms of health, income, livelihoods. This is what's really required. And I have to say very often it's subjective.
So I'm very happy because it's becoming a trendy asset class and you have a lot of companies now, a lot of professionals coming in and really trying to get more sophisticated on the impact measurements. It's easy when it's a $100 million investment because you pay $50,000 for a real impact study. But when it's a $500,000 investment, you cannot allocate a big amount to that impact study.
So you need also to have that matrix available for smaller projects to be as close as possible to a good measurement.

Jeremy Au: (13:31)
When you think about that, you use the word trendy. Why do you say it's trendy? Because I know I remember like five years, ten years ago, a lot of people were starting to get in. Obviously, I think we still have ESG requirements are starting to be applied to various LPs and therefore as they are applying that to funds and the businesses they invest in, why would you say it's trendy?

Christophe Forsinetti: (13:50)
The way I see it, I started my career in microfinance, so that's more than 20 years ago. Microfinance was the beginning of it, microfinance was providing access to finance to people that could not get any funding for their business. Now, of course, you have to be careful. Some people started to do it without proper control policies, procedures.
So it has to be properly regulated. But this was the beginning of it impact, I have to say. The first company is set up in Cambodia. It was an impact investment company, but there was no interest from investors. Very few…only NGOs were looking at this and development organisations. It's only very recently I would say that in the past seven, eight, nine years that the maturity of those projects and the interests of investors started to match.
And I would say the latest events climate change, COVID, the capital is in general it's the best model to be able to raise people out of poverty. And it's proven, but there are still some things that are not working. You have inequalities that are increasing, those issues are still there.

Jeremy Au: (15:00)
And what would you say is the misconceptions that people have around ESG and impact investing in Southeast Asia?

Christophe Forsinetti: (15:08)
Well, ESG is really putting a framework around what you're doing. So it's really environment, social governance. It's pretty broad. You just have to identify each of them. But it goes from the conditions you're providing to your employees and gender, a mix that you have in the company to the how you deal with the stakeholders, whether providers, customers…So it's very broad and sometimes misused. Impact is really, as I said, about a sustainable project, really having an impact on the population, increasing, improving their lives and that can be measured.

Jeremy Au: (15:49)
How do you define that measurement then?

Christophe Forsinetti: (15:51)
I think we're still in that situation. We're still trying to understand in that industry because it's pretty new. We need standards like we have third parties in finance in many sectors coming and providing a label and providing a matrix of understanding. They are the ones that will be able to say whether you're not using that word impact or ESG in the wrong manner.

Jeremy Au: (16:19)
When you think about this regional approach, now is quite a different approach because before that you spent so many years, there's really focued in Cambodia as a deep support. So when you look at Southeast Asia as a whole, how does your strategy change?

Christophe Forsinetti: (16:32)
Its different level of development of the ecosystem. As I said in Cambodia, it's very early stage. It's hard to find projects. In Cambodia there are many opportunities, but there is no ecosystem. What I mean is you don't have an incubation stage and then accelerating stage and you don't have the investors at the relevant levels. You have to get involved right at the beginning and be ready to support, be involved a lot.
If you look at Indonesia, that ecosystem is already there. You can really identify the different stages of development of a company and decide where you want to be involved and with which tools. Because the tools are different. I mean, early stage, you need subsidies, you need what we call blended finance. So you need third parties. In Cambodia, there are very good businesses that don't have a business plan.
So if you don't have a business plan, you cannot talk to any investor or whatever. So for example, you need third parties to subsidise the help to build a business like for those companies. This, for example, in Indonesia is already there and we are not going to talk about Malaysia that again, more and more tests on this. So that's what you need to adapt.
You need to really identify what is the ecosystem and work with the relevant partners in that ecosystem.

Jeremy Au: (17:56)
For a common partner. So you see an ecosystem. I mean, would it be the foundations, would it be the local nonprofits, the government? Who are the stakeholders for that ecosystem?

Christophe Forsinetti: (18:06)
I would say foundation. It's venture philanthropy, NGOs, development organisations. That's very important early in the process to kind of subsidise or help to grow, build the ecosystem, to help to grow the number of companies that are at the base of the pyramid. Then at the next level, you have the money, the business schedules, the network of business schedules, then the VCs, then the more sophisticated investors, depending on the stage of development of the company, you have to work with some of them or all of them, let's say a sophisticated investor, their cost of transaction does not allow them to work on the $1 million project and they cannot help to implement the governance and all this. All this has to be set up already. Same for a VC. So that work has to be done early and sometimes it's not commercially viable and that's when you need a mix. That's the blended finance concept. You need a mix between public money, private money, to make sure that you can bring commercial capital, then it's healthy.

Jeremy Au: (19:16)
Yeah, and that's interesting because that's where you come in, which is you're planning to be that venture philanthropy that bridges public and private capital. Can you tell a bit more about why these exist, what the gap is that you see?

