arusha | jun-14 | fostering entrepreneurship: impact investing

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Delivering sustainable solutions in a more competitive world Fostering Entrepreneurship: Impact Investing

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The workshop in Arusha explored the East African/Tanzanian environment for village energy, local case studies, challenges and opportunities, with a view to formulating policy recommendations for policymakers, funders, NGOs and other stakeholders the region. An important part of the workshop, and indeed the whole Smart Villages initiative work programme, was to gather evidence from existing projects that have provided or facilitated sustainable off-grid energy solutions in the developing world.The workshop gathered more than 50 experts, including policymakers, NGOs, off-grid energy entrepreneurs and others to look for solutions to providing energy to villages off the grid.

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Page 1: Arusha | Jun-14 |  Fostering Entrepreneurship: Impact Investing

Delivering sustainable solutions in a more competitive world

Fostering Entrepreneurship: Impact Investing

Page 2: Arusha | Jun-14 |  Fostering Entrepreneurship: Impact Investing

Delivering sustainable solutions in a more competitive world

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

Page 3: Arusha | Jun-14 |  Fostering Entrepreneurship: Impact Investing

Delivering sustainable solutions in a more competitive world

Page 4: Arusha | Jun-14 |  Fostering Entrepreneurship: Impact Investing

Delivering sustainable solutions in a more competitive world

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.

Page 5: Arusha | Jun-14 |  Fostering Entrepreneurship: Impact Investing

Delivering sustainable solutions in a more competitive world

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.

Page 6: Arusha | Jun-14 |  Fostering Entrepreneurship: Impact Investing

Delivering sustainable solutions in a more competitive world

Portfolio of global investments

Page 7: Arusha | Jun-14 |  Fostering Entrepreneurship: Impact Investing

Delivering sustainable solutions in a more competitive world

Page 8: Arusha | Jun-14 |  Fostering Entrepreneurship: Impact Investing

Delivering sustainable solutions in a more competitive world

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

Page 9: Arusha | Jun-14 |  Fostering Entrepreneurship: Impact Investing

Delivering sustainable solutions in a more competitive world

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

Page 10: Arusha | Jun-14 |  Fostering Entrepreneurship: Impact Investing

Delivering sustainable solutions in a more competitive world

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

Page 11: Arusha | Jun-14 |  Fostering Entrepreneurship: Impact Investing

Delivering sustainable solutions in a more competitive world

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

Page 12: Arusha | Jun-14 |  Fostering Entrepreneurship: Impact Investing

Delivering sustainable solutions in a more competitive world

Impact capital can help energy entrepreneurs… but not in isolation