Download - Arusha | Jun-14 | Fostering Entrepreneurship: Impact Investing

Delivering sustainable solutions in a more competitive world

Fostering Entrepreneurship: Impact Investing


What is Impact Investing and Impact Capital?

• Impact investments aim to solve social or environmental challenges while

generating financial returns

• Different from: Commercial investors who avoid doing harm; grant

agencies don’t invest in businesses

• Capital is invested on sub-commercial terms, but designed to at minimum,

return money and optimally, generate profits

• Over 10 years $10.6 USD Bn impact $ has been invested by:

• Impact funds – such as Acumen, Bamboo Finance

• High Net Worths and Investor Circles

• Foundations and NGOs like Rockefeller and CARE

• Development aid agencies like DFID, Norad, USAID

• Traditional commercial investors like Blackrock, AXA


Characteristics of the SMEs impact funds support

• They are private businesses – not NGOs, not government, but

usually owner-entrepreneur led

• They suffer first mover disadvantages and need subsidised

capital – anywhere from $50,000-$1,000,000 USD+ - to scale

• They are often innovative and too high risk for commercial capital

• The goods or services they sell offer healthy, affordable

appropriate options for overlooked, lower income consumers.


Low Carbon Enterprise Fund (LCEF)

• Is an impact fund under the ERM Foundation. ERM – global

consultancy with 4000 staff, 120 offices, almost $1bn turnover

• The LCEF invests in SMEs worldwide whose products or services

offer reduced carbon emissions to conventional products

• Provides early stage financing ($50-250,000 USD) and pro bono

support from ERM consultants to investee companies.


Portfolio of global investments


Why Might Entrepreneurs Want Impact Finance? Alternatives:

• Bank financing – audited 3 year financials, professional

business plans, collateral – sometimes100% match financing

required - high interest rates

• SACCOs – lower interest rates, but provide only micro financing

– more for consumers than enterprise level lending

• Multilateral banks, development finance or aid institutions–

large scale – market wide – not enterprise focused

• NGOs – can be uncomfortable with investing in for-profit ventures

• Traditional private equity – businesses usually too small scale


How impact investors can help entrepreneurs

• Flexible, often patient funding

• Diversified investment structures

• Sub-commercial financing terms

• Prepared to take higher risks

• Bring in financing partners

• Increase investee’s marketability and

brand


When investment partnerships are challenged

• Market and products evolve – can entrepreneurs keep up?

Product may be king but distribution is God

• Entrepreneur preparedness – can the fund provide support?

• Entrepreneur focus and investor stretch – inconsistent

communication can take deal astray

• Misaligned expectations – of funds, boards, fund investors

• Unsupportive regulatory environment

• Inadequate technological know-how


Limitations to Impact Funds’ support

• Market approach… where market doesn’t exist

• Want a return…. but also impact

• Commercial focus… but not too commercial

• Invest in small businesses… but seek scale

• Sector investing… without sector expertise

• Know businesses need support… but have no time or money to

give it

• Want to change the world … with limited capital and bandwidth

• Seek impact.. with reduced risk appetites while prioritizing returns


Impact capital can help energy entrepreneurs… but not in isolation

Download - Arusha | Jun-14 | Fostering Entrepreneurship: Impact Investing

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