Christophe Forsinetti: (19:29)
I think Leap has a really unique positioning in Southeast Asia. We provide that. So we provide debt from 50,000 up to $500,000 on a few specific sectors - energy, water, financial inclusion and agriculture. The companies that need those kinds of financing, that size of financing, they're quite early stage. They don't have to be profitable yet, but they have to have a proper business.
They have to have a proper team. Usually that's when business schedules get involve, but no lender will get involved because you don't have the collateral, you don't have enough information, you don't have any guarantees. The team is not able to negotiate a complex loan agreement. They're not using lawyers most of the time. So that's really the segment where we are and very few lenders exist there.

Jeremy Au: (20:24)
What have been some success stories from your work at LEAP in terms of bridging that gap?

Christophe Forsinetti: (20:29)
Over the years we invested in all kinds of projects, so how I got involved with LEAP as I mentioned, I started that company bringing clean water in rural areas in Cambodia. So we're buying water stations and usually it's a small entrepreneur. He was able to set up that water treatment plant and he connected a very densely populated area.
But the district is much larger. It's 10,000 people, but much further. You need to lay pipe. You need a lot of capital to be able to do that. And he doesn't have that capital. So we come in, we buy those stations, we buy several of them, as many as we can, and we invest to later pipe and connect to those households.
Now, when we started, there's an impact fund that's very early in the process invested in the company. So the impact fund is present in the whole region but did not have access to debt. You need debt, long term debt to be able to develop to grow your business. But there was no lender for us. LEAP was one of the first to look at us and to say, Yes, this is something that we'd like to do with one first $250,000 loan, then with the subsequent $250,000 loan.
From then it kept on growing. And I could say that they really helped us to bridge that gap. And now, the company’s having access to five or $10 million loans from much more institutional investors, so they bridge that gap, I would say. So it's a good example because it's close to me. We had that story with several others.

Jeremy Au: (22:07)
Christophe, I’ll love for you to share a time that you have been personally BRAVE.

Christophe Forsinetti: (22:12)
I think when I made the move from the corporate world, working in that large investment fund, setting up microfinance banks and decided to start my own business in Cambodia, you start from scratch. You spend a bit of all the money that you had to invest in those impact projects. You're very happy. You're learning a lot. You're building a family.
But at some point when you realise that it's not commercially viable, you're in trouble. And that trouble, it was my case. It lasted quite a lot of time and it's really about redefining what you love, what you want to do with your life and dealing with your constraints. But knowing that your decision will have an impact also on your family.
And that's the toughest part. I was brave enough to motor on and get the consensus in the family that's very important to do this. And we did so two difficult years. Looking back.

Jeremy Au: (23:08)
It's a tough one because that decision is not very easy. So what advice would you have for people who are trying to figure out that and how to get consensus with the family? How would you advise them to think through that decision?

Christophe Forsinetti: (23:20)
Well, I would say first, it's not just a decision, it's a process. When you start facing that situation, you need to talk, you need to communicate with people. You need to get advice from people that you respect, that you think that really helps you as much as possible. You need to give yourself some time to be able to take that decision and be as informed as possible and plan the next steps.
It's really not about I'm in that situation. I need to change. I need to pivot. Yes, but it's actually a process and you might change that decision several times before really finding the path. So I would say take the time to think, take the time to consult, make sure you build consensus around you. And if you had that time, use it as much as possible.

Jeremy Au: (24:06)
And what is it that makes consensus of the family hard to achieve from your perspective?

Christophe Forsinetti: (24:13)
When you are not able to deliver? It's more than just failure. You are not able to deliver. Sometimes you get stuck in a past just because you cannot accept this. So I think it's important and it depends. It's really related to the communication you have, but also to be able to have that discussion. Maybe your partner at that time can take over, maybe the partner can support the family during that time, maybe support you when you were in that transition, even sometimes the couple, you're at different stages in your life.
You want different things. So it's not easy, but knowing where you are, this is very personal and intimate, I guess where each member of the family is in its life. What they want and how decisions of the other affects us. Very important to discuss.

Jeremy Au: (25:05)
Thank you so much for sharing, Christophe. I really appreciate you sharing. On that note, I’ll love to recap the three big components that you shared. The first is thank you so much for sharing about Cambodia in the context of your own Cambodia dash French hyphenated identity and rediscovery and also I think the cultural aspects. But most importantly, I think your observation about generational change and trauma between the former generation and the new generation as looking towards the future.
The second aspect is thank you so much for sharing about your goals as a founder that has been both impact focused and also tied to the reality and roots of Cambodia, but also expanding to looking at venture philanthropy across the region. And I think that was an interesting observation around what trendy impact investing is versus what is the reality of measurement versus actual impact actually delivered at the end of the day.
Last, thanks for sharing about what it means to be brave in the context of the fact that being a founder is tough and that sometimes the reality of building Southeast Asia is even tougher than you can expect. And I really appreciated your advice to founders to not look at this as a decision, but really a process, and that the promises to the family are often the hardest parts to really manage as a founder and human and the middle of all of it.
So thank you so much, Christophe, sharing your story.

Christophe Forsinetti: (26:28)
Thanks a lot, Jeremy, it was a pleasure.