Q&A with CrossBoundary Managing Partners

Take us back to CrossBoundary’s founding and your early experiences. How did localization influence your conceptualization of investment facilitation?

Jake: From 2005-2009, Matt and I had been part of this massive effort from the outside —in terms of U.S. and European troops and money—going into Iraq and Afghanistan, trying to “fix” everything all at once.

It was similar to what we read about later in the book The Idealist by Nina Munk, about Jeff Sachs’s attempt to end poverty in Africa through grant money while simultaneously fixing education and health systems, providing jobs, etc. In both instances, the interventions weren’t rooted in local context, so as a result, the solutions didn’t go anywhere.

During these early experiences in Iraq and Afghanistan, Matt and I saw that effective and sustainable solutions come from the bottom up, from those with the closest view of the problem.

Matt: We didn’t see this through a cynical lens; the top-down plans were assembled by groups of extremely smart and well-meaning people. However, you can write a plan for what it will take to turn Afghanistan into Denmark. Still, if you don’t truly understand the context of Afghanistan or even what made Denmark successful, you’ll never be able to achieve it.

Solutions are local and decentralized. The private sector is an effective tool for creating contextual, responsive, decentralized solutions that meet people’s needs. We want to use the private sector as a better tool for sustainable development. When you peel that back, you wonder why. Why is the private sector an underutilized tool? Why should we try to use it more for sustainable development in general? The answer is that the private sector is inherently contextual.

Jake: The tension has always been between the right mixture of local context and bringing in relevant expertise that might be needed.

There’s a contradiction—what does it mean to be local? I’m from Michigan, but it doesn’t mean I’m the best-equipped person to solve the challenges of the automotive sector. The nature of economic growth is usually that you’re trying to add some economic complexity or capability to a system that didn’t have it before. The growth engine that worked in Asia would not be considered only local, right? China and the broader Asia region have largely powered their progress through partnerships with foreign companies that transferred technology and expertise to the local economy.

Still, the point is to use what’s working in the local context; this is our guiding light at CrossBoundary. Some of this attempts to undo the legacy of colonialism. And there is inherently a decolonization aspect to this, right? Calling an engagement “external” or “top-down” means people coming in and directing how resources should be used or deployed. We want to be the opposite of that but still provide the benefits of tech and knowledge transfer.

From left to right: Pieter Joubert, Tom Flahive and Jake Cusack

How have you seen the underserved markets CrossBoundary operates in evolve in the last several years?

Tom: In the firm’s early years, we focused significantly on Sub-Saharan Africa. One area we’ve seen evolve during this time is the type of capital coming into local businesses and the number of local entrepreneurs receiving investments on the continent.

In many markets, the capital being deployed is often impact or development-minded. That could mean capital coming from grants, donor programs, or foundations. It could also be coming from some form of concessional capital from development finance. While it still hasn’t reached full momentum, we see more commercial capital backing local entrepreneurs. Local businesses are securing more commercial capital or pure private equity from investors seeking strong returns, above anything else.

We’ve also witnessed a modest change in the flow of venture capital–from disproportionately supporting startups founded by expats to funding local founders and ideas.

Funding should be flowing to the best business ideas, and for many years, there was a clear market breakdown where little to no capital was going to locally funded startups. There is still work to do, but we have seen many more local founders win venture capital support over the past five years, whereas ten years ago, most startups receiving media attention and startup capital were expat-led.

How do you see the role of local innovation in driving bottom-up development, and what has CrossBoundary’s approach been in supporting this?

Matt: The first important thing about innovation is to look for it. It can be easy to ignore or not notice what it is about a solution that’s working, and then you find a tendency to run off and design a top-down initiative. This is why the private sector can be such an effective tool for development. It constantly looks for the innovation that is working and winnows out those that aren’t. That is hard to do without the contextually driven discipline that market forces provide.

On the electrification side, solar home systems seem like a great idea, but what customers actually want is access to finance. So, the lack of local context has resulted in the sector beginning to struggle with repayment rates over time.

