Thank you so much for being here, Josep! Do you think you could give us a brief introduction to yourself, your company, and your investment focus?

I'm Josep Oriol, founder and managing partner of Okavango Capital. My background includes growing up in Barcelona, studying overseas, and training in law, political science, and business. After working in venture capital and climate technology, I moved to Africa in 2005.

Okavango Capital focuses on for-profit businesses that benefit nature, particularly in Africa. We target three key areas: climate mitigation and adaptation, biodiversity conservation, and rural livelihoods.

The company's inception stems from two key insights. First, nature, especially in poorer countries, has been grossly undervalued as an asset in economic decision-making. Second, in Sub-Saharan Africa, nature conservation has been dominated by NGOs using non-scalable models without financial returns.

We believe that for nature conservation to succeed, it must become economically viable and competitive with other land uses. Okavango Capital seeks businesses that protect nature while generating shareholder returns, creating a sustainable approach to conservation.

Could you share your investment focus areas for the current year and the rationale behind them?

We invest through three main approaches: managing investment vehicles, making direct investments, and assisting institutions with natural capital investments.

We're currently raising an investment vehicle for nature-positive businesses in sub-Saharan Africa using venture debt instruments. We also make direct investments through holding platforms, focusing on carbon and payment for ecosystem services, and nature-based tourism.

Additionally, we assist institutions lacking either natural capital or financial expertise in managing their nature-focused investments.

Our main priorities this year are carbon and biodiversity markets and nature-based tourism. For the former, we're raising money for our TerraLabs platform and looking to back innovative companies in this underinvested but rapidly growing sector. In nature-based tourism, we're focusing on professionalising and consolidating this fast-growing sector to leverage its potential for impact and economic efficiencies.

While we're also involved in climate tech and climate-smart agriculture, these areas have more investors, so they're lower priority. Our focus remains on sectors where we can make the most impact while generating strong returns.

It's nice to hear from someone who's investing so heavily in Africa.

It's been almost serendipitous, but Africa is going to be a shining light, a bit of a lighthouse for nature-based investments. I'm convinced of this because it’s fertile ground for private sector development. Governments are overwhelmed with a booming population and must prioritise spending on schools, clinics, education for girls, gender measures, and infrastructure. Nature isn’t the top priority for politicians. Rural people participate less politically, and wildlife and trees don’t vote, making it a hard sell. This has led to a lot of innovation from private sector actors.

In wealthier countries, where we've relied on the state for nature protection, we are realising that while this is going relatively well, we still need to address farming and rewilding. Many models developed in Africa are being exported to wealthier countries, which is exciting. This is where I think our international expansion will go.

There have been some recent global economic changes, as we all know. In light of those, how have your investment criteria evolved?

The current economic climate has created challenges for emerging economies, particularly in Africa. Currency depreciation, geopolitical tensions, and conflicts have impacted investment landscapes. The traditional private equity and venture capital model, which relies on rapid growth and quick exits, is struggling in Africa.

While portfolios in sectors like healthcare, banking, and insurance show operational growth, exits are proving difficult. Currency fluctuations and market volatility often negate growth, resulting in mediocre returns. This makes our nature and climate-focused strategy appear high-risk, despite our belief in its competitive advantage.

In response, we've adapted our approach. We now emphasise liquidity and venture credit to provide more certain returns for investors. For equity investments, we're adopting a long-term mindset similar to Berkshire Hathaway, focusing on good businesses with strong dividends and lasting partnerships. Our strategy now involves using fund vehicles with limited life for credit and liquidity, while equity investments are made through holding structures for extended periods.

What are the key qualities that you look for in the founders of the company that you're investing in?

In company founders or management teams, we really need three key characteristics: trustworthiness and integrity, grit and resilience, and vision and ambition. In that order.

Of course we place a huge value on trustworthiness and integrity. Leaders who break rules or take shortcuts pose a serious risk, as this behaviour can escalate when faced with challenges.

Grit and resilience are important in general, but especially for startups. Entrepreneurs often face existential threats like regulatory changes, competitors, internal issues, cash flow problems, or client losses. The team must be able to weather these challenges.

