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An Impact Investment in an African SME, from Start to Exit

Posted By Emily Ziethen, RENEW Investment Advisors, PLC, Thursday, June 20, 2019

A wise investor once gave me a piece of advice. To paraphrase, he said, “Any idiot can invest money, but few know how to get it back.” When I started investing, I used to get excited about closing deals and reaching the point where capital exchanged hands. After working for months (sometimes even years) on a deal that ended with signed legal agreements and wired funds, I felt like we had finally accomplished something, and as such, would make a big deal about this moment. Thinking that this was the ultimate indicator of success, we’d pour ourselves drinks, take selfies, and issue a press release to mark the momentous occasion! But, in the back of my mind as we were celebrating, the wise investors’ advice still rang true. Soon after the close, we would get swept into portfolio management, the roller coaster of entrepreneurship and doing business in frontier markets: a game not for the faint of heart, especially if you invest in startups and early-stage companies like the ones we back in Africa. Now, seven years later and on the other side of the investment equation with a lot more grey hair and wrinkles around my eyes, we had our first exits. Reflecting on the journey, I thought it might be helpful to share a few observations from our experience investing in a small and medium enterprise (SME) from start to exit.

The first observation is about clarifying the importance of exits. Most investors plan their exits before they invest, using tools like put options, drag-along and tag-along rights, etc. But many of the companies we meet, screen and train in our Investing 101 for companies do not understand exits or why their investment partners might want to exit - even larger companies who are already in discussions with serious investors. We have found that while planning for an exit is important, explaining an exit is critical - and not just to the target company, but to their lawyer, their accountant, their family members, government stakeholders, and pretty much everyone that is within earshot of the deal.

The challenge is that most stakeholders get excited about closing, as I used to. Government agencies report deals closed and FDI attracted in Africa as an indicator of economic growth and success. The development community, also a significant stakeholder which hires firms like RENEW to help educate and invest in SMEs in Africa, love seeing capital come into local businesses. And these are important indicators to measure and track, but so few projects last long enough for the real magic moment, which is usually five years down the road when it happens and not immediately at closing. And thus we are left with a situation where many companies in Africa, especially social entrepreneurs and SMEs that struggle to attract capital, do not understand the true importance of an exit. So let’s explain.

If closing an investment is akin to the start of the game, an exit is when you actually score a goal. I have found that the misunderstandings around exits hurt companies and countries, most notably when the critical time comes to begin exiting an investment. Often this is because the business of investing is a bit of a mystery. I believe there should be an entire training for non-finance stakeholders just on the importance of exits. While the idea that investors seek to make money is intuitive to most, the way an equity fund works is relatively new. It is an unfamiliar concept to many that a fund manager has a fixed period of time to find and invest the money they raised into good companies, and then recover that money in a fixed amount of time with a great return. And, while I believe a closed-end equity fund structure in Africa isn’t the best structure for the investment landscape of frontier markets, it is a common structure for equity investors, and one that stakeholders need to understand so they can work with it and attract more funding to their country. The more equity a country and a company attracts, often the better positioned it is for growth.

 

Why are exits good? A good investor that builds a track record of successful exits attracts more capital and can make more investments. Companies in which investors exit often attract more capital, grow, create more jobs, pay more taxes, and provide greater value to customers. Countries where investors realize exits attract more capital because investors see that others have done it and local businesses benefit from this reputation.

So exits are not just something that needs to be planned before you close an investment, but something that needs to be discussed regularly with multiple stakeholders throughout the life of the investment and, just as much, projects that seek to leverage private investment to achieve development objectives like the Sustainable Development Goals (SDGs).

Entrepreneurs should understand that an exit by an investor is not a divorce but a graduation; hopefully a hand-off to the next level, be it to a larger investor, a strategic partner, or back to the owners themselves. Parties should be thrown for exits. Governments should know that an exit from their country is an indicator that their country is conducive to sustainable investing. They should give out awards to funds that exit their investments, because that event alone will attract the interest of serious investors more than any roadshow they do around the world. And development partners should design private sector development projects with timeframes long enough to see exits and chalk those up as major wins that resulted from their support.

Since 2012, RENEW has been operating in East Africa, testing and perfecting an investment model that gets capital into SMEs trapped in the missing middle, helps them scale up and then gets that capital out with a good financial and social return for investors. After seven years of investing in the East African region, I am pleased to say that SME investing can be successful and exits are possible. I hope we see many more exits in the months and years to come, and I hope all stakeholders cheer, not just investors, when an exit happens. It’s the real score in the sport of investing and also enables the impact we are also seeking to achieve as success begets more investments targeting such goals as job creation by SMEs in East Africa.

