NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

How far has impact investing come in Latin America, and what steps need to be taken to unleash the potential of business to address social and environmental problems in the region? These are the questions that more than 300 leaders in the impact investing field came together to address in Merida, Mexico at last week’s Foro Latinoamericano de Inversion de Impacto (Latin American Impact Investing Forum), hosted by New Ventures Mexico. A sense of belief in the ability of entrepreneurs to address these problems, and a conviction that there is capital available to support these entrepreneurs, ran through the forum crowd. However, if there is capital available, and there are a growing number of entrepreneurs creating business models that have positive environmental and social impacts, why isn’t the sector moving forward at a faster rate and why aren’t more deals being made?

Starting with the forum’s opening remarks, and carrying throughout the conversations that ensued was the investor perspective that deal-flow pipeline of investment-ready impact businesses remains undeveloped. Eliza Erickson, now at Omidyar Network, remarked that in her previous role at Calvert Fund/Foundation she had to tell her colleagues not to begin raising billions of dollars to place into impact investing. “The problem is not capital,” she said. “The problem right now is where are we going to put capital?”

There was agreement across the various panels and workshops of the forum that local business accelerators need to continue addressing the issue of pipeline by finding and developing impact entrepreneurs. For impact investing to reach its full potential as a sector, and for capital to truly begin to flow, entrepreneurs must be able to build businesses that can succeed and that are ready to receive investment. The business skills needed by entrepreneurs to reach this point can be provided through acceleration programs. Accelerators can also assist investors by looking outside the box to identify the most game-changing companies, because they do not carry the risk of losing investment dollars when they choose to work with companies.

The role of a thriving ecosystem of support for entrepreneurship also consistently arose as a prerequisite for the growth of impact investing. Kelly Michel, of Potencia Ventures, referred to a strongly developed local ecosystem as a “cluster.” She pointed to Silicon Valley as the most famous example of a successful entrepreneurship cluster, and as something that must be aspired to and replicated in areas throughout Latin America for impact entrepreneurs. Jenny Everett, of the Aspen Network for Development Entrepreneurs (ANDE), echoed this belief in the need for clusters, and spoke about an idea that came from recent ANDE Executive Committee meeting: to pump money and resources into, or to “blitz” one geographical area to deeply support the creation of a strong ecosystem. This area would then serve as a test model to demonstrate the necessary elements of a developed impact investing ecosystem.

Speakers at the forum also drew links between the role of accelerators and the need for ecosystems, outlining a role for accelerators to move beyond merely incubating entrepreneurs and into developing local ecosystems that support entrepreneurs on many levels. “Accelerators are under a lot of pressure, and their models are sometimes at jeopardy. However, they play an important role in convening investors, and that is where the ability to build an ecosystem will come from,” said Mark Beam, of Halloran Philanthropies during a panel entitled ‘Layer Cake Investing: How can different types of investors fit together to co-invest?’ “Investors need to support accelerators,” he concluded.

There was broad agreement from conference attendees about the importance of accelerators and the role they must play. But how best does a local accelerator go about building an ecosystem of support for entrepreneurs who are working with new products and services in expanding but risky markets? What do entrepreneurs really need in order succeed, and to create viable companies that provide investors with deals strong enough raise and deploy capital for impact investing?

As Marcela Zingerevitz, of Pragma Patrimonio, pointed out in a panel on Deal Structuring Challenges, companies put value on access to a network, and need strategic partnerships more than anything else because their business models and operations are still being developed. The core of a successful entrepreneurship ecosystem is a community – one that builds links between entrepreneurs and service providers, investors, human capital, governments, and the value chain. Accelerators must play a convening role, pulling together these diverse elements to ensure that impact entrepreneurs have the greatest chances of success, and that investors feel confident in the enabling environment surrounding these entrepreneurs. With these necessary elements in place across Latin America, perhaps investors will feel confident enough to begin raising those billions of dollars for impact companies.