- Reaching rural areas – the base of the pyramid – is risky. Grant capital can help.
- Some risk capital is needed to try unproven technologies.
- As a business grows, the initial funders need to speak to each other and perhaps pass the business on to another type of funder.
- Impact finance: Funders need to look at the results that have been achieved, and get involved
There is a big funding gap between the private sector’s ingenuity and resources needed to reach the Sustainable Development Goals. The discussion looked at what can be done to improve the chances of growth for small businesses in developing countries.
The example of LifeBank was explained to show how unexpected financing arrangements can be supportive. LifeBank is a small technology and logistics business that helps ensure health teams have access to an inventory of information from blood banks, which is vital in dealing with postnatal haemorrhaging. It also offers a call centre and delivers blood provided by donors.
LifeBank has three core markets. It cross-subsidises its secondary market (for people with some income but unable to pay in full for services) with income from its premium market (for people who have a lot of money). The third market is the base of the pyramid, where people do not have the money to pay. Grant capital can help ensure that these people are reached by paying for the services on their behalf.
Grant capital is useful for a business to test, for example, a new product or technology or test its entry into a new market. LifeBank has received grants to partner with aviation company to use drones to deliver specific health-related products to remote areas. A key takeaway here is that grant capital can be very useful where businesses are trying out unproven technologies and when the business model is not clear.
Generous capital support is usually needed at the early seed stage of a small business. But when a company graduates from the start-up phase, it often cannot raise the funds from the private or public sector to grow further. This is the ‘missing middle’ and is a point where many business fail. There are business accelerator companies that can help these companies. But as a business grows, these different funders generally do not speak to each other and pass the business onto another type of funder. One speaker recommended doing this.
Impact finance is a form of funding that allows banks and other financial institutions to invest in projects that generate measurable social and environmental impact as well as a financial return. One speaker noted that people were sitting on the fence regarding impact finance and stressed that there is a proof of concept and funders need to look at the good results that have been achieved from it and get involved. There is an online platform, Impact Finance, which brings together the best entrepreneurs to showcase them to investors.
There are high costs for potential investors of carrying out due diligence checks in terms of employee and management time. One speaker suggested that building a repository of previous due diligence reports could save time and money.