When the Global Steering Group for impact investment, popular as GSG, convened its first dialogue in Kenya, social entrepreneurship seemed to be on everyone’s lips.
That hot Monday of Mid December last year saw hundreds of shrewd investors, social entrepreneurs, development finance specialists as well as policy-makers discuss the need for a coherent approach as far as balancing purpose and business is concerned. But can you really make money from the new funding mechanism as an investor? What does impact investment mean to the economy?
As more and more corporates continue to encourage young people to be their (own) bosses, this new funding method provides an alternative. Now is a great time to not only go to school and be employed but also work towards being your own boss – there might not be enough job opportunities for people coming out of colleges.
At a time when Kenya is acknowledged as a regional hub for impact investing, being the third largest private equity market in sub-Saharan Africa, both the upcoming and well established entrepreneurs will need to out think when it comes to ways to inject more capital into business. Modelled around what is called “impact investment”, more and more underfunded entrepreneurs are likely to benefit, and not leave the future of the high growth ventures to chance.
According to Maryanne Ochola, East Africa Regional Chapter Manager at Aspen Network of Development Entrepreneurs (ANDE), time is running out in the fight to eradicate poverty.
“We have a financing gap of $2.5 trillion towards the development of the UN Sustainable Development Goals,” she Ochola. “We need to acknowledge that governments can’t do this alone and we need private capital to meet societal needs. Impact investment affords us the opportunity to unlock financial and social good.”
Ochola says that globally, impact investment has grown by 41% in terms of compound annual growth rate (CAGR) to reach over $250 billion in assets under management (AUM). But this remains a drop in the ocean with capital largely skewed towards large ticket sizes at the expense of small and growing businesses that can also transform an economy.
Amar Inamdar, managing director at KawiSafi Ventures, naming mobile payments company Mpesa as a prime example, says that impact markets represent a “tremendous opportunity to solve problems”. Until there are ventures that offer solutions while making profits will there be light at the end of the tunnel.
“Let’s crowd each other in,” she says. “East Africa is a hotbed of opportunity. Capital will flow… to the highest return and lowest risk and there is a huge opportunity to demonstrate and to lower the risk.”
Susie Kitchens, the British High Commissioner, argues that the Sustainable Development Goals (SDGs) are facing a global annual investment gap of $2.5 trillion per year. “We have a great opportunity to shape the landscape and to drive forward the equitable march of progress to drive prosperity and security. We need bankable, investment-ready projects,” says Kitchens.
It is not the first time that the story of lack of capital is being considered a hot issue. More and more people are now trying to get the message that apart from the mainstream financial institutions, and angel investors, this new financing mechanism called impact investment can also go along way. The tough economic atmosphere has meant that those who have been bitten by the entrepreneurs bug must think pretty fast and take advantage of the fresh funding mechanism.
As always the case, banks look at how the money or loan would be paid up. Here, cash has a cost to it. But with social enterprise, you are required to pitch in order to get funding. Can you do something?
Dr Shannon May, who is the founder of the Bridges Academy, tells of her journey and challenges trying to raise capital. Citing the importance of education funding, Dr May says that impact work must be the thing, and it is all of contributing to solutions. “It is going to be hard to the entrepreneur. You may have to think differently about your customers. What’s your value proposition? It has to be something that you are really interested in, and passionate about.”
Without specific plan, by any nature, things are bound to fail. Probably education, for example, was on Dr May’s portfolio – there are 300 million children in school not reading. So, an investor can mention the number of teachers trained or boxes of books bought. And it should be counter factual. Apart from education, think about impact investment in healthcare. Therefore, it is generally about measuring impact while trying to answer questions like, is your investment better than the alternative? Or, is aid more important than funding high growth businesses?
Social enterprises are now poised to be the option to end what has been a big issue not only in Kenya but also other East African countries. Impact economy is all about balancing purpose and business. However good this might sound, it is different from the mainstream ways of raising money for business growth. No impact investor will come in when it’s just an idea, which is quite different from the Silicon Valley-type view. That’s why it’s your responsibility as an entrepreneur to think outside the box.
“A change in mind set is what is needed at the moment,” says Dr Githinji Gitahi, the global CEO of Amref Health, pointing out that many donors are asking for sustainability and co-creation.