About the Impact Angel Network and RENEW

Members of the Impact Angel Network seek to realize both social impact and financial returns through investments in small and medium enterprises (SMEs) that are engines of economic growth and job creation in Africa but that often lack capital due to their size. IAN members believe that targeting employment through SMEs, dollar-for-dollar, can help reduce poverty in a more sustainable way than charity.

RENEW, with its largest office in Addis Ababa, Ethiopia, manages the IAN’s investment operations and provides investment advisory and consulting services in support of its investments. RENEW’s work in Ethiopia was piloted with USAID and is currently undertaken with financial support from the Government of Canada provided through Global Affairs Canada for a project entitled Accelerating Business Growth (ABG). This project targets sustainable job creation for low-skilled workers, including women and young adults, through a dynamic and growing small and medium business sector in Ethiopia.


To find out more about RENEW or the IAN, contact us at renew@renewstrategies.com, follow us on Twitter@RENEWLLC or find us on Instagram @impactangelnetwork. Be sure to check out our upcoming events, including our upcoming Econ-Tourism Trip.

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Tags:  Access to Finance  Africa  East Africa  impact investing  SGBs; accelerators; East Africa  Social entrepreneurship  sustainability 

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Your views count - Please complete the SGB Financing survey

Posted By Ian Sayers, International Trade Centre, Tuesday, May 28, 2019

This 10-minute survey, undertaken jointly with ADB, CBI and PTI collects information on which aspects of SGB short-term financing are most useful or problematic and have the greatest impact on your business.

 

 It examines the types of financing most often used and required by SGBs, the challenges businesses face and the alternative financing that is available if trade and supply chain financing is not.  

 

The survey is anonymous and gender disaggregated and can be completed in one of six languages: Arabic, Chinese, English, French, Russian and Spanish. The 2019 report will be shared with ANDE Network members. I have attached the 2017 Report Brief as a reference. Thank you all for your help.

https://adbtf2019companysurvey.questionpro.com

 


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Tags:  Access to Finance  Private sector development  SGBs 

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Pact Ventures Launches Revamped Impact Investment Group

Posted By Katie Hallaran, Pact, Monday, December 10, 2018

Pact is excited to announce the launch of its revamped social investment team – Pact Ventures. Pact Ventures believes that markets and private capital can be incentivized to accelerate Pact’s development programs. We structure innovative financing and market-based mechanisms to magnify Pact’s social impact.

Through technical experience in investment banking, private equity, strategy, and social entrepreneurship, we’re integrating private sector perspectives to create tri-sector solutions for complex development challenges by leveraging public, private, and social capital.

Leading with a clean sheet approach, Pact Ventures accesses a wide spectrum of innovative financial and investment vehicles to finance our projects, deliberately matching outcomes risk with financial return. We leverage our impact investments to shift our relationship from donor-beneficiary to provider-customer. In so doing, we tap into economic forces to create market mechanisms that listen and adapt to the voices of our beneficiaries (now customers) in new, empowering ways through:

Outcomes-based and shared value partnerships:

  • Market-based incentives for responsible and traceable sourcing of minerals and gems
  • Access to bottom of the pyramid (BoP) financial products for community-based savings and loans groups

Direct investments in promising social enterprises:

  • Investment in solar home system manufacturer targeting BoP consumers
  • Joint venture with alternative BoP credit scoring and digital distribution services

Innovative business and delivery models for impact:

  • Distribution of solar home system partners to bring renewable energy to Pact’s beneficiaries
  • Workforce development platform for skills-based training and job placement 

We’d love to explore opportunities to collaborate and invite anyone interested in learning more to reach out to Brian Vo at bvo@pactworld.org.

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Tags:  Access to Finance  energy  health  impact investing  innovative finance  social enterprise  social impact 

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Chipping Away at the MSME Financing Gap

Posted By Emma Marks, Small Scale Sustainable Infrastructure Development Fund, Monday, November 5, 2018

MSMEs are widely regarded to be among the primary drivers of economic development, employment, and innovation in emerging economies. However, a disproportionate number of MSMEs face challenges accessing the financial services they require to cover their day-to-day operations and scale into robust, sustainable businesses. Often, they have needs that exceed microfinance ceilings, and they cannot access financial services through banks or similar providers without established credit histories, well-documented business records, or sufficient collateral. Likewise, traditional banks tend to overlook potential MSME clients due to actual and perceived risks, transaction costs, and a general lack of familiarity with pro-poor business models.