Vision and ambition round out the top three traits. Leaders need to be deeply committed to their goals and confident in their ability to achieve them despite obstacles.

These qualities are particularly important in the early stages of a business, before it establishes steady cash flows. In difficult markets, having a team with these attributes at the helm is vital for navigating the constant challenges that arise.

Very good, so those are founder traits that you like. Are there any founder traits that would make you say “no” immediately?

Absolutely. I’d say red flags for us are the mirror opposites of what I described, right? Integrity issues, any form of dishonesty, or behaviour that seems shady, like lying about basic stuff. I really worry about the "fake it till you make it" mindset.

You have to be very careful about what you're faking.

Nicely said.

Faking confidence or managing imposter syndrome is acceptable, but falsifying numbers is absolutely off-limits. This distinction is really important. Less obvious red flags include excessive ego or narcissism in entrepreneurs. While some degree of self-assurance is necessary, we definitely need partners who aren't toxic and maintain a good working mentality. You know, humility is very important.

Another subtle warning sign is unrealistic valuation expectations, especially in emerging markets. Entrepreneurs who expect Silicon Valley-style valuations in different contexts are setting themselves up for disappointment. It's important to keep expectations realistic to avoid future tensions between investors and entrepreneurs.

We don't invest solely for financial returns— alignment on strategy and impact is very important. We need to work well with the people we back, which requires a balance of confidence and humility.

Keeping valuations realistic is crucial. Overvaluation can lead to difficulties in producing good returns for investors and create conflicts with entrepreneurs later on. It's better to start with realistic expectations that reflect the local market conditions and scalability potential.

Could you describe your due diligence process before you make an investment?

Our investment process is fairly standard, but we add components to ensure alignment with our strategy of supporting nature-positive businesses, particularly those protecting crucial ecosystems. We prioritise companies that impact ecologically significant areas over those with smaller-scale environmental benefits.

Our process typically involves seven or eight steps. We start with an initial meeting to assess key attributes like market strategy, margins, and impact fit. This is followed by engagement and initial review, including a site visit for light commercial diligence. We then conduct a thorough team review to critically examine and improve the investment thesis.

Next, we develop an investment case through iterative meetings with entrepreneurs. Once we agree on a term sheet, we present to our board or investment committee for initial approval. After this, we proceed to full due diligence, including third-party assessments for tax, audit, and legal aspects. The level of in-house versus outsourced work in due diligence depends on the investment size.

Finally, we present a final proposal to the board or investment committee for approval. Once approved, we finalise legal agreements and make the investment.

This process allows us to thoroughly evaluate potential investments while ensuring they align with our focus on impactful, nature-positive businesses.

How do you evaluate the potential of a company in its early stages?

The younger a company is, the more important it is to understand or fine-tune the company’s potential. So first you look at market dynamics. Is its market shrinking or expanding? What are the substitution effects? There are usual problems with technology that apply to natural capital technology. If it's an early-stage company, which market is it disrupting? How is it disrupting it? What efficiencies is it creating? How much market can it capture, and how quickly? How will that enhance the impact of what companies do in this industry, from a positive perspective?

For us, what's very important is how much the business model of this company has a positive feedback loop with impact. In some businesses, the more you grow, the more you sell, the better for the planet. That's exactly what we want as an ideal business. Finding companies with a very high correlation on that front is very exciting.

How do you balance the need for quick decisions and competitive deals with thoroughly evaluating the company?

Speed in investing is important but can be overrated. Its significance varies depending on the investment strategy. For venture investments with large pools of money, making many quick, small investments can serve as a form of paid due diligence for future larger rounds.

But for growth investments, private equity, or credit, where mistakes can be a little more expensive, it’s often better to adopt a more measured approach. With holding companies, strategic fit is really most important, and justifies a slower pace.

That said, it’s still important to move relatively quickly. Key elements for speed include a strong network and market knowledge for access to deals quickly, as well as the ability to judge people fast.

On the other hand, finding exclusivity or being perceived as valuable to companies can allow for a slightly slower pace without losing opportunities. As investors, we aim to be seen as partners, not just passive sources of funding, by providing advice and support during the due diligence process.