Conversely, take a look at M-Pesa—a world-renowned Kenyan innovation and mobile payment technology—and ask why it works so well. Consultants can throw the same concept of mobile payments up on a whiteboard in New York or London and say, “Let’s scale that; let’s make mobile payments everywhere.”But it won’t work the same. Why has it worked in Kenya and not in other places? The answer is contextual and local, not some missing piece on a PowerPoint slide. You will never be able to replicate it unless you figure it out.

As the firm has grown, CrossBoundary is known for being present and deeply embedded in the markets it serves. How does this local presence influence your approach and success?

Jake: The biggest value add of CrossBoundary is that we are genuinely local. We now have more than 20 offices in the markets we serve. When working through problems or delivering our transaction advisory services, I can ask our teams a question, and the answer is completely obvious to them. Which companies are doing well? Which investors are credible? It’s knowledge that would not be possible to gather during a visit or while researching from abroad.

We are experiencing the benefits of scale as we grow both in these markets and internationally. There’s all this subtle contextual stuff we gain from being present locally that we almost don’t think about day-to-day, from mannerisms or meeting norms to how you approach or connect with people and how people will respond and connect with you.

The interesting thing for us now is that we’ve probably underinvested in some of our centralized functions and presence in developed markets, which are needed to create linkages and multipliers. Our focus has always been on being present on the ground in our markets.

Co-founder and Managing Partner Matt Tilleard at CrossBoundary Energy’s first project for Garden City Mall in Nairobi, Kenya

Can you tell us a bit about how CrossBoundary Energy and CrossBoundary Access are contributing to the decentralization of electricity generation and distribution in Africa, and what impact this could have on these markets – for local businesses and communities?

Matt: Decentralization of electricity is an extraordinarily exciting thing. Solar and battery storage are technologies, not fuels. The first implication of this is becoming more widely understood: as you go down an experience curve, the more you manufacture solar panels and batteries, the cheaper they get. So, you have this incredible decrease in electricity generation and storage costs. The world is starting to get its head around this first part.

What’s interesting is the next step. The top-down approach is, “OK, well, let’s just build a gigantic solar farm in the desert in Morocco.”

Those ideas have missed the second, really important, implication: that those economies of scale we’re talking about are happening at the factory level. The unit cost of installing a really small solar system and a really, really big one is pretty similar. So, it’s not much cheaper per kilowatt to build a GW of solar than to build 100 kilowatts. And when you build 100 kilowatts right next to the point that it needs to be consumed or right next to the point it needs to be stored, you don’t have to transmit it and distribute it, and you can save a massive cost.

This second fundamental aspect of solar technologies hasn’t yet been fully appreciated. It will drive a massive decentralization of the electricity system, which we’re trying to accelerate in the context of Africa first.

This is going to be a really positive, powerful force because you’re essentially taking control of power and, therefore, political and geopolitical power itself out of a top-down system—which is what fuel-based energy technologies demand—and placing them in a decentralized system.

Can you discuss where CrossBoundary Advisory is helping pioneer investments in a local market?

Jake: The Africa Resilience Investment Accelerator (ARIA) is a great example—this program brings together development finance institutions (DFIs) to unlock investments in multiple transition markets in Africa, including Benin, the Democratic Republic of Congo (DRC), Ethiopia, Sierra Leone, and more.

Many DFIs have commitments to invest in markets in Africa, and historically, they’ve been approaching it on a fly-in, fly-out basis, especially for smaller markets. ARIA is a solution that allows DFIs to work collectively and hire a player like us. We provide access to experts on the ground in DRC from DRC, experts in Ethiopia from Ethiopia, and so on. We can follow up, chase things, and take impromptu meetings that would have required a trip to/from London or Amsterdam because we’re in these markets full-time.

In our Investment Facilitation paper, we discuss how CrossBoundary solves for clients, usually some combination of bandwidth, time, and/or expertise. In other words, they could do it themselves, but they might not have the time, personnel, network, or know-how.

