Innovations in financing development solutions

Antony Bugg-LevineBusiness Innovations in International Development

October 2010

How will I find capital to grow my development-focused business?

How can I assess the capital raising strategy of a business plan?

How can I make investments that support business innovations for development?

How can I build a business solving these problems for others?

• Retail investors

• HNWI

• Private bank clients

• Family offices

• Private foundations

• Institutional investors

• Sovereign wealth funds

• Development finance institutions

• Government

Supply (Buy-side)

Demand(sell-side)

Intermediation

Supply (Buy-side)

Demand(sell-side)

Intermediation

• Retail investors

• HNWI

• Private clients (UHNWI)

• Family offices

• Private foundations

• Pensions

• Taxes

• Commercial banks

• Trading platforms

• Wealth advisors

• Private banks

• Investment funds

• Institutional asset managers

• Development finance institutions

• Treasury department

• Sovereign wealth funds

• For-profit businesses

• NGOs (e.g. Scojo)

• Suppliers (e.g., smallholder farmers)

Where is the money?

Retail bank

High net worth

Private bankFamily office

Insurance fund

Pension fund

DFI

Foundation endowment

ODA

Corporate investment

Government support

28

23

17

30

20

0.21 (flow)

0.6

0.12 (flow)

US$TR

Retail savingsHigh net worth

assets

SWF

Insurance funds

Pension funds

Foundations (US)

Private giving (US)

DFIs

ODA

1. Retail investors

2. HNWI

3. Private bank clients

4. Family offices

5. Private foundations

6. Sovereign wealth funds

7. Development finance institutions

8. Institutional investors

9. Government

Po

ten

tial

inve

stm

en

t siz

e

Impact investment appetite/independence

9

2

6

7

8

4

5 3

1

Where is the money?

Retail bank

High net worth

Private bankFamily office

Insurance fund

Pension fund

Capital/accountInvestor discretion

The Scott Budde Problem…

ERISA

Make impact investments…

$700MM commitments

At scale

• Retail investors

• HNWI

• Private bank clients

• Family offices

• Private foundations

• Institutional investors

• Sovereign wealth funds

• Development finance institutions

• Government

• CCI note invested in community housing

• Grameen loan guarantee

• Syndicate microfinance loan

• School finance fund

• Charter school guarantee

• CDFI cash deposits

• China investments in Africa

• Loan for new roads

• Electric car company loan

Social enterprise

Social enterprises stuck in the middle when trying to raise funds

Social return

Charity/ non-profit

~20%

For-profit business

0%

Risk-adjusted financial return

-120%

~20%

Impact investing industry emerging to fund social enterprise

Social return

-120%

0%Risk-adjusted financial return

Examples:

~20%

Impact investing industry emerging to fund social enterprise

Social return

-120%

0%Risk-adjusted financial return

Examples:

Double-bottom line trade-off

~20%

Market-rate impact investing

Risk-adjusted financial return

Social return

-120%

0%

~20%

Market-beating impact investing

Risk-adjusted financial return

Social return

-120%

0%

Examples:

generation__

~20%

Can impact investing become a stable equilibrium?

Social return

-120%

0%Risk-adjusted financial return

Examples:

Business discipline

Social metrics

Opportunities for entrepreneurs

Investment firms

• Structure deals

• Make investments

NGOs• Raise capital

• Fund management

• Advisory

Start-up firms

• Asset management

• Investment banking

• Advisory

Capital raising examples

• Private foundations• Family offices

$20MM

• Private foundations• Family offices• (U)HNWI• Corporate customers

$50MM

• Private foundations• Family offices• HNWI• DFIs

$102MM

$16MM$1.5 Billion

• Venture capital (Sequoia)

• Angel investor• Family office• Commercial bank