Sometimes, as you can imagine, it's beneficial not to rush if we're not entirely convinced. We might miss a round but keep our eyes on the company for future opportunities. This approach allows us to maintain quality in our investments while staying engaged with promising companies.

Ultimately, the right balance between speed and thoroughness depends on the specific investment strategy and circumstances.

Can you share an example of a successful investment that you made and what made it stand out?

I can share two examples. First, BioCarbon Partners (BCP), a venture investment we helped establish from start-up. It's a forest carbon developer in Africa working with indigenous communities. We provided seed capital and raised additional investment. Now 11 years old with $70 million in total funding, it's been a fantastic success.

The company has helped over 300,000 rural citizens, and has brought money to areas that had never seen such investment. It now protects 2 million hectares of ecosystems, with plans to expand to 12 million hectares by 2027. There will ultimately be more than a million beneficiaries, and about 800 million trees protected. Financially, it's been a good investment with promising returns.

The second example is a safari lodge in the Serengeti ecosystem. We saw an opportunity to prove it was a good investment that could enhance positive local impact. Tourism is a great equaliser for gender and promoter of transferable skills. We upgraded the business from perspectives of product, systems, financial reporting, and overall impact.

Three things make me proud about that example: we have great employee loyalty there, for one, with our 70 employees’ average tenure being 12-14 years. We also managed to be quite resilient against Covid-19, making it through the pandemic without firing a single employee. Finally, I’m extremely pleased with the implementation of our plan with the lodge: the business has deployed approximately $12 million in conservation support for conservation authorities of the area and the partnerships we have with a couple of institutions there like the Cheetah Project and the Nkope Lion, local villages, and so on. It's giving a good profit and cash flow and proves our thesis: when you go to a business and do it well, you can have both a very high impact and very good returns and you can tell a positive story about nature.

Great, that's very positive. Congratulations on not having to fire anyone during Covid!

It was hard. It gave us a few sleepless nights, but we just wouldn't leave them in the sticks. We just made the decision and it worked. The first year of Covid, the company ended up at break-even.

That’s great. Speaking of companies breaking even or failing, in your experience, what are the most common reasons companies fail after receiving an investment? And how can these be mitigated?

Failures for companies tend to happen for two or three reasons: exogenous and endogenous. Sometimes, massive technological disruptions force shutdowns. Other times, competitors undercut pricing or offer superior products. Ignoring competition is risky— if they don't worry you, you're likely not paying enough attention.

Internally, particularly in early stages, cash management is very important. Overfunding can lead to loose budgeting. Companies should be lean, counting every penny spent. In mature companies, this is clearer. For example, with a 33% margin, every dollar spent requires three dollars of revenue to maintain profitability. Every expenditure must generate income, even when flush with cash.

We've heard the cautionary tales, though fewer in Africa. The WeWork scenario of hiring private jets for parties, for instance, is difficult to justify to investors. It's very important to monitor costs, meet key milestones for future funding, and manage competitive threats to avoid significant disruption.

How important is the scalability of a company's business model in your investment decision?

It's always very important if you can scale a business. The two fundamental elements to keep in mind, particularly for me, are: I'm more interested in the scalability of margins than the scalability of revenue. If growing means massive erosion of margins, you should be cautious about how fast you grow. Growing is easy, but if it's at the expense of how solid your business is, you should consider what area of growth you're focusing on.

The second element is tempering expectations. Many equate scalability with 50% compound annual growth. In technology, doubling quarterly in the first year is common— as seen with WeWork or Uber— but often at the cost of burning investors' cash. Beyond digital products, scaling becomes more challenging and time-consuming, especially when dealing with physical goods or services.

Scalability in terms of replicating a business model a million times and making it work is the key question. If the answer is yes, that's a business you want to back, even if it takes longer.

Can you share any insights on the importance of diversity and inclusion in the teams that you invest in?

Absolutely. Diversity is good, right? One of the things that shaped my view of the world was living abroad, where I was a person of diversity. I was the archetypal Spanish kid from Barcelona going to high school in the middle of Arizona. Later I attended graduate school at Duke, where we had around 100 countries represented. This experience showed that diverse teams work better, offering richer perspectives and fostering understanding and creativity.

