Great Challenges for Great Opportunities
Small and growing businesses (SGBs) in the developing countries often struggle to find capital to grow, particularly at the early stages of their growth trajectory — the gap for SGBs in frontier and emerging markets is estimated at $4.5 trillion.
Challenges include lack of early-stage risk capital, high transaction costs, poor liquidity/exit options, and misaligned expectations of risk/return profiles. Furthermore, fund managers tend to have inflexible fund structures and instruments that do not align with the needs of small enterprises. Funds also struggle to find investable companies due to low capacity and insufficient technical assistance to get companies investment ready.
What infoDev Climate does
infoDev Climate helps create a sustainable, diverse, and robust financing ecosystem for small and growing businesses in clean-tech sectors. It does so by helping local institutions build early stage funds and by testing and scaling novel financing mechanisms for clean-tech businesses, such as angel investing, technology-based financing (such as crowdfunding), and de-risking facilities. infoDev Climate aims to use these innovative financing mechanisms to crowd-in local and global investors who would not otherwise invest in local clean-tech companies.
Early Early Stage Climate Venture Funds
infoDev co-designs, seeds, and provides technical assistance to new funds that invest in early stage green companies in Sub-Saharan Africa. These locally run funds are testing and developing innovative models to provide risk capital and high-touch venture acceleration support to early stage firms in the off-grid energy, energy efficiency, climate smart agriculture, water and sanitation, and waste management sectors.
Kenya Climate Ventures (KCV) is a new early stage investment fund that focuses on innovative start-ups developing commercial and scalable technologies and business models to Kenya’s climate change challenges. KCV provides patient risk capital to its investee companies (between $300,000 to $500,000 through equity and quasi-equity instruments) and couples it with high-touch management assistance that enables these companies to validate and refine their business model, accelerate sales, build capacity, and get on the path to scale.
Results so far: KCV was established in August 2016 by the Kenya Climate Innovation Centre (KCIC) and is anchored by funding and technical assistance support from infoDev Climate. Since commencing its investment activities, KCV has screened over 140 companies made three investments, and built a promising pipeline of future investment opportunities.
Fund managers and traders discussing investments. Photo: © Jonathan Ernst/World Bank
Early Stage Finance Collaborative
In 2017, infoDev has launched the Early Stage Finance Collaborative (ESFC), a global platform for investors and leading early stage finance organizations promoting high-growth entrepreneurship in developing markets. By pooling resources and know-how, ESFC builds and scales financing solutions that unlock risk capital for early stage firms in clean-tech sectors.
The ESFC focuses on:
- Supporting existing early stage finance programs;
- Co-creating and co-funding new scalable initiatives that strengthen early stage finance ecosystems in developing countries;
- Generating practical knowledge and analytical research on early stage finance to inform fund managers, investors, companies, donors, and development agencies.
ESFC organizes multi-stakeholder working groups focused on one topic, barrier, or theme related to early stage finance. These groups take stock of progress to date in the field to avoid duplication, identify opportunities to solve areas of friction, and collectively design or accelerate new solutions.
Results so far: The ESFC has already convened leading organizations in the early stage finance space and has launched groups to work on enterprise segmentation, mezzanine finance, very early stage funds, angel networks, capital advisory services, and impact monetization.
Green Outcomes Fund
In South Africa, the Green Outcomes Fund (GOF) will provide outcome-based, matched (concessional) funding to local investment funds, or “Recipient Funds” (RFs), to incentivize investments in local green businesses that make a demonstrable contribution to South Africa’s green economy.
The fund will initially be a not-for-profit fund providing pure or reimbursable grants to local RFs in exchange for the achievement of pre-agreed green outcomes. The GOF will provide relatively modest amounts, primarily to help cover RFs’ additional costs associated with originating and investing in green SGBs. GOF funding will be matched by RFs in the form of investment and business development. The leverage ratio of match funding will be tailored to each RF.
The GOF pilot will test how RFs can be incentivized to increase investment in green businesses, while also improving impact measurement and generating insights for the development finance community.
The founding partners are The Bertha Centre for Social Innovation and Entrepreneurship at University of Cape Town’s Graduate School of Business, GreenCape, and The World Wide Fund for Nature, South Africa.
- Creating Your Own Angel Investor Group - Guide
- Crowdfunding in Emerging Markets: Lessons from East African Startups - Case Study
- Can Outcome-Based Financing Catalyze Early Stage Investments in Green Small and Growing Businesses? Lessons from South Africa - Brief
- Advancing the Roadmap for Impact Investing - Blog