After six months of cultivating EWB Canada’s East Africa venture portfolio, and engaging with upwards of 100 social entrepreneurs in Uganda and Kenya, I have come to realize that investors can do better to nurture emerging innovators, to strengthen their capabilities and reduce their risk profile.
EWB Canada is one of the handfuls of organizations proactively enabling early-stage social businesses in sub-Saharan Africa that have the potential to meaningfully improve the lives of vulnerable populations. As an early-stage impact investor, we have learned that the process to qualify a social enterprise for funding is often lopsided. Investors want to make smart investment decisions that will achieve both a desired social impact and financial return, but the time that is alloted to investigate these considerations can be frustrating and opaque for entrepreneurs.
At EWB Canada, we regularly reflect on our approach to course-correct and better enable businesses that can help create an equitable and sustainable future. A lesson we have learned is that while it is necessary for investors to spend time assessing the integrity of an entrepreneur, it is equally important for investors to operate with integrity, approaching their search and selection process with greater consideration of emerging innovators, irrespective of the outcome.
“I have experienced a number of investors who, after extensive due diligence including site visits, and back and forth lasting over six months, decide we are “too small” to invest in. This is often confusing for us since this is something that can be identified from one of the first conversations. As an early-stage entrepreneur, the time lost is one of the most frustrating things.” -Brenda Katwesigye, CEO & Founder, Wazi Recycling, Uganda.
Some impact investors have pioneered a 4-hour due diligence process with the belief that investors can make an informed investment decision about a prospective investee, using only 4 hours of an entrepreneur’s time. While such a process may not be replicable across all funds looking to scale their impact portfolio, the practice of implementing an honest process that equally respects the opportunity costs for both investors and entrepreneurs should be the benchmark.
As socially responsible investors, we must consider the responsibility and the inherently skewed power dynamics that come with being on the “money side of the table.” The opportunities for entrepreneurs in emerging markets to meet with investors are less frequent than in more developed markets. It is important for impact investors to recognize how we are part of the larger entrepreneurship ecosystem in the geographies where we are present.
There are a few different ways in which Impact Investors can be intentional about building integrity:
1. Identify your impact investing philosophy
As impact investors, check in with our values at the individual and organizational level. At EWB Canada, we strive to bring transparency, honesty and integrity to our engagements with social ventures whether we move on in the due diligence process or decide after one or two meetings not to proceed. Ask yourself what value would you like to add to the journey of social entrepreneurs, and to the wider ecosystem you are working within.
2. Assess transparency in your selection process
Is it possible to be more transparent and forthcoming about your investment process at the onset? For example, consider creating a short investment profile that outlines your investment criteria that you make available on your website, or share with entrepreneurs during initial discussions. This can help to manage expectations and set the tone for the specific kinds of impact your fund is looking to make.
3. Build confidence in the entrepreneur
If a deal is being pursued, demonstrate you are the right financing partner. Entrepreneurs go through tremendous effort to convince potential investors of their current and potential value. Likewise, investors should demonstrate their value and benefit to an entrepreneur to ensure confidence and clarity that this arrangement is mutually beneficial.
4. If there’s no deal, add value anyway
Impact investors should take a minute to think about what they can do for that entrepreneur. Can you provide more constructive feedback in your rejection correspondence? Can you make an introduction to another investor who may be more relevant? Can you spend more time contributing to building the entrepreneurship ecosystem in a particular geography by creating or participating in programs and events, even if they don’t lead to immediate deals?
For instance, EWB Canada offers Open Investor Office Hours. Every other Friday afternoon, entrepreneurs can book advisory meetings with our investment team on specific challenges they are navigating, ranging from their business models or customer acquisition strategies to practicing their pitch. These one-on-one’s provide entrepreneurs with strategic input from the perspective of an investor in an ecosystem where this kind of access is scarce.
"We see a lot of impact investors using impact (either lack thereof, or not the kind the fund is looking to have) as the reason for not investing in an entrepreneur. While impact can be a part of the reason, it is often the case that there are some core elements of the business that the entrepreneur needs to improve, like diversifying their customer base or implementing accounting software. When impact investors are not transparent and forthcoming about these fundamental business truths, it is a lost reflection opportunity for social entrepreneurs, who are often navigating a lonely journey." - Nicole DeMarsh, Associate Partner and Head of Open Capital Advisors in Uganda.
At a personal level, I strive to empower entrepreneurs by crafting specific, timely, and actionable feedback, sharing relevant funding, support or speaking opportunities, and making valuable connections for entrepreneurs regardless of whether they end up being a fit for EWB Canada’s fund - especially if they have invested time and resources going through our screening process.
An investment is a relationship, and like any relationship, there are inherent power dynamics within it. As the party holding more of the power, impact investors must consider the wider impact of their presence in the ecosystem, even if it does not immediately increase their bottom-line.
Brittney is an Investment Officer with Engineers Without Borders Canada in Kampala, Uganda and responsible for developing their East Africa pipeline. She holds a Master’s of Global Affairs from the University of Toronto’s Munk School and a Bachelor of Arts from Wilfrid Laurier University. Her interests lie at the intersection of innovation, development and gender equity. Twitter: @BrittneyDudar