Posted by Ben Powell on May 19, 2008, 6:44 pm, in reply to "Philanthropic Deal Flow"
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I co-founded and manage Agora Partnerships, an NGO dedicated to fighting poverty through small business entrepreneurship. The non profit also manages a fund designed to invest in small deals (25k-250k) that can generate a social and economic return. These questions you raised are very important and are being discussed by organizations like the Aspen Institute which has created a working group to help build the industry. It's a very exciting time so thanks for creating this forum.
Deal flow is a huge challenge, to be sure. But I think there are at least three different kinds of "deals" that require capital in our industry. Each tends to have different investors and the pipeline for each is completely distinct. All three require capital and strategic support in order to create an effective entrepreneur-driven model for development
The first kind is individual small businesses - for-profit, formal economy enterprises with identifiable constraints to growth that are capable of transforming their communities while generating positive, non risk adjusted returns for investors. These are very hard and expensive to find - these are the front line entrepreneurs, the true heroes of development who are trying to create broad based wealth for their communities. The industry is about finding and supporting them in the right way so they can succeed.
The second is the intermediary, usually a non profit organization, that has "boots on the ground," hopefully a local staff, and that effectively finds and puts together deals, usually for local investors or formalized angel groups. These groups sometimes provide mentoring, business plan consulting, etc.. The New Ventures program at World Resources Institute does great work in this area as does TechnoServe, which among many other things, runs wonderful business competitions, which also generate deal flow.
The third kind of "deal" is an SME or micro venture capital fund, of which there are still only a handful, through the number seems to increase weekly. Acumen is probably the best known, but there are also many for-profit funds, many of which need to keep a low profile with their capital raising due to SEC regulations. Because these funds cannot raise capital through traditional channels, the capital market for them remains inefficient.
All these "deal" types need capital, but each requires a different set of evaluation criteria, and each measures it's results differently. Figuring out how to balance and reconcile the different social returns produced by each of these organizations is a challenge for the industry and for the philanthropist seeking to maximize the social impact of their charitable and for-profit investment.
This is my first time ever posting a response to any message board - I hope it was helpful and I welcome any comments.
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