This goes back to the logic of Adam Smith and specialization. If you’re building a house and need plumbing, you don’t think, “Oh, I need to teach myself how to be a plumber.” You hire a plumber. If you’re investing in these markets and need local expertise, you hire a specialized player who has the local expertise; you don’t need to try and build up scraps of a presence, a costly endeavor, too, for these episodic periods. You want a surge of capacity or a project on the ground.

So, ARIA is a good example—but generally, the whole investment thesis of CrossBoundary is that we believe there is a lot of capital available out there. The missing gap is not the availability of capital; it is the origination, the connection, and the trust to deploy it on the ground.

Could you share your thoughts on how global investors can better engage with local partners to drive impactful change?

Tom: For investors to better engage, they must get out of their comfort zone and be willing to learn about a local ecosystem—a willingness to log the yards of getting smart in a local context, which quite frankly should be the expectation of any savvy investor.

Global investors are looking for suitable investments, so they’re trying to find companies that will achieve their goals—typically strong financial returns but it could also be social or environmental benefits. Investors are not in this line of work to back a startup solely because they have a story they like. From an investment perspective, impact will be achieved from what the company itself does.

I want to return to what I said before about capital flows to expat-backed startups. Typically, this happens because the investor and the founder were one degree of separation from another. I’m talking about scenarios where someone from New York goes and founds a startup in Nairobi, and then an investor comes in from New York; they may have mutual contacts, friends, and networks in common. They’re a bit pre-vetted, which is not an uncommon thing for an investor to want, and it’s the way a lot of transactions happen in any market.

Partnering with local founders and companies requires learning and a willingness to get into the market and understand the dynamics up close. Of course, investors can work with an intermediary like CrossBoundary, which works extensively in the market and has a team tuned to market dynamics. These intermediaries can provide the color or background that those interpersonal relationships in the other scenario provide. They can quickly educate a new investor on what is incredibly prestigious about a founder given local credentials and institutions or provide perspective on existing local investors who have already backed a startup.

There is a benefit to engaging with advisors like CrossBoundary, who can help bring up that learning curve.

Left to right: Jake Cusack and Tom Flahive at the Financial Times/IFC Transformational Business Awards Ceremony

How do you envision localization and decentralization shaping the future of CrossBoundary Group?

Matt: When I look back at the founding of CrossBoundary, it is essentially a story of outsiders who wanted to be more responsive to local contexts. What I am most proud of about CrossBoundary as a firm today is that we are now comprised predominantly of people from the societies where we’re trying to make an impact—and that is so important because that means we have a better chance of coming up with truly localized and decentralized solutions that meet what people want and need.

One simple indicator that we’ve made this transition is that we used to describe ourselves as trying to unlock capital for “frontier markets.” When you think about it, that was a very natural thing to say, as it’s also what the MSCI Index uses to describe many markets we work in. But when you think about it fundamentally, it is language an outsider would use. You can’t have the frontier without having a metropole. Instead, we now use the term “underserved markets,” which is much more in line with how we view these markets and what we are trying to accomplish.

Even more broadly, what is your vision for the future of the markets you serve, particularly in the context of localization and decentralization?

Jake: CrossBoundary will continue to put ourselves in the sweet spot between local expertise and presence and global capital relationships and expertise—this is a powerful fulcrum for our firm. If we had remained local to South Sudan, Afghanistan, Kenya, or anywhere else, we would not have the possibilities we see now. Yes, local is the critical first element, but we need scale—in the broader corporate world, the most successful companies are the ones that have a considerable amount of scale.

The vision for CrossBoundary is to keep our local expertise, context, and contacts and build on the trust, but to put real scale behind our operations so that we can access the large capital flows.

We know capital is out there and can be tapped to grow underserved markets. We think we can do more “interlocking” investments—so to speak—into these markets. So, not just bringing capital from the US or Europe into underserved markets, which is how people used to think about it, but now facilitating investments between the markets themselves.