Faheem Noor Ali Consultant, Development Marketplace World Bank Institute [email protected] Supply and Demand of Capital in Social Enterprise (SE) in the East Africa
Jul 13, 2015
Faheem Noor Ali
Consultant, Development Marketplace
World Bank Institute
Supply and Demand of
Capital in Social Enterprise
(SE) in the East Africa
Purpose: Understand the finance gap
between investors and entrepreneurs
-14 investing organizations
(foundations, banks, equity
investors, TA providers) with
activities in East Africa were
interviewed
-Interviews based on 49
question survey conducted by
study lead
-16 social entrepreneurs from
a cross section of sectors
active in East Africa were
interviewed
-Interviews based on 40
question survey conducted by
study lead
Results are based on the best available evidence from
interview subjects and other stakeholders active in East
Africa social enterprise.
All interviews conducted in Nairobi, Kenya between
February and April 2012
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
TA Grants Zero interest loans(including payment
for TA and otherservices)
Debt (including loansfor TA and other
services)
Quaisi equity Equity Other
March-2011 4
Limited funding is available at the early stage…
Seed Early Stage Sustain and early growth
stage Scale
… resulting in a limited amount of
deals clearing the pipeline
Deal
Deal Deal
Deal
70% - 90% are too early stage 10% to 20% don’t have good mgmt or model
5% to 10% don’t reach deal with entrepreneur
1% to 5%
are
invested
Investment Pipeline
Investors are exposed to
hundreds of deals a year
Social impact is secondary to
financial performance
• There is no clear definition of social enterprise – Impact-first and social-first investors investments
have differing priorities
– Many entrepreneurs have difficulty maximizing impact AND profits
• Measuring impact is secondary to finance – While impact standards exist, they are not widely
used
– Investment funders look at financial performance first
Entrepreneurs crave financial access
Access to
Finance
Human Capital
Regulations
Entrepreneurs need early stage
financing to scale. Even when
an investor is on board, getting
timely funding is an issue
Grant capital and non-profits are
taxed in Kenya, squeezing
enterprise margins
Finding leaders that appeal to
investors and staff with
appropriate technical knowledge
is a challenge
Investors must overcome risk
Systematic
Risk
Transaction
Costs
Lack of Mature
Investments
Upcoming elections have investors
weary while unpredictable weather
patterns have investors question
profitability
Lack of social entrepreneur
technical skills and illiquidity of
investment are top investment
risks
The cost of due diligence can
cost 20% of a given deal and
management fees are minimal
over a long period of time
Investors provide capital with return
requirements comparable to the US
Investors Entrepreneurs
Capital provided in forms of
grants, debt (11% to 15% rate),
quasi-equity and equity (IRR
ranging 15% to 45%)
Investors receive board seats,
non-dilution clauses, approval
on major expenses for equity,
debt with equity on upside
Governments
Donors/ NGOs
High Net Worth
Individuals
Revenues
Savings
Friends and
Family
Perceptions of investment risk is the
core of the financing gap
• Investors and Entrepreneurs agree that
revenue and cash flow are good financial
metrics
• However there is disagreement…..
– Entrepreneurs complain that investors don’t
understand time sensitivity of cash flow
– Investors don’t agree that social enterprises are
less risky than similar commercial investments
Interventions may help increase deal
flow
Strengthen
Entrepreneurs
Technical
Assistance
Capital
Guarantees
Capital
Coordination
Investors: 75% of
their portfolio would
be more profitable
with technical
assistance
Action Instrument
Mitigate
Investor Risk
DFIs and Banks can
provide guarantees
so that investors
share risk
Different investors
deploy capital at
different times, but
share diligence costs
Encouraging developments may help
social enterprise
Crowdfunding grants and
debt has developed already
and new US legislation will
allow for equity crowdfunding
Kenya’s Vision 2030 looks for
economic growth starting
with the BoP while faith
groups are effective in
deploying good and services
to Kenya’s poor
Kenya is growing…
World Bank: Kenya could attain middle income status by
2019 if it maintains average GDP growth of 6% per year
East Africa Social Enterprise was
borne out of microfinance
Social enterprise is an evolution of micro-finance in East Africa, where it was
a hotbed of activity for several years, largely
supported by non-government organizations (NGOs) and development finance institutions (DFIs).
