This is the second of a three-part series on global themes in impact investing. We conducted a study on the current stage of the impact investment ecosystems in a subset of countries in Latin America, South/Southeast Asia, and Sub-Saharan Africa. For more information on our methodology and the countries profiled in this study, check out parts one and three of the series, which detail the level and quality of investment and entrepreneurial activity in these nations.
1) Local governments are reluctant to support ecosystem organizations that do not directly create jobs.
While impact-oriented entrepreneurship and support organizations such as incubators and accelerators are not focused specifically on creating jobs, they are key players in the startup ecosystem. However, job creation mandates in certain countries discourage governments from supporting these organizations. This trend is most pronounced in Rwanda, Philippines, Vietnam, Indonesia, and Nigeria. In the Philippines, for example, several of our primary sources highlighted the fact that the government is just about starting to get more involved in entrepreneurship. For many years, the Philippines’ Congress has been considering a bill called the Poverty Reduction through Social Entrepreneurship (PRESENT) program, which would create tax exemptions, government allocations, concessional credit and loans from banks, and funding for social enterprise programs. It still has not been passed.
2) Many impact entrepreneurs struggle to access early-stage funding.
In our study, impact entrepreneurs in Peru, Nigeria, and Brazil have the most challenges accessing early-stage funding. Indonesia, Kenya, the Philippines, Rwanda, Vietnam, and Ghana have some seed-stage funding available, but it is scarce. Only India seems to be making significant progress towards providing early-stage funding to entrepreneurs. The Stanford Social Innovation Review reported that capital for social enterprises grew 250x over the past decade. Recent research of over 1,000 entrepreneurs by our sister company Unitus Ventures (formerly Unitus Seed Fund) in India indicates significant challenges in accessing early stage funding.
3) Entrepreneurs often lack relevant business finance experience; education institutions stepping up.
Most notably in Kenya, Mexico, Peru and India, many universities are now addressing knowledge deficits via entrepreneurship curriculum at the undergraduate level. They also provide capacity building, support for product prototyping, and mentor and investor connections. Some programs even provide seed stage funding, particularly in countries where there is not yet a robust impact-oriented investment ecosystem such as Peru, Rwanda, and the Philippines. EmprendeUp Peru at the Universidad del Pacifico in Lima is a prime example of this type of program.
4) Incubators and accelerators focus on mainstream ventures.
The majority of incubators focus on growth-stage and technology ventures and do not offer optimal support for impact-oriented entrepreneurs. In Rwanda, Vietnam, Peru, Nigeria and Brazil, the support ecosystems are geared towards supporting mainstream technology ventures. As an example, many of our primary sources who are investors believe that Nigerian incubators are structured to support traditional technology ventures. They point to Idea Nigeria, an IT-focused accelerator supporting digital ventures tied to job creation that is funded by the Nigerian government. Fortunately, most incubators and accelerators in the aforementioned countries have several ventures that have a social or environmental impact. Mexico, India, Kenya and Ghana have begun to build promising impact-oriented support programs in collaboration with more established incubators and accelerators. The ImpactHub Mexico, a member of the global ImpactHub network, is one example of this. In Indonesia and the Philippines, however, there is a significant lack of a support ecosystem for both mainstream and impact-oriented ventures.
5) Impact fund managers need broad support in multiple areas.
Our study identified four key areas where impact managers needed support:
- Defining their impact theses and metrics.
- Selecting portfolio companies based on impact and financial potential.
- Communicating to investors.
- Providing mentorship to entrepreneurs on accessing the right kinds of financing and reaching scale.
- Obtaining peer mentorship from other entrepreneurs (highlighted in research study by Unitus Ventures (formerly Unitus Seed Fund) in India)
This data was validated from selecting and working with Capria Cohort 1. To help fund managers with these issues, we have started the Capria Catalyst series of webinars to support people who express interest in Capria.
6) Angel and venture capital groups focus primarily on technology investments.
Some of the groups interested in getting involved in impact-oriented investment but are reluctant to take the lead. Mexico, Brazil, India and Kenya have the most robust angel and venture capital groups, which are starting to support more impact-oriented ventures. For the past six years, the Foro Latinoamericano de Inversión de Impacto has been held in Mexico, bringing together philanthropists, government funds, and investors. Ghana and Nigeria are starting to cultivate a more robust venture capital and angel ecosystem, but are not yet ready for impact-oriented investments. The Ghana Angel Investor Network provides a full suite of capacity building services to early stage companies and has been running Business Pitch Sessions since 2012. Peru, the Philippines, Indonesia, Vietnam and Rwanda have fewer active investment groups compared to the other countries in the study.