SGB Sector Overview ANDE Orientation Training * June 2013

Transcription

1 SGB Sector Overview ANDE Orientation Training * June

2 Overview Defining the SGB Sector The (Potential) Impact of the SGB Sector The State of the SGB Sector 2

3 Guiding Thought Only by letting millions of entrepreneurs try new ideas, to innovate, to create businesses that put those ideas to work in a competitive and open way, only by doing those things are we going to be able to tackle the world s big problems. - Angel Cabrera, Chair, World Economic Forum Council on Entrepreneurship 3

4 What are SGBs? SGB SGB SGB SGB SGB SGB Small and growing businesses (SGBs) are commercially viable businesses, typically from 5 to 250 employees, that have strong potential for growth -- and thus for creating economic, social and environmental benefits

5 Financial Flow Schematic of SGB Sector Private Equity Traditional private equity provider Medium businesses Commercial investment Capital only provider $2m SGB Sector Blended capital investment Social impact investment Capital and capacity building provider Small and growing businesses Grants for capacity building Capacity building only provider $25k Microfinance Microfinance Provider Livelihood Businesses 5

6 Growth in SGB Funds 45 Number of Funds by Vintage Year Source: ImpactBase and ANDE Member Survey, N=237 6

7 Millions USD Total SGB Fund Fundraising to Date $700 Total Committed Capital by Vintage Year $600 $500 $400 $300 $200 $100 $ Source: ImpactBase and ANDE Member Survey, N=237 7

8 Comparing SGB Investment to Private Equity and Microfinance Target Investment Size $2m $1m $20k Invested SGB 2012: Capital Invested by SGB Capital Funds $230m $450m Microfinance gross loan Portfolio, 2011: $91B Emerging Market Private Equity Committed Capital 2012: $23.7b $30bn $60bn $90 bn 2012 Investment Source: EMPEA, Mix Market, ImpactBase, ANDE Analysis N for SGB Funds =33 8

9 1% of Emerging Market Private Equity Fundraising USD Billions Fundraising $60.0 $40.0 $20.0 $0.0 Emerging Market Private Equity $40.3 SGB Investing $0.4 *$ billions 9

10 What makes this Investment sector unique? Need: Growth Finance Small and Growing Businesses Risk Market Offer: failures Financial and social returns 10 10

11 Sector Challenges: From an Investor Perspective Raising Capital Exit Finding Investible Businesses Achieving and Measuring Impact Doing Deals 11

12 Sector Challenges: Raising Investment Capital Exit Raising Capital Finding Investible Businesses Issues: Lack of track record by SGB-focused funds Quantity of capital available Achieving and Measuring Impact Doing Deals Limited number of potential limited partners/funding sources Responses: Increased interest and action by development financial institutions Slow entry by more commercial/institutional investors Emerging links to and opportunities for retail investors 12

13 Sector Challenges: Finding Investible Businesses Exit Raising Capital Finding Investible Businesses Issues: A lack of investment-ready SGBs Finding the quality SGBs that do exist Achieving and Measuring Impact Doing Deals Responses: Increased recognition by funders of the need to link capacity development and investment New and expanding capacity development providers Multiple marketplaces and exchanges have launched 13

14 Sector Challenges: Doing Deals Raising Capital Issues: Finding and maintaining skilled local investment professionals Exit Achieving and Measuring Impact Doing Deals Finding Investible Businesses Cost of due diligence Little access to local capital partners; early stage funders for SGBs Deal structuring Responses: Expanding academic and fellowship programs; ANDE investment manager training and salary survey Emerging initiatives aimed at supporting shared due diligence More MFIs looking up; More commercial banks looking down; networks forming Financial Innovation the good kind 14

15 Sector Challenges: Achieving and Measuring Returns Raising Capital Issues: Cost/challenge of providing ongoing support to firms Exit Achieving and Measuring Impact Doing Deals Finding Investible Businesses Understanding true cost structure of impact investing funds Assessing and comparing financial and social impact Real outcomes data (not just outputs) Responses: Recognition, but still insufficient funding of CD New studies on fund economics in impact investing IRIS, GIIRS, ANDE Research significant progress in driving standards 15

16 Sector Challenges: Exits Exit Raising Capital Finding Investible Businesses Issues: Few local stock markets in emerging markets; small local business sector to support acquisitions Lack of international exchanges Achieving and Measuring Impact Doing Deals Need more success stories Responses: Expansion of quasi-equity/royalty-based finance; dreams of permanent capital vehicles and exit facilities New (social) stock exchanges emerging in multiple countries On the way?!? 16

17 The Need for Financial Innovation for SGBs If there is one bit of finance where people agree on the need for more innovation, it is in lending to small business. Policymakers are desperate to get more credit flowing to this vital engine of economic growth. The Economist Special Report on Financial Innovation Print Edition, February 25 th,

18 Thank You! ANDE Orientation Training May 2013