When donor funding for micro-finance started to dwindle in the late 90s,
“these organizations came under pressure to find
creative ways of sustaining themselves by finding alternative sources of funding”. (Allavida)
Responding to a need to be financially
sustainable yet stay on mission, these
organizations started to search for new sources
of capital.
1980s to late 1990s Early 2000s Late 1990s
Missing Middle
• The missing middle refers to those enterprises that
seek capital between $25,000 and $2M in order to
achieve growth, but cannot find investors. These
companies include small and medium enterprises
(SMEs)
• In high-income countries, SMEs are responsible for
over 50% of GDP and over 60% of employment, but
in low-income countries they are less than half of
that: 30% of employment and 17% of GDP .
“Too large to access microcredit and too small and risky for traditional bank loans…. These entrepreneurs
are caught in the “missing middle,” often sinking all of their assets into business ventures, only to find their
contributions unmatched and their potential unmet”
- Rockefeller Foundation Annual Report, 2009
There is no clear definition of Social
Enterprise
A Social Enterprise must have impact over 1000 people by direct income or cost saving and the business that provide econ activity through earned income or cost savings
- Investor
Companies with the right product and right attitude will have an impact - Investor
One that creates jobs and enables people to feed their families - Entrepreneur
Building a market based approach, but driven by a social impact - Entrepreneur
“How do you define Social Enterprise?”
Social Enterprise are active in BoP
sectors
Many agriculture
and health
enterprises are
considered
social
enterprises by
virtue of working
in rural areas,
where the
majority of
people are poor
Where Investors are active
Where Entrepreneurs
focus
Farming and Agriculture 11 4
Access to financial services 7
Energy solutions to the poor 7 1
Health solutions to the poor 5 6
Jobs and Employment 5 1
Housing 4
Tourism 4
Education 3 1
Technology 3
Other 3
Transportation 1 1
Majority of Kenya’s poor live in Rural
Areas
40.5 M • Population of Kenya
31.5 M • Rural
Population of Kenya
15.5 M • Number of
Rural Poor in Kenya
45.9% of Kenyans live below the national poverty line and the
lowest 20% of Kenyans share 4.8% of the national
income
Social Enterprise plays a role in the
Kenyan Economy
By combining the business-like ideals and
approaches with their relentless quest to radically
improve the livelihoods of their people in a
sustainable manner, social entrepreneurs have
become a force to reckon with and have truly
claimed their rightful nice in the development arena.
They have become the so called “Third Pillar” in the
development discourse and practice, and I would
like to take this opportunity to recognize and
underscore their critical role in solving the social and
economic problems we face in our countries today
- Finance Minister Kenyatta 2009
Grants and Debt have clean exits…
Capital Type Perspective Advantage Disadvantage
Grants
Entrepreneur
"Free money” not requiring financial return
Application process is cumbersome
Can be used to build capacity
Grants can be restrictive
Non-renewable
Investor
Least amount of financial risk
Lack of financial accountability No budget to verify results
Debt
Entrepreneur
Can apply to working capital Rates can be high
Does not result in loss of company control
Some require collateral
Investor
Increases accountability Can not influence business
Structured exit Sometimes no collateral
… while quasi-equity and equity
reflect partnership Capital Type Perspective Advantage Disadvantage
Quasi Equity Entrepreneur
Can apply to working capital Lose control if do well
Lower rate than traditional debt
Delay due to some due dilliegence
Investor Limit risk while still getting upside Lower interest rate
Equity
Entrepreneur
Engaged partner in the business Negotiating valuation
Can use for working capital and scale Have to give up control of the
company
Equity attracts more equity Takes a long time to get equity investment
Requires audited financials
Investor
Can control company Very high risk
Higher return if done well
Investment Committee is often not in country and they are tough to convince
There is no capital structure standard
• The supply and demand for different types of
capital vary
– Industry: Tech companies, for example, do not
have collateral and do not appeal to debt
investors
– Mission: Some organizations can only be
sustained through grant capital throughout their
life cycle
Attitudes toward equity differ among
entrepreneurs and investors….
