By Vivianne Rodrigues
Donors and non-profit groups focusing on Latin America are increasingly targeting the region’s nascent class of entrepreneurs, harnessing the power of market-based mechanisms to maximise their social impact.
This approach, which brings together private sector companies, government agencies and the non-profit network, is emerging in areas as diverse as agriculture, commerce and information technology.
Washington-based TechnoServe is one of the non-profit groups that has been using charitable funding to provide technical and financial support.
It recently launched a programme, called Impulsa Tu Empresa, or Boost Your Business, aimed at helping enterprises in Nicaragua, Honduras, Guatemala and even Burkina Faso.
Supported by the Argidius Foundation, it is targeting businesses with annual sales of between $500,000 and $2m, particularly those that make products with added value, as well as service businesses located primarily in urban areas.
“We seek to help business models that stimulate long-term economic growth. But one of the difficulties is that, when it comes to Latin America, launching a business in Chile is completely different to launching one in Colombia or Guatemala,” says Bruce McNamer, TechnoServe president and CEO.
Mr McNamer says venture-capital models are being adapted in order to facilitate access to funding. Organisations such as TechnoServe, he says, are well positioned to work as a bridge between a wide range of public private-sector partners and local entrepreneurs.
In one example, the group is working with Cargill in Venezuela and Foco Sustentable, an entrepreneur development group, on a business plan competition to help entrepreneurs in the seven regions where Cargill operates. TechnoServe and its local partners work with the potential entrepreneurs to develop effective business plans and Cargill offers them opportunities to participate in its supply chain.
“There’s a legacy in certain groups in the region of distrust towards large corporations and toward the financial markets,” he says.
“But, having a mission-based institution bringing together corporations and other market-based mechanisms in order to service the poor can bring all parties together.”
The concept of impact investing – which assesses the social and environmental impact of investments – is familiar to Endeavor, the New York-based non-profit group which has perfected its own form of “high impact” entrepreneurship through mentoring and development programmes in emerging markets for more than 15 years.
But the group’s own funding models have also evolved.
Earlier this year, it launched Endeavor Catalyst, a passive co-investment vehicle, that has raised $10m in donations and invested $6m in six initiatives in Brazil, Argentina, Mexico and Turkey.
Catalyst considers ventures on the same terms as lead investors would, but it does not take a board seat and it abstains from shareholders’ votes.
When a liquidity event, such as an initial public offering, generates cash returns, 20 per cent is allocated to Endeavor’s growth and sustainability.
The remaining portion replenishes Catalyst, which in turn reinvests in more entrepreneurs.
“Catalyst is an instrument to help us turbocharge our resources,” says Baily Kempner, director of sustainability initiatives at Endeavor Global.
“On one side, it is a vote of confidence in the entrepreneurs, as this passive investment helps them build momentum, while at the same time our other mentoring programmes are helping their companies thrive.
“The donors can see that each dollar goes directly to the entrepreneur and, in time, their money will get back to them in compounded form.”
The system may also be attractive to other non-profit groups, Ms Kempner says, as it may help diminish their dependence on external funding sources, such as donations.
“Many non-profit organisations live hand to mouth based on donations, and that’s a rough way to live,” she says. “If more of them could achieve self-sustainability and raise capital within the very same demographic they are supporting, that would be very exciting.”
The approach is spreading. In Brazil, a survey conducted last year by the Avina Foundation, the Aspen Network of Development Entrepreneurs and Potencia Ventures, with 140 social enterprises, found that more than 60 per cent of them already operated as conventional businesses and did not rely on donations.
Anamaria Schindler in the leadership team for Latin America at Ashoka, says: “We may be on the verge of a change in paradigm, moving further away from a cultural legacy in Latin America that has viewed social welfare and development chiefly as the responsibility of relief organisations rather than private individuals”.