There is no question that early-stage direct impact investing in global contexts can be quite challenging. But from mobile telephony in Kenya to renewable energy in India, it is also clear that the opportunities for innovators to find novel ways to disrupt systems have never been greater, and many Toniic members and others are working to lend a hand as well as dollars to support and nurture these early-stage endeavors with the potential to impact millions of lives.
Know before you go. We developed this set of Regional Guides to give some context to what an investor might want to know before preparing to invest directly (in companies rather than in funds) in one of these six regions: Africa, Asia, Europe/UK, India, Latin America, and the United States. The guides are based on targeted interviews with a handful of intermediaries and investors in each region, and should be viewed as a jumping off point, rather than an exhaustive list of issues.
Cross-cutting themes. Across all developing market regions, there were some cross-cutting themes and thoughts for impact investors:
- Many entrepreneurs in these regions do not consider themselves social or impact entrepreneurs or use the labels; they may be confused as well by the term impact investing.
- There are not enough investment-ready ventures, thus investors need to be flexible about sector and geography as well as the kind of first investments they make.
- There is a dearth of management expertise for these start-ups.
- On-the-ground interaction and communication with the entrepreneurs and management team is crucial to due diligence and monitoring. Many investors have been burned trying to do this work from far away and some local institutions are emerging to help fill this gap.
- The sophistication of entrepreneurs is very low in terms of financing experience and knowledge —for example, hybrid instruments which mix debt and equity are rare outside of developed markets like the US and the U.K.
- The impact investing landscape is still coalescing and as a result there are information and communication gaps between the various existing networks and players; don’t be surprised to find you are making first-time connections on the ground as part of your process.
- The lack of exit opportunities in many developing markets makes it difficult to successfully and profitably exit a venture and move on to another.
Despite these macro factors, many of these regions are experiencing a great deal of interest and support by multilateral development agencies and foundations who are hard at work developing the infrastructure supporting impact investment. Omidyar Network and the Rockefeller Foundation are two significant contributors (see examples of their work in India, Latin America, and globally.) The current trends in impact investing indicate that these markets will surely evolve significantly in the next 5 years as a result.
Our Regional Guides explore investing in 4 developing markets (Asia, India, Latin America, and Sub-Saharan Africa), and for comparison, 2 more mature ones (Europe/UK and the US). Each guide contains:
1. Market Overview. A short description of key factors influencing early-stage direct investment, especially by foreigners
2. Opportunities. A handful of legal, institutional, cultural, or financial trends that create opportunities for early-stage impact investors
3. Challenges. A critical list of things investors should be aware of as they approach investments in this region
4. Investment Profile. A sample story or deal from an impact investor to give context to the opportunities and challenges above
5. Resources. A list of institutions and people, with web links, who can be helpful to investors working in the region.
The field of global seed-stage investing is dynamic. As such, we welcome your comments on these guides, pointers to additional resources, and any investing stories you wish to share with your peers. Comments and suggestions can be sent to firstname.lastname@example.org.