While driving to Boston to enroll as a Harvard MBA student, Willy Foote had what he described as an existential crisis.
Foote was driving up from rural Mexico, where he had spent two years traveling with his wife on a business journalism fellowship, meeting with workers and leaders of local agricultural businesses. When he and his wife learned they had both been accepted to Harvard Business School, they packed their bags and headed to Boston.
But as their truck rumbled towards Massachusetts, Foote began to worry that if he didn't pursue his ideas to help struggling farmers while the experience was fresh, he might never do it. So he decided to ditch business school and instead founded Root Capital, an impact investing fund focused on alleviating poverty through agricultural development.
According to a report from the World Bank, agriculture "is the single most important productive sector in most low-income countries, often in terms of its share of Gross Domestic Product and almost always in terms of the number of people it employs." Foote, who founded Root Capital in 1999, understood the critical role of agriculture in developing communities and made it his mission to support businesses that fall into what he calls the "missing middle."
"We want to grow rural prosperity by investing in agricultural businesses that build sustainable livelihoods," Foote told The Huffington Post. "Those businesses that get stuck by being too big for micro finance and too small or too risky to hit the banks."
Root Capital looks for companies that have a proven track-record of creating social and environmental impact, Foote says, whether by investing in local maternity wards, deep water wells, or road construction equipment. In addition to supporting these companies with capital, Root Capital provides financial management training, helping locals with financial statements, cash flow and computer skills.
Though these companies serve an important role in poor communities, Foote admits that their potential to become profitable is too low to attract mainstream investors. That's where impact investing comes in. "Impact investing is the latest term used to describe that uncharted space between profit maximization and philanthropy," Foote says.
In order to attract resources beyond what typical philanthropy might provide, impact investing funds like Root Capital create a model that gives investors a financial return on their investment. According to Foote, the size of the return is proportionate to the impact the investment will have on the community.
"People need to recognize that the subsidy requirement correlates with the size of the market failure," Foote said. "The purpose of philanthropy is to overcome market failures. There is not one undifferentiated impact investing space -- the returns and influence of the product depend on the size and scale of the market failure."
In the case of Root Capital -- which partners with companies such as coffee cooperatives in Peru or cashew producers in Sierra Leone -- investments are focused on large market failures, or broken systems that don't allow companies to operate efficiently and effectively. Investors therefore see only a small return on their loan, but the money is working to achieve large scale impact.
Over the last 10 years, Root Capital has disbursed well over $400 million -- most of it in the last three years -- to roughly 460 business in about 25 countries. Those businesses will affect around 600,000 farming households, Foote says. Though the company is only 80 percent self-sufficient now, with the remaining 20 percent being financed by donors, Foote says the company aims to be completely financed by investors in about three years.
"We could choose to scale our innovation by chasing financial returns, but it would be at the expense of the real market gap we've identified," he says. "Agricultural production is a tough way to make money, but it's one of the absolutely critical drivers of prosperity."
CORRECTION: After publication, a spokeswoman for the company contacted HuffPost to provide updated statistics about Root Capital and correct the amount of time Foote spent in rural Mexico.