Investors see equity
investments as
“growing the pie”…..
… while some
entrepreneurs see
equity “as eating at
their pie”
Investors give equity
to let the company
grow…..
…but entrepreneurs
can’t wait for the
standard 6-9 months
to get it
VS
VS
...yet there is no clear consensus on
the role of debt
• Some social entrepreneurs feel that debt and quasi-
equity investments do not reflect commitment to the
company since the investor takes less risk than the
entrepreneur
• Other social entrepreneurs prefer debt because it is
quicker and let’s them retain control of the company
Entrepreneurs identify as Social
Enterprises….
9
1
6
0
0 2 4 6 8 10
I am socialentrepreneur
I am an entrepreneur
Both a and b
None of the above
Entrepreneur: How do you identify yourself?
KSIX Study Sample
Non Profit
Impact first SE
Finance first SE
…and largely serve the poor
2
3
4
2
4
0
0
1
0
5
3
0
5
4
0
0
0 1 2 3 4 5 6
___% of my customers earn less the US$2/day
___% of my customers earn more thanUS$2/day but are still considered poor
___% of my customers are consideredmiddle class
___% of my customers are considered upperclass families
Entrepreneurs: What % of your customers fit the following description?
75-100
50-75
26-50
0-25
SEs are well educated but not from
community
0
2
4
6
8
10
12
14
From thecommunity, buthave workedabroad andcome back
From thecommunity and
have beenraised here
Not originallyfrom the
community
Not important
SE connection to community
Investor Preference Entrepreneur Actual
0
2
4
6
8
10
12SE Education
Investor Preference Entrepreneur Actual
Entrepreneurs exceed the experience
expectation of investors
0
1
2
3
4
5
6
7
8
9
10
Worked inthe samesector but
commercially
Worked in adifferent
sector, butcommercially
Worked insocial
enterprise inthe same
sector
Worked insocial
enterprise ina different
sector
Notimportant
Professional Background
Investor Preference Entrepreneur Actual
0
1
2
3
4
5
6
7
8
9
0-2 years 2-5 years 5+ years Notimportant
Time in Existence
Investor Preference Entrepreneur Actual
Entrepreneurs have larger
management teams than expected…
1
8
3
0
1
0
4
8
2
1
0 2 4 6 8 10
Just the entrepreneur
1-3 people
3-5 people
5 -7 people
7 + people
How many people should be on the management team?
Entrepreneurs Investors
13
11
9
3
3
1
16
14
15
3
1
9
0 5 10 15 20
CEO
CFO/ Financial lead
COO/ Operations Lead
Community EngagementLeader
Purchasing andProcurement Leader
Other
Ideal Management Team
Entrepreneur Response Investor Response
…and have a variety of directors
4
3
3
1
2
1
6
7
0 1 2 3 4 5 6 7 8
not important
At least 1-3 people
At least 3-5 people
At least 5+ people
Number of people on Board of Directors
Entrepreneurs Investor
Entrepreneurs have savings and
portfolio companies have profits
1
0
1
3
0
0
0
1
2
2
1
1
3
4
3
2
0 1 2 3 4 5
Consistently positive cashflow
Revenues are generallyhigher than my costs
Accounts receivable arehigher than accounts payable
Have enough cash savingsto sustain themselves for 3
months
Investor: What proportion of your portfolio find the following
statements true?
75-100 50-75 26-50 0-25
4
5
6
10
6
5
5
2
0 2 4 6 8 10 12 14
I have a consistentlypositive cash flow
My revenues aregenerally higher than my
costs
Accounts recievable arehigher than accounts
payable
I have enough cashsavings to sustain myself
for 3 months
Entrepreneur: Assess the following statements on your
financial viability
Yes No
Access to Finance is the primary
challenge facing entrepreneurs
15
6
13
1
0 5 10 15 20
Funding only
Business Training
Access to other funders
Other
What sort of support do entrepreneurs need from
investors?
