Supply- Demand of Capital in SE- East Africa (sanitaized)

Faheem Noor Ali

Consultant, Development Marketplace

World Bank Institute

[email protected]

Supply and Demand of

Capital in Social Enterprise

(SE) in the East Africa

Executive Summary

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

Kenyan Marketplace

Kenya is growing…

World Bank: Kenya could attain middle income status by

2019 if it maintains average GDP growth of 6% per year

…. but traditional sources of financing

are costly

Lending rates were at

26% in March 2012

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

Defining Social Enterprise

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

Capital Structures

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

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


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


0

1

2

3

4

5

6

7

8

9

0-2 years 2-5 years 5+ years Notimportant

Time in Existence


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

Challenges facing Entrepreneurs

Entrepreneurs face challenges to

scale

Barriers

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





Managing and retaining employees and leadership…


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

Investors

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%

Challenges facing Investors

Investors must address risks when

investing

Risks

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

Investors and Entrepreneurs Diverge

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


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





Managing and retaining employees and leadership team


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

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?


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?


Social and

environmental risks

are externalities that

need to be managed

or pre-empted. It

does not factor

heavily into the

investment decision

Suggested Interventions

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.

Emerging Opportunities

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

Next Steps/ Follow Up

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 and Resources

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

Investors Interviewed

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

Entrepreneurs Interviewed

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

Thank you

Supply- Demand of Capital in SE- East Africa (sanitaized)

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