The latest article from S3IDF advocates for tools like loan guarantees as a means to addressing the root causes of financial exclusion. By having “skin in the game,” banks and other financing institutions are more likely to engage seriously with the assessment process in a manner that will leave them better positioned to finance similar deals in the future and to extend other financial products and services to other MSME clients.

Tags:  access to finance  emerging markets  inclusive innovation  missing middle  social impact 

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Need Help Identifying Your Organization’s Legal Needs? Find Out About TrustLaw’s Legal Health Check for Social Enterprises.

Posted By Flavie Fuentes, Thomson Reuters Foundation, Friday, October 19, 2018
Updated: Friday, October 19, 2018

Who we are? TrustLaw is the Thomson Reuters Foundation’s global pro bono legal program, connecting the best law firms and corporate legal teams around the world with high-impact NGOs and social enterprises working to create social and environmental change. We help produce groundbreaking legal research and offer innovative training courses worldwide. We also provide a legal training for social enterprises and impact investing that focuses on legal issues and trends in the burgeoning social innovation sector, and provides lawyers with the skills and knowledge they need to advise clients. We have supported grassroots organizations to employ their first staff members, helped vulnerable women access loans to start their first businesses and brought renewable energy lighting to slums. We are the largest global pro bono network with almost 5,000 members across more than 175 countries. We work with hundreds of legal teams representing over 120,000 lawyers who generously provide free legal support to thousands of NGOs and social enterprises.

What is the Legal Health Check and How Does it Work? Every year, TrustLaw receives and reviews hundreds of legal questions from our NGO and social enterprise members around the world and connects these organizations to pro bono lawyers who provide free expert advice and assistance. Drawing on our experience, TrustLaw has developed a Legal Health Check to assist NGOS and social enterprises identify some of their operational legal needs. While it includes the questions most frequently asked by our members, it is not a complete list of legal issues. The Legal Health Check will help you identify legal matters that are relevant to your organization and issues that you might need help with. Take a look at the Legal Health Check for more information here.

Interested in Becoming a Member of TrustLaw? If you would like to apply to become a member of TrustLaw, you can complete our application form on our website at http://www.trust.org/trustlaw/ and make sure to tell us that you are also an ANDE member!

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Tags:  Access to Finance  ANDE Members  ANDE publication  Impact investing  Legal Working Group  Pro Bono  social enterprise  Social entrepreneurship  social impact 

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Need help on an impact investing question? Work with Duke MBA students this year

Posted By Carrie Gonnella, The Center for the Advancement of Social Entrepreneurship (CASE) at Duke, Thursday, July 19, 2018
Updated: Thursday, July 19, 2018

The CASE i3 Consulting Practicum (CASE i3CP) offers your organization the opportunity to engage with a team of carefully selected MBA students from Duke University on an impact investing question you are currently addressing.  You benefit from the passion, fresh perspective, independence, and technical expertise our students bring to the CASE i3CP.  Our students benefit from the opportunity to apply their academic learning to an of-the-moment issue in the impact investing space.

How it works:  We select 5 to 7 impact investing-related projects annually and match each client with a select team of Duke University Fuqua School of Business MBA students.  Teams spend on average 400 person-hours researching, analyzing, and making actionable recommendations that they incorporate into client deliverables.  Teams work remotely with you and are directly supervised by Cathy Clark, Duke faculty member and Director of CASE i3.

Previous clients and projects:  We're proud to have a 100% client satisfaction rate over the last 3 years.  Some of our 30+ previous clients include Calvert Impact Capital, World Economic Forum, Investors' Circle, SJF Ventures, Mercy Corps, Big Path Capital, and more.  You can read a Q&A with one of last year's clients, Quantified Ventures, here.  Some of our past projects have related to investment landscaping, impact assessment, product formation, and deal and industry diligence.

Final student deliverables remain confidential to the client, but a few of our clients have already gone public with the work our students did for them.  You can find a blog post by SJF Ventures here and from Investors' Circle's PCC fund here.

We're thrilled with the responses we've received from clients:  

  • “The CASE i3 Team was a dream to work with.  They were curious, diligent, and rigorous in their research and analysis – always ensuring that the work would be helpful and relevant to our organization in the long run.” – Calvert Impact Capital
  •  “We benefited greatly from the CASE i3 team’s diverse skill set and self-directed approach in analyzing opportunities for expansion.”  – Mercy Corps Social Venture Fund

How to apply:  Applications are open until August 31, 2018 to work with our MBA students over the 2018-2019 academic year.  To find more information on the work timeline and the online application, click here.  Email Carrie Gonnella at carrie.gonnella@duke.edu with any questions.