A majority of start up funding comes
from grants, donors and friends, but
this is not sustainable and often
inadequate
KSIX: Only 25% of enterprises are
able to finance operations through
earned income
Most businesses start with own
money
13
11
5
7
4
11
5
1
11
8
4
12
1
8
2
1
0 2 4 6 8 10 12 14
Put their own money in or money raised throughpersonal networks (family, friends)
Money from business activities
Received a grant from the domestic government,local foundations or company
Received a grant from a foreign government,international foundations or global company
Received financial investment from the communityaffected (not inclusive of revenue)
Taken loans and other sort of debt
Through partners or organizations that have givenme money in exchange for ownership (equity)
Other
Investors: How did entrepreneurs fund their business? Entrepreneurs: How did you fund your business?
Entrepreneur Investors
Entrepreneurs need to get timely
funding and manage inputs…
3
0
5
0
3
4
0
1
4
4
2
2
6
2
7
3
1
0
3
3
4
4
4
1
1
3
0
3
3
0
1
2
2
7
4
0
1
6
3
2
3
1
4
4
1
0 2 4 6 8 10 12 14 16
Government regulations
Taxes and payment to government
Timely cash flow from investors
Managing materials needed for production
Managing and retaining employees and leadership team
Getting timely funding to meet costs
Meeting funding requirements of investors
Measuring Impact
Others
Entrepreneurs: What are the biggest challenges you face with your business?
5= very significant 1= Not signicant
….and investors recognize these
challenges
1
2
3
4
2
2
2
1
2
1
0
3
1
5
4
4
5
1
3
1
1
1
2
0
1
1
3
1
3
4
3
3
0
2
3
2
0
1
0
2
1
2
1
0
4
4
1
1
0
1
2
1
3
3
0
0 2 4 6 8 10 12 14
Government regulations
Taxes and payment to government
Timely cash flow from investors
Managing materials needed for production
Managing and retaining employees and leadership…
Getting timely funding to meet costs
Meeting financial return requirements of investors
Meeting financial covenant requirements of investors
Measuring Impact
Understanding the Market
Others
Investors: What are the biggest challenges that SE face in running their business?
5=very significant 1= Not Significant
The Regulatory Environment can also
be a challenge to Entrepreneurs
• Governments do not grant preferential tax
status to social entrepreneurs
– Grants in Kenya are taxable
– World Bank: Entrepreneurs spend an average of
6 times per year with tax officials
– Former Development Marketplace social
entrepreneur: Government would not let him
register as a non-profit because he was
generating an income
Entrepreneurs are constrained by
licenses
• License application and fees
can be cumbersome and
costly
– Dairy farmers in Tanzania
must have 5-7 licenses to get
dairy to market
– KSIX: 61.5% of organizations
are registered as “self help
groups” because of the
relative ease of registration
“Registering as a
branch of a foreign
company or Kenyan
subsidiary company
is expensive. Expect
to pay upwards of
US$8,000 in order to
cover everything
from incorporation /
compliance
formalities to
obtaining work
visas”.
- KopoKopo.com
Staffing acquisition is a tough
• Most social entrepreneurs interviewed cite
finding good talent is a challenge
– Difficultly to entice talent to work for relatively
small pay and less job security
– Talent often needs specialized skills on
operations and local population
Once talent is found, there is relatively less
difficulty in retaining them
Most Investors do not want to make
early stage investments, regardless of
social mission
0 2 4 6 8 10 12
The companies were too earlystage for investment
We had did not have confidence inthe management team ability tofinancially sustain the business
We did not have confidence in theintegrity of the entrepreneur
We did not believe that there wasa viable market for the
entrepreneurs idea
What were the reasons that you did NOT pursue deals that were in your
pipeline?
Finance first 38%
Social first 54%
Other _ 8%
How would describe your investment mission?
Some investors provide a mixture of
grants, debt and equity
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Grants Zero interest loans(including payment forTA and other services)
Debt (including loansfor TA and other
services)
Quaisi equity Equity Other
What sort of financing do you provide?
Investors do not make high margins
On a $1M deal, a 3% fee is only
$30,000 over the lifetime of the investment
4
6
2
1
0 0
What is the management fee of the fund?
