Friday
February 18
2011

Paulo Rocha

Impact Investment Forum Series: The Dilemmas of Inclusive Business Investments

Editor’s Note: The following post was originally published in NextBillion Español, which you may find in Spanish here. NextBillion Español is featuring a series of articles with thoughts on the Latin American Impact Investment Form, which was recently held in Mexico. Today we present the first post by Paulo Rocha of AVINA about the dilemmas of inclusive business investments.

I’d like to share with you some personal impressions of the issue of inclusive business investment derived from my participation in the Latin American Impact Investment Forum, which was held in Mérida, Mexico during the first week in February.

The event drew more than 300 participants from various sectors, including investment fund managers looking beyond economic results to social or environmental results from their projects. Several opinions and thoughts helped me develop three distinct viewpoints about the same topic: the main dilemmas, or, in the language of the market, the risks of inclusive business investments.

At first look, investment in inclusive businesses faces the same risks as investing in a new company with an innovative component: the testing process, the risk of the entrepreneur not having desired business skills, the product not being well received in the market, etc. One of these general risks caught my attention because it is antagonistic to the principle proposed by inclusive businesses.

Venture capital investment in inclusive businesses follows the same rules as the market for normal risk investments. Venture capital funds, seed capital, and Angel investors look for a certain level of security to implement their capital, since the inherent risk of investing in new businesses is automatically integrated into the “package.” With this in mind, one can only hope that in a scenario of sustained and stable economic growth, the funds and resources would proliferate for small and medium-sized companies looking for partners. In this scenario of economic prosperity, one can expect investment portfolios to diversify and the amount of assets invested in risk capital to increase, which favors the growth of investment opportunities in inclusive businesses.

My curiosity lies in what happens in a scenario of economic recession, when investors leave to find safer securities and venture capital funds become scarce. In this scenario, unemployment rises, along with the need for entrepreneurship, and the gap between the rich and poor grows. This is when the social impact of inclusive businesses becomes even more important.

A definitive solution will not be in grants, since this situation would be no different from traditional philanthropy. The budgets for foundations and nonprofit organizations are also reduced in the recession scenario.

I would like to discuss with you, readers, to help me see the issue from another perspective, but truthfully it seems to me that the achievement of social outcomes through market solutions loses potential when there is not a scenario of prolonged economic growth.

Advocates of inclusive businesses, we put hope in that the Euro crisis is not permanent! …

Categories
Entrepreneurship
Tags
AVINA, impact investing, investment fund, New Ventures