Tags:  Access to Finance  capacity development  education  finance  impact investing  impact investment  MBA  mentoring 

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Defining Financial Exclusion: why we need to focus on the problem, not just the solution

Posted By Lexi Doolittle, Small Scale Sustainable Infrastructure Development Fund, Thursday, July 19, 2018
Updated: Thursday, July 19, 2018

There’s a lot of discussion on financial inclusion, the value of the bringing an individual into the fold of the formal financial system, and the potential benefits of that inclusion. However, there is little discussion on what it actually means to be financially excluded and how, because of this exclusion, the lives of the working poor, their communities, and entire institutional systems are more insecure, costly, and constricted. 

This new article from S3IDF engages with the lived realities of financial exclusion with the intention of driving a movement where various stakeholders collectively create an intelligent foundation on which we can develop replicable pathways towards sustainable financial inclusion for more stable, affordable, fruitful livelihoods for the financially excluded, their families and their communities.

 

 

Tags:  Access to Finance  capacity development  Entrepreneurship  finance  India  Private sector development  Social entrepreneurship 

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GroFin - Transforming SGBs in Africa & the Middle East

Posted By Shailen Neewoor, GroFin, Wednesday, June 13, 2018
Updated: Friday, June 15, 2018

Gain a deeper understanding of how GroFin, through its unique investment model in SGBs, is positively transforming small and growing businesses and the local communities they support. The inspiring success stories of its entrepreneurs exemplify the collaborative efforts of GroFin staff, investors, partners and clients. The 2017 GroFin Impact Report, Nomou Impact Report and Aspire Impact Report translates its faith in the power of the collective by asking the question “If not us, who? If not today, when? If not with our finance and support, how will these small businesses grow and succeed?”

2017 GroFin Impact Report

As at end 2017, GroFin has financed 675 small and growing businesses, supported 8,840 entrepreneurs, sustained a total of 86,190 jobs and touched the lives of 430,955 family members in the local communities across our 15 locations of operation in Africa and the Middle East. The report indicates that GroFin has made more investments in its priority sectors of education, healthcare, agribusiness, manufacturing and key services. Furthermore, GroFin invested US$ 60M in nearly 88 new small and growing businesses, with over 50% of the SMEs operating directly in our sectors of focus, sustaining 14,000 total jobs and supporting an additional 72,000 livelihoods. And to reinforce its value proposition of providing 'support beyond finance' the company introduced the GroFin STEP (Success through Effective Partnerships) Programme to support its SMEs and Entrepreneurs.

2017 Nomou Impact Report

The Nomou Programme is a regional initiative in MENA which was co-created by GroFin and Shell Foundation. As a result of the collaborative efforts of its investors, partners and clients, the Nomou programme is contributing to the alleviation of poverty and improvement of livelihoods in the communities where the programme operates, as well as striving to reduce the adverse impact of the humanitarian crisis in the region.

In 2017, the Nomou Programme supported 1,005 entrepreneurs, made investments into 103 SGBs, sustained a total of 10,287 jobs, touched the lives of 51,435 beneficiaries and added economic value of US$ 149 million per annum through its investee SMEs across Egypt, Jordan, Iraq and Oman.

2017 Aspire Impact Report

Since their inception in 2014, the Aspire Small Business Fund (ASBF) and the Aspire Growth Fund (AGF) have sought to promote local entrepreneurship, employment and economic value-add in the Niger Delta. With the Shell Petroleum Development Company of Nigeria Limited (SPDC) as anchor investor, the Aspire Enterprise Development Funds epitomise GroFin, a private development finance institution, and SPDC’s efforts to serve the local community with a combination of investment funds, business skills and market linkages.

In 2017 GroFin increased its commitment to supporting SMEs in the Niger Delta Region by investing in an additional 17 small and growing businesses and extending further funding of US$ 2.5M (140% increase from total amount invested as at end 2016). As at end of 2017, GroFin has supported 365 businesses, invested in 53 SMEs and sustained a total of 1,975 jobs under the Aspire Funds.

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Tags:  2017  A Access to Finance  Access to Finance  Africa  Agriculture  ANDE Africa  ANDE Members  Base of the Pyramid  Business  business training  capacity development  DGGF  East Africa  education  finance  impact  impact investing  impact investing; gender lens investing; gender; w  impact investment  impact measurement  innovation  Investors  Kenya  MENA  missing middle  Philanthropy; impact investing  Private sector development  Rwanda  SDGs  SGB  SGBs  SGBs; accelerators; East Africa  SGBs; Environment; accelerators; energy  SGBs; West Africa; Senegal; Africa; MENA; Entrepre  small and growing agrobusiness  smes  social impact  South Africa  sustainability  sustainable development  Tanzania  Training  Uganda  West Africa 

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GroFin partners with Mastercard Foundation on US$50M youth employment initiative in Rwanda

Posted By Nishika Bajaj, GroFin, Tuesday, May 1, 2018
Updated: Tuesday, May 1, 2018

Kigali: May 1, 2018 – Private development finance institution GroFin has partnered with Mastercard Foundation to extend business development support and catalyse investment to small and growing businesses in the tourism and hospitality sector of Rwanda.