No management fee
1%- 3%
3% - 5%
5% - 7%
7% - 10%
Over 10%
Domestic events in Kenya determine
investor confidence
• Investors are concerned about post-election
violence in 2013
– 2008 post election violence displaced workers,
destroyed inventory and supply chains
– Experts anticipate an increase in investment
activity following peaceful elections
• Investors have less risky alternatives
– At prevailing interest rates, investors seek high
returns on investment to put their money at risk
Kenya is sensitive to externalities
• Kenyan growth is linked to Eurozone crises – Kenya’s main exports are dependent on
European markets
– Kenya will be among the African countries to lose $10B in investment if Eurozone breaks
• Weather and supply chain changes play a role – Dairy productivity and crop yields are subject to
the amount of rainfall in a given year
– Health investments are subject to the actions of insurers, governments and new technology
FDI in Kenya responds to shocks
$-
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
$700.00
$800.00
2005 2006 2007 2008 2009 2010 2011 (est) 2012 (est)
FDI in BoP (net, $US Millions)
GDP
Growth
Election
Violence
Euro
Crisis
Entrepreneurs and Investors agree on
risk factors
2
3
1
4
2
1
1
0
4
5
2
5
5
4
2
0
1
3
3
2
3
3
3
0
2
1
1
2
1
2
0
0
2
0
3
1
0
0
0
0
0 2 4 6 8 10 12 14 16
Governance structure of SE
Liquidity of investment
Regulatory environment affecting socialenterprises
Technical skills of social entrepreneur
Ability of SE to get follow on financing
Systematic risk/ country risk
General risk factors to my sector
other
5= very significant 1= Not signicant
2
4
3
7
3
6
5
Number of
Investors citing
risk factors
Entrepreneurs: How important are the following risk
factors that investors may consider before investing in
your business
Investors would like to see more
mature companies
3
11
1
0
0
0 2 4 6 8 10 12
Excellent
Good
Fair
Poor
No Understanding
Entrepreneurs: How would you judge your
understanding on how to prepare financial statements
for investors?
5
1
2
3
3
1
3
4
2
0
0
1
0
0
0
0
0
0
1
0
0 1 2 3 4 5 6
Excellent
Good
Fair
Poor
Not submitted
Investors: What percentage of your portfolio prepare financial statements at the given rating?
75-100 50-75 26-50 0-25
Five investors
said that less
than 25% of
their portfolio
give excellent
statements
Investors look to be the first to
invest…
• Investors look to protect their right to invest
in companies by exercising exclusivity
agreements and not sharing information
– These investments can be DEBT because it
gives a structured exit and may require collateral
– Industries that do not have collateral, such as
tech, often will only attract EQUITY investments,
but valuation disagreements are not uncommon
… but would like investment partners
• Investors would also like to mitigate
investment risk by following other investors
or co-investing
– In this case, EQUITY investment can be used as
there are others to share the risk
– Equity investments often seek board seats and
technical assistance provisions
– In these cases a valuation is already in place and
due diligence performed
Angel Investing is not prevalent
– Angel investing are largely a
consortium of passive
investors
– Currently unregulated and
lacks frameworks
– Angel investors are more likely
to invest in early stage
companies
– Entrepreneurs like angel
investors because of their
hands off management style
The need for a good evaluation is
important…
• Investors need to ensure risk protection – Financial requirements of investment and patient
capital require investor confidence that SE will reach financial and social objectives
• Due diligence (DD) is deeper when there is more risk – “Harder” investments such as equity require
deeper DD and will take longer
– DD involves financial evaluation, market assessment and legal
… however the cost of due diligence
is significant
$15,000 to
$20,0000
10% to 20%
Cost of performing due
diligence inclusive of staff time,
travel, legal evaluation and cost
of experts
