One of the perks of working for an impact investor in emerging markets is the opportunity to interact with many inspiring people committed to making a difference. Entrepreneurs, fund managers, co-investors, and other ecosystem players; all dedicating their time, talent, and resources to solutions that contribute to positive social and/or environmental change. As an investment associate at Triple Jump, my job is to identify and evaluate impactful investment opportunities, while supporting the full lifecycle of the investment; from sourcing and due diligence to portfolio management and impact reporting. As such, I have had the privilege to speak to many inspiring people across the globe, from Ethiopia, Somalia and Kenya to Bangladesh, Sri Lanka and Indonesia. Yet at times, despite our global footprint, our impact can feel like a drop in the ocean; there are only so many investments we can make, while so many seek funding. The reality is that the funding gap in emerging markets is massive, with the shortfall in Africa being particularly significant. Recent estimates place it at well over USD 670 billion (1). This gap means that poverty, inequality, and climate vulnerability largely remain unaddressed.
What does this gap mean for entrepreneurs in emerging markets? When we travel to meet and speak with the end clients of our investees, we consistently hear the same message: access to the right type of capital is one of the biggest challenges. Mom-and-pop shops looking for inventory financing often face unaffordable or inaccessible debt, held back by collateral requirements or a lack of credit history. Startups working on innovative solutions to local problems struggle to secure risk capital. And others operating in fragile markets find it nearly impossible to access any financing at all. The result is that many of these businesses either fail or remain small, which is a problem as these are typically the main drivers of jobs in many economies. In Africa, for example, where 60% of the population is below 25, millions of young people enter the labor market each year but are unable to find formal employment opportunities.
So, how can funding be increased to close this gap? One piece of the puzzle is the provision of catalytic capital. Catalytic capital is a form of patient, flexible, and risk-tolerant investment intended to generate positive social and/or environmental impact that would otherwise not be possible. With the Seed Capital & Business Development (SCBD) facility, which is part of the larger Dutch Good Growth Fund (DGGF) – Financing local SMEs track, we are able to do just that. The mandate allows us to accept higher risk and/or concessional returns so that we can mobilize more funding. In other words, we take the risk others won’t, and by doing so hope we can crowd in the rest. And it works. A recent study conducted by Technopolis states that more than 95% of investment funds supported by DGGF report that their portfolio companies have successfully raised additional capital (2).
Over the past years, I’ve had the privilege to work with several impactful organizations on the African continent. One of them is Pyramidia Ventures, a venture studio building agrifood startups in Kenya at the intersection of climate and digital. One of its ventures is Acre Insights, which uses drones and AI to provide actionable insights for African nature-based solutions, helping farmers to improve yields, reduce input waste, and access new income streams like carbon credits. Another one is African Renaissance Ventures, a first-time fund manager on a mission to demonstrate that venture capital investments in underserved East African markets (Ethiopia, Rwanda, Uganda, Tanzania) are possible. They provide much-needed risk capital to businesses like Kubik, an Ethiopian-based company converting plastic waste into low-carbon, affordable building materials. We have also supported Linea Ventures, a South African pioneer providing a new finance instrument in the form of revenue-based financing, which presents an affordable alternative to expensive debt while allowing founders to retain ownership of their businesses.
What do all of these investments have in common? All of them enable job creation, drive innovation, and find solutions to overcome barriers for funding. And for that they need catalytic capital: an investor who can provide patient funding, can come in early, and provide sufficient comfort so that other investors may follow. As such, with these investments, DGGF plays its part in helping to bridge the funding gap, by de-risking, enhancing returns, and building proof-of-concepts. But, at the same time, much more is needed. To truly address poverty, inequality, and climate vulnerability on a meaningful scale, more investors need to join in, embrace risk, and commit to long-term change. Only then can we transform what feels like a drop in the ocean into a rising tide of progress.
