Last year, Social Enterprise Buzz examined the state of impact investing and found that while analysts view impact investing as having great market potential, not a lot of deals were being made.
On the one hand, investors showed an unwillingness to invest in early-stage companies and were concerned about generating a financial return, even if they cared about positive social impact.
On the other hand, social enterprises were too immature for investors’ appetite and came with additional risks, especially since most operate in regions with poor infrastructure, missing supply chains, and the inability to attract talent, to name but three obstacles.
The options are to continue waiting around for lucrative deals, or to put in the work that would move the industry beyond this deadlock.
One impact investor chose to do the latter. LGT Venture Philanthropy (LGTVP) launched the Smiling World Accelerator Program (SWAP) to provide tailored financial and non-financial support for early-stage social enterprises.
They began a pilot last year in Southeast Asia, which includes Thailand, Vietnam, Indonesia and the Philippines. From over 100 organizations, six were selected to participate in the 9 to 24 month program. This year, they expanded the initiative to China, Brazil, Colombia, and Mexico.
“At first we were looking at investments of over $300,000, but it’s very hard to find those kinds of deals in Indonesia,” said David Soukhasing, Manager of the SWAP in Indonesia. “So that’s why we’ve started SWAP. We’re basically supporting earlier-stage companies because the idea is to build our own pipeline.”
“There’s a lot of money to be invested, but the readiness of the entrepreneurs is not there,” said Soukhasing, who comes from a background in private equity and entrepreneurship, adding that, “Most investors can’t find suitable candidates. They don’t want to give up, but they don’t want to start at the earlier stage.”
As a venture philanthropist, LGTVP normally invests between US$200,000 and $10 million per organization. But the SWAP is intended to invest in early-stage companies and scale them up to a level where they can attract bigger amounts. Up to US$50,000 is available per organization under the SWAP.
“Usually the $50,000 is a loan with a very tiny interest. There’s no financial return,” said Soukhasing. “We weren’t able to find bigger investments, but LGTVP wants to create an impact in the region. So we decided to start this SWAP program to build the pipeline, but also to just do something and have an impact.”
One SWAP participant is Tohe, a school in Vietnam for children with autism and disabilities. Tohe encourages children to draw and paint as a way of expressing their creativity. For children with autism, painting can even be an important tool for therapy.
Tohe would print the children’s art on fashion and home decoration products to sell. The income is used to support the children whose art appear on the products as well as reinvested into Tohe’s activities to support other children.
As a SWAP participant, Tohe received assistance in setting up a physical store, getting sponsorship, and preparing financial statements. “At the beginning they were a very grassroots organization,” said Soukhasing.
Soukhasing explained that many social entrepreneurs in Indonesia tend to come from an NGO background and are committed, but lack the readiness to move towards a commercially viable business.
Currently, LGTVP Indonesia has opened its second call for applications for the 2013 SWAP. When asked about what they were looking for in applicants, Soukhasing says “We can be flexible on the business model and financial statements, but we want to see entrepreneurs ready to handle a sustainable business and scale it up.”
“They need vision. We want to see vision from the entrepreneur. We want them to think about the future and have a very clear idea of how they’re going to scale, how they’re going to run it, and how they’re going to make it successful.”