Portion of a transaction
committed to due diligence
Represents
This is too costly for Investors
Revenue projections, Market
projections and Management Team
are all important in DD
10
9
5
6
8
8
10
5
5
8
8
0
15
8
4
10
7
10
14
8
8
11
15
1
0 2 4 6 8 10 12 14 16
Revenue
Debt to equity ratio
Inventory
Accounts Receivable and Payable
Liquidity
Solvency
Evaluation of Management Team
Evaluation of production process
Company Philosophy
Overhead costs
Market evaluation and Projections
Others (please list)
Financial metrics submitted/ sought in due dillegence
Entrepreneurs Investors
Entrepreneurs feel that that investors
don’t understand challenges facing
SEs
9
2
4
0
3
4
4
5
0 1 2 3 4 5 6 7 8 9 10
Investors have a good understand of the challengesthat they face through some of our previous
investment activities
Investors understand the challenges that they face,but do not have experience in addressing them
Investors are familiar with the challenges that theyface
Unfamiliar with the problems and how to addressthem
How well do investors know the challenges that SEs face in East Africa
Entrepreneur Response Investor Response
But entrepreneurs don’t feel investors
understand timely cash flow issues
1
1
3
0
3
3
4
3
1
1
2
4
3
3
0
1
2
1
4
3
1
2
2
4
4
1
5
3
1
0
2
0
0
1
3
2
0
0
1
1
2
3
0
1
1
0 2 4 6 8 10 12
Government regulations
Taxes and payment to government
Timely cash flow from investors
Managing materials needed for production
Managing and retaining employees and leadership team
Getting timely funding to meet costs
Meeting financial return requirements of investors
Meeting financial covenant requirements of investors
Measuring Impact
Entrepreneurs: Rate the investor understanding of the following issues
5= good understanding 1= No understanding
Entrepreneurs and Investors don’t
agree on financial risk
3
3
3
3
4
2
0
5
4
3
1
6
2
1
0 1 2 3 4 5 6 7
Profitability
sources of financing
cash flow
management and…
customers
accounts receivable
other
What are special risks that investor consider when
investing in SE?
Entrepreneur Response Investor response
4
0
3
4
6
3
0 1 2 3 4 5 6 7
higher risk investment thana similar commercial
investment
lower risk investment thana similar commercial
investment
about the same
Are Social Enterprises financially riskier?
Entrepreneur Response Investor response
There is agreement on financial
benchmarks
6
2
0
4
4
3
1
6
5
4
5
9
4
0
1
3
2
2
0
1
0
0
1
2
2
1
2
0
1
0
0
0
1
1
0
0 2 4 6 8 10 12 14 16
Cash flow
Cash on hand
Value of assets
Profitability
Revenue growth
Cost Reduction
Others
Entrepreneurs: What benchmarks are most indicative
of a SEs financial health?
Very Important Somewhat Important Not important
10
2
5
9
8
3
1
0 2 4 6 8 10 12
Cash flow
Cash on hand
Value of assets
Profitability
Revenue growth
Cost Reduction
Others
Investors: What are the most important indicators for
financial health
Social metrics are important, but
secondary to financial
3
4
3
0
0 1 2 3 4 5
Of greater interest thanfinancial metrics
Of equal interest tofinancial metrics
Of lesser interest tofinancial metrics
No interest at all
Entrepreneurs: What is the level of interest among your funders in
impact metrics (relative to financial metrics)?
1
6
3
0
0 1 2 3 4 5 6 7
Of greater interest thanfinancial metrics
Of equal interest tofinancial metrics
Of lesser interest tofinancial metrics
No interest at all
Investors: What is your interest in collecting social metrics
(relative to financial metrics)?
Job creation alone is a social
enterprise
4
9
5
11
0 2 4 6 8 10 12
Yes
No
Should an enterprise that creates jobs only be considered a SE?
Entrepreneur Investor
Social measurement is informal
2
0
5
3
4
7
5
0
0 1 2 3 4 5 6 7 8
Surveys
Word of mouth
tracking improvement overbaseline measures
Other
How are social impact measurements being tracked?
Entrepreneur Response Investor Response
6
2
5
0
2
7
4
2
0 1 2 3 4 5 6 7 8
Investor provides metricsto entrepreneur
Entrepreneur providesmetrics to investor
Investor and Entrepreneurcollaborate
Other
How are impact metrics developed?