As a small team, we don't force diversity. We seek the best employees and entrepreneurs without bias, naturally resulting in diversity. This organic approach reflects society's diverse nature, which is advantageous for us.

In our case, with many employees in East Africa, diversity goes beyond gender and race. We have multiple ethnic groups with different languages, which creates a much nicer dynamic.

What role does mentorship play in your investment strategy, and how do you support your portfolio companies?

It's important. One way to address the need for speed in closing deals is to show entrepreneurs that investors care, are committed, understand the vision, and are not just focused on the next valuation or exit.

Entrepreneurs want someone they can call when they have a problem or a question. We've seen a lot and have perspectives on multiple sectors, so we can provide guidance to entrepreneurs.

What advice would you give to startups or companies seeking investment in the current market?

The general advice is to be ambitious, confident, and humble. Understand that it's difficult to have a business that succeeds, there are many existential threats, and it's not done until it's done. Be excited about what your business does and ambitious about making it big and successful. Transfer that message by doing your homework, knowing your data, knowing the market, and not being too greedy when funding

In venture, it's better to have an okay deal with a great company than a great deal with an okay company. The same applies to companies; it's better to have an okay deal with a great investor than a fantastic deal with a mediocre investor.

What are the emerging technologies or sectors that you believe are underinvested and why, if any?

Our thesis is that natural capital is underinvested, even in sectors receiving significant investment. Nature-positive subsectors aren't getting funds quickly enough, despite climate and biodiversity imperatives.

Short-term, we're focusing on areas with quick scalability and knock-on effects. Nature-based carbon markets are very important— they're creating economic backbones for large economies. Carbon revenue in rural areas can have a massive multiplier effect, enabling microfinance, sustainable agriculture, tourism, and various small ventures.

Tourism is another key sector. It's a massive force that's not going away— people want to travel, and the opportunity is enormous.

How do you foresee the investment landscape evolving in the next few years?

I think I'm very optimistic. It's going to grow, but probably not as fast as it needs to. There is interest. I think the shift we've made will happen across the board, with more focus on debt and debt-related structures for institutional funds and more long-term investments in equity.

What is one thing that people believe about investing that is completely wrong?

That it is driven by greed. For a lot of people, there's much more to do with the impact their investment is going to have in the world beyond returns.

If you could invest one hundred million dollars in one industry or field to combat climate change, what would it be and why?

Nature-based solutions. It's stupid to underinvest in addressing deforestation and degradation. If deforestation and degradation were a country, it would be the third largest emitter on the planet. It's absurd to not protect the forests and start investing in something else. Not to mention all the values we're still not monetising or putting a number on around biodiversity, water security, support for drought and floods, food, income, culture, etc.

Which tech solution do you think is actually harming the planet more than helping?

Social media. It seems to bring a lot of bad traits, and is helping spread misinformation.

Which solution within climate technology will become obsolete in the next decade?

That's a difficult one. I kept thinking about carbon capture. It's very important for oil and gas and methane. Rating agencies will be necessary. Technologies for monitoring and remote sensing will get better. The ones we have today will look obsolete. It's like saying Word 95 is obsolete compared to Word today, but it's still necessary.

Which is more crucial for saving the planet? Technological innovation or regulatory changes?

Private sector-driven change, which includes tech and business, is always more important. The regulation follows society and anybody who thinks regulation should lead is either a communist or doesn't understand how the world works.

What role should major corporations play in the fight against climate change?

Massive. They are the biggest polluters and need to find ways to remain profitable while reducing their footprint. They can outsource a lot of the cleaning to companies that are protecting nature, providing technology, and doing positive things. Just like we outsource cleaning and logistics, climate action can be outsourced to a large degree.

There’s a lot of sense in that. Josep, thank you so much for your thoughts today. Your company’s work seems incredibly helpful for climate-centric businesses in Africa, and I’m sure our readers will be able to benefit from your perspective as an investor in this area.

To learn more about Okavango, please see www.okavango-capital.com.