GroFin is joining the Mastercard Foundation’s Hanga Ahazaza initiative, a US $50 million, five-year initiative focused on relieving poverty by increasing employment opportunities for young people while expanding the tourism and hospitality sector in Rwanda.

Hanga Ahazaza, meaning ‘create the future’ in Kinyarwanda, will equip 30,000 young men and women with the skills they need to transition to employment and increase access to financial services and business development skills for small businesses in this thriving sector. The initiative aligns with GroFin’s focus on increasing employment opportunities for youth and women.

“Working together, we will support small businesses in the tourism and hospitality sector and ensure the sector can find qualified young people with the skills needed to be successful employees or entrepreneurs,” says Guido Boysen, CEO of GroFin.

Over the next three years, the GroFin-managed Small and Growing Businesses Fund will invest in 12 small enterprises operating in the tourism and hospitality sector of Rwanda. GroFin will screen and identify 120 small and growing businesses in this sector to provide pre-finance business development assistance. Of these, 12 are expected to go on to qualify for GroFin’s investment and post-finance business support.

These businesses will be chosen based on their potential to impact economically disadvantaged individuals, with focus on small enterprises that employ a substantial proportion of youth and women, as well as those that are owned by women.

Using this approach, GroFin’s activities will sustain a total of 1,200 jobs and support 4,500 livelihoods for economically disadvantaged individuals. Two-thirds of these jobs will be created and sustained for youth and women.

“We look forward to collaborating with GroFin as part of the Hanga Ahazaza initiative” said Rica Rwigamba, Program Manager at the Mastercard Foundation. “Their unique approach to providing a combination of appropriate finance, tailored business support and market linkages will help small businesses in the hospitality and tourism sector reach their full potential and generate more employment and entrepreneurship opportunities for young people.”

Hanga Ahazaza is led by a consortium of partners from the education, development, and private sectors. Working together, they will support small businesses and entrepreneurs in the tourism and hospitality sector through increased access to financial services and training, and by connecting them to young people with the skills needed to be successful employees.

About GroFin

GroFin is a pioneering private development finance institution specialising in the finance and support of small and medium enterprises.

Since its inception in 2004, GroFin has established a wide network of local offices in 15 countries across Africa and the Middle East covering Kenya, Rwanda, Uganda, Tanzania, Nigeria, Ghana, Ivory Coast, Senegal, South Africa, Zambia, Mauritius, Egypt, Oman, Jordan and Iraq.

As at close of 2017, GroFin had undertaken 675 SME investments and sustained 86,191 jobs across healthcare, education, agribusiness, manufacturing, water, energy and waste services, food and accommodation, construction, wholesale and retail, and professional services.

About the Mastercard Foundation

The Mastercard Foundation seeks a world where everyone has the opportunity to learn and prosper. The Foundation’s work is guided by its mission to advance learning and promote financial inclusion for people living in poverty. One of the largest foundations in the world, it works almost exclusively in Africa. It was created in 2006 by Mastercard International and operates independently under the governance of its own Board of Directors. The Foundation is based in Toronto, Canada. For more information and to sign up for the Foundation’s newsletter, please visit www.mastercardfdn.org. Follow the Foundation at @MastercardFdn on Twitter.

Tags:  Access to finance  impact investing  SMEs 

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Introducing FINANCE CONNECT: Connecting SMEs with the best financing opportunity

Posted By FAST International, Finance Alliance for Sustainable Trade, Tuesday, June 13, 2017
Updated: Wednesday, June 14, 2017

Finance Connect is a unique service that focuses on addressing the needs of larger sustainable agricultural and forestry SMEs in developing countries that have financing needs of more than USD 800,000. These are usually enterprises that have larger projects, or projects that require both short and long-term finance. It is a tailor-made service that supports the enterprises throughout the process of obtaining finance, including linking SMEs to financial services providers (FSPs) that can meet their needs in an accurate, efficient, and effective manner. Ultimately, this service will enable FAST and its partners to create a tangible benefit on the ground by helping SMEs restructure their finances, reach their potential growth, employ more people, and have a more sustainable business model that will benefit them and their communities in the long term.

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Tags:  Access to Finance  financial inclusion  larger SMEs 

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