News & Insights
Challenges and opportunities for social enterprises [Part 4/5 Perspectives in Impact Investing series]
Note from Global Partnerships: This is the fourth installment of our "Perspectives in Impact Investing" series, which presents the variety of perspectives of different actors in the impact investing space. Read:
- Part 1: How wealth advisors can facilitate impact investments by Cynthia Muller, Senior Director of Impact Investing, Arabella Advisors
- Part 2: 4 ways to use grant funding to catalyze innovation and de-risk early-stage enterprises by Richard Gomes, Head of Policy and Advocacy, Shell Foundation
- Part 3: Investing for social and financial returns by Loren Rodwin, Managing Director, Overseas Private Investment Corporation
Part 4: Challenges and opportunities for social enterprises
by Sebastian Africano, Founder & Managing Director, Luciérnaga LLC
Luciérnaga LLC is a wholesale distributor of Barefoot Power and Greenlight Planet household solar lighting and charging products to Latin America with a current focus on Central America. We aim to be the lowest cost provider of inventory to organizations that serve rural, off-grid communities throughout the region – providing short lead times on purchases, full-service logistics, local customer service and convenient warranty support.
While rural families in off-grid areas represent our ultimate market, our target customers are the organizations and networks that serve these communities already. By ordering high-quality product in bulk to a central warehouse, then re-exporting to customers in any country in the region, we can benefit from low unit costs that come from a streamlined supply chain. We pass those savings along to customers importing to any country with proximity to Central America, adding convenience and efficiency to a fragmented, redundant and competitive marketplace.
For a young social enterprise, capital and the terms attached to it are the principal fuel for growth. Many start-ups see this as a catch-22, where we need to demonstrate impact to attract capital, but we need capital to generate that impact. The flexible terms one needs to prove a risky model are often inversely related to the terms and interest rates pegged to inherently risky social ventures.
To the extent that we’ve had conversations with allocators of impact capital, the most helpful have been those willing to engage in a candid discussion around our capacities and limitations, and the gaps that exist for us to fit their risk profiles. Even more valuable are those conversations that lead to a sustained exchange and brainstorming of how to craft a mutually beneficial relationship.
Social enterprise accelerators such as the ones offered by Agora Partnerships, Santa Clara University’s Global Social Benefit Institute and The Unreasonable Institute, to name a few, provide a great venue for those early, objective conversations to happen. It allows the entrepreneur to voice questions and concerns openly, and also to begin visualizing the range of the types of investors and investment terms (potentially) available to them.
At Luciérnaga we are fortunate to have the support of our incubator and parent company Trees, Water & People (TWP) to lower immediate capital needs, and to broaden our fundraising options. After 16 years of work in Central America, TWP has built infrastructure, partnerships, networks and rapport in the region, which all serve as assets to Luciérnaga’s growth. Likewise, in the US, TWP has built a vast donor pool, an impressive track record and brand equity, which are also beneficial to its subsidiary, Luciérnaga LLC.
So far our capital needs have been met from within our immediate network. Luciérnaga LLC was born of a pilot project funded by the US Department of State’s Energy and Climate Partnership of the Americas, due to expire at the end of 2014. We then began working with high net-worth TWP donors to craft an “impact-loan” opportunity, whereby they lend Luciérnaga operating capital in $25,000 increments, on 1 year terms at 3% simple interest. This provides donors that have trusted us with their funds for years a new way to generate social impact at a more significant scale, and with the opportunity of recuperating their investment.
Regardless, the time will come when Luciérnaga will need more capital than can be raised from our network, and reaching out to impact investors will be the logical next step. To prepare, we are currently participating in Agora Partnership’s Capital Advisory Services, investing in the consulting support we need to ensure we enter our next investment conversations confidently, well-informed and well positioned to succeed.