News & Insights
Ending Poverty: Creating More Investable Opportunities That Serve the Poor
By Mark Coffey, Chief Investment & Operating Officer, Global Partnerships, and Lorena Cabrera, Marketing & Communications Associate, Agora Partnerships (Washington, DC)
The pathway out of poverty is complex and in the impact investing space, it requires collaboration with all actors along the “investment value chain” to achieve sustainable results. However, it seems that the industry is stuck in a frustrating cycle: investors lament the lack of investable opportunities while entrepreneurs struggle to find sufficient funding to grow their businesses. Building an ecosystem that facilitates investments into innovative social enterprises is one of the keys to creating long-term solutions to ending poverty.
In this post we, along with Agora Partnerships (an impact accelerator), share how our different yet complementary roles are needed for growing the sector.
- Agora develops and supports early-stage entrepreneurs working to create impact and connects them to the social, human, and financial capital necessary to grow their businesses.
- Global Partnerships invests financial and knowledge capital into sustainable social enterprises with the intention of expanding opportunity for people living in poverty.
What is Impact Investing?
There is a rising interest in the idea of investing in impact – investing with the intention of social returns alongside financial returns. Some impact investors seek at or above market returns while others prioritize social impact over financial returns. Those who prioritize impact over financial returns see the greatest opportunities for investment in developing countries where there is high need alongside growing market opportunities.
Challenge: Disconnect Between Available Capital and Entrepreneurs in Need
A study by J.P Morgan and the GIIN reported that a total of $17 billion in investment capital is expected to be directed into socially-beneficial investments by the end of 2013. Despite that prediction, impact investors are slow to put their investment dollars where financial return is uncertain.
In a report published by the Rockefeller Foundation, the authors assert “… while there is also evidence of gains on the demand side of the sector, there are still too few investment-ready projects and enterprises to enable the optimum placement of this new capital.” Entrepreneurs are encountering barriers in accessing this capital and other resources they need to succeed and grow.
Solution: Impact Accelerators
Accelerators provide a solution to this obstacle by recruiting high-growth early-stage entrepreneurs and connecting them with the resources and support they need to become “investment-ready.” By populating the investment pipeline with investable companies, accelerators are ensuring that available capital is put to good use. A report on the role of accelerators suggests that accelerators are beneficial for all actors in the impact investing industry. For investors, accelerators significantly reduce due diligence costs with their selective application processes and business development support. For entrepreneurs, accelerators provide crucial development support and provide them with invaluable networks. For the industry as a whole, accelerators capture and share valuable impact data from both entrepreneurs and investors.
Agora Partnerships, one such accelerator, envisions a world where all entrepreneurs incorporate social and environmental impact into the very design of their businesses, and where the very best of these entrepreneurs have access to the infrastructure, resources, and networks they need to compete and to flourish. Agora does this through its Accelerator Program that focuses on entrepreneurs with scalable, profitable businesses creating measureable impact and are looking for growth capital within the next 6-18 months.
Ben Powell, CEO and co-founder of Agora Partnerships, shares that the key to the success of impact investments starts with entrepreneurs. He says, “At the end of the day, it’s about attracting the best entrepreneurs to our field and then being able to help them through the inevitable rough patch so they can eventually create the ideal business model that will be attractive to investors.”
The Perspective of a Nonprofit Impact Investor
As entities evaluate the success of accelerators in this space, the question has arisen of whether or not the industry should also think about the ability to attract “follow-on investments” or “next stage funding” as another indicator of success. In other words, how successful are accelerators at connecting social enterprises to next stage funding? The answer to that is still TBD.
Accelerators like Agora Partnerships can help move early-stage businesses from concept to proven solutions that are scalable, profitable and will create measurable social impact while also facilitating their connection to impact investors. But these types of connections need to happen across all social enterprise development; not just early stage. Other accelerators such as GSBI Accelerator are now including more “advanced-stage” social entrepreneurs in their portfolios.
As a nonprofit impact investor, Global Partnerships (GP) has a 20-year track record of making impact investments in social enterprises in Latin America and the Caribbean (LAC). These have traditionally been predominantly microfinance organizations and cooperatives that integrate access to essential services and products including solar technology, health services, agricultural training, and business education. GP defines social enterprises as “mission-driven organizations that apply market-sustained strategies to achieve a social purpose.” Working with 38 partners throughout Latin America, each partner employs different business models that catalyze the flow of essential goods and services to people living in poverty.
Part of GP’s work is exploring new business models and sourcing new partners that meet set financial and social performance criteria. This exploration process is very carefully executed to ensure alignment and maximize success. Historically, GP has invested in organizations that have achieved financial sustainability but is looking more and more to play a role in catalyzing early-stage social enterprises. Within our portfolio, we seek innovative initiatives that have the potential to ignite long-term solutions, regardless of the stage. Currently, some of the criteria GP uses to select partners include:
- Quality, potential scale and depth of services offered;
- Long-term competitiveness;
- Financial stability;
- Governance, management and organization of the institution; and
- Mission alignment
With these criteria in mind, accelerators can prepare social enterprises for investment. This helps not only the entrepreneurs but impact investors as well, who are seeking investable opportunities aligned with their various roles along the impact investing continuum - whether they are looking for early, growth or scalable investments.
Agora and GP both have similar goals: to build an ecosystem that supports businesses that create long-term sustainable impact. To do this, it will take a combination of innovative solutions and collaboration amongst all actors along the impact investment value chain.
Lorena Cabrera is a Student of Economics and International Relations with a focus on Development at American University. She was a Summer Associate in Marketing and Communications for social networks at Agora Partnerships. She has worked in various organizations finding solutions to education and economic issues such as Train Foundation. She has managed social media for the development and promulgation of Blended Learning in Latin America and also has worked at Blue Star Strategies as a consultant where she edited and co wrote articles about education and Latin American economy with Gabriel Sanchez Zinny. She worked in Puno, Peru leading a department Face Social Impact Rural Los Andes, microfinance bank, where a department organized and structured to ensure socially sustainable microfinance and also taught workshops on financial inclusion. She recently worked for two months in a primary school in the Kilimanjaro region, in Tanzania where she reassured her commitment to economic development.
If you enjoyed this blog post, you might also like:
- Accelerating Social Entrepreneurship in Latin America Agora Partnerships catalyzes the development and growth of up-and-coming “impact enterprises” through its six-month Impact Accelerator program.
How Philanthropy Plays an Important Role in Impact Investing If impact investors have investment dollars then why do they still need philanthropic dollars?