Entrepreneur Investor
While there is an agreement on social
impact, financial metrics preside
7
0
1
10
0
1
0 5 10 15
Higher than a similarcommercial investment
Lower than a similarcommercial investment
About the same
How do the social benefits and social returns of a SE compare to similar commercial investments?
Entrepreneur Response Investor Response
Social and
environmental risks
are externalities that
need to be managed
or pre-empted. It
does not factor
heavily into the
investment decision
Technical Assistance would help
entrepreneurs become more
profitable….
Yes, 9
No, 7
Do you feel that a facility that would allow you to build business skills/
technical knowledge would make you a more profitable
enterprise?
Most investors felt that
more than 75% of their
portfolio would be
more profitable with
technical assistance
….but less helpful to get more
investors
7
4
4
0 1 2 3 4 5 6 7 8
Yes, I think that the trainingwould be helpful in attracting
and retaining funding
No, I feel that I have enoughbusiness training already
No, I don’t think that business training will make a difference
Entrepreneurs: Do you feel that if you had more technical business
training, you would get more funding opportunities from investors?
Investors feel that
no more than 50%
of their portfolio will
get access to more
funders through
technical
assistance
Risk Mitigation will increase deal flow
• Facilities that perform due diligence on behalf
of investors will mitigate transaction costs
• Debt and equity guarantees will allow investors
to deploy capital at less risk
• Developing investment communities, such as
angel networks, will help investors share risks
and coordinate investments
– Aligning with investors that provide different forms
of capital can provide viable social enterprises with
a continuous capital flow that will not disrupt its
growth.
Crowdfunding is a new method to
raising capital
• Organizations have been active in raising capital – Kiva has arranged for
$250M in MFI loans
– Kickstarter attracts $2M in pledges a week
• The USA JOBS act will allow for crowdfunding equity to investments
Emerging trends in Kenya will help
the BoP
• Kenya looking to become a middle income
country
– Vision 2030 is an economic blueprint to grow the
Kenyan economy
– Commitment to farmers and infrastructure
development pave the way for increase SE
activity
• Faith based organizations are effective in
reach BoP and making profits
– The National Council of Churches has a network
of 27 churches and dispersed over 4 billion
shillings to 700,000 client in microfinance
Other areas to research
Social
Investor Funders
Social
Entrepreneur Customer
Understand the influence
of investors in social
investment funds and
implication on social
impact
Impact assessment of
social entrepreneurs on
the customers and
consumers
Comparative study on the
supply and demand of
capital in social enterprise
in a mature social
enterprise market, like
India
Study Methodology
• Interviews were conducted with social
entrepreneurs, social investors and social
entrepreneurship experts between February
and April 2012 in Nairobi, Kenya and over
the phone
• Interview subjects were sourced through on-
the-ground research and through existing
Development Marketplace networks
Interviewing Investors
• 14 social investors were given a 49 question
survey and interviewed directly by study lead
– Investors included foundations, NGOs, debt
investors and equity investors
– Investors were largely based in Kenya, yet had a
few investments in the East Africa community
Interviewing Entrepreneurs
• 16 social entrepreneurs were given a 40
question survey and interviewed directly by
study lead
– Entrepreneurs were a mix of pre-finance and
post-finance, but all had interacted with investors
– Most entrepreneurs were operating in Kenya,
though some had scaled to the region
KSIX Study
• Study results include results from
KSIX “Social Investment in Kenya”
study
– Allavida Kenya study purpose to set up
Kenya Social Stock Exchange (KSIX)
– Study interviewed 40 investors and
philanthropies and 39 social purpose
enterprises
– Study interviewed candidates outsideof
Nairobi in local languages
– Study is cited throughout report
Reporting
• Study results are a combination of
– Survey responses
– Free form comments during interviews
• Necessary to explore issues not addressed in survey
– Literature reviews
– KSIX results
– Comments from consultants and advisory firms in
social enterprise space
Study challenges
• Survey fatigue – As a result of a number of other organizations having
interviewed investors and entrepreneurs on similar subject matter, investors were hesitant to participate and provide references to their portfolio companies
• Securing a variety of subjects – Interview subjects were largely secured by word of
mouth reference, which resulted in a bias toward Western raised and educated entrepreneurs operating in Kenya