Why Investing in Entrepreneurs Reaps Big Rewards

“The biggest challenge is access to funding -- it’s that simple.” I have heard this refrain from entrepreneurs for years. This time, I was listening to Vava Angwenyi -- an entrepreneur who started the Kenya-based social enterprise Vava Coffee seven years ago -- speak about the most difficult obstacle in growing her business.

USAID believes entrepreneurs are critical drivers of inclusive economic growth and job creation -- key to ending extreme poverty. Small and medium enterprises generate 78 percent of jobs in low-income countries and are particularly important sources of livelihoods in poor and rural communities. It’s entrepreneurs like Vava -- people who create jobs, drive economic growth, and innovate to improve lives through market-based solutions -- who have the power to address the world’s most challenging problems.

Yet so many of these entrepreneurs in developing countries struggle to succeed -- not because they don’t have good ideas or lack the drive, but because they are working in challenging ecosystems with limited access to financial resources and business development services. At the same time, impact investors -- who are looking to deploy their capital for both financial and social returns -- are often unable to find “investment-ready” enterprises.

To address this gap between entrepreneurs and impact investors, USAID’s Partnering to Accelerate Entrepreneurship (PACE) Initiative is bringing more private capital to early-stage entrepreneurs and making impact investing easier. We work along all stages of the investment cycle -- from sourcing, vetting and due diligence, to consulting support, technical assistance, and investment -- to connect entrepreneurs and investors.

Since 2013, PACE has created a network of more than 40 incubators, accelerators and investors to address the obstacles that entrepreneurs around the world face so that entrepreneurs can grow their businesses, create jobs in their communities, and provide life-changing goods and services to underserved populations.

For example, Intellecap, a PACE partner that provides business solutions to social enterprises, worked with Vava to help her grow. “We helped her articulate the business and the scale up strategy through numbers and a crisp business plan,” says Stefanie Bauer, associate vice president of Intellecap. “Vava is much more confident about explaining the economics behind her business after she has gone through the financial modeling exercise with us.”

Beyond providing technical assistance to help Vava prepare her business to become more investment ready, Intellecap also helped Vava build her network and facilitated connections with investors.

Today, Vava Coffee has received global recognition for both the quality of its coffee and its social impact. Vava Coffee’s fair trade model provides a sustainable livelihood for their 30,000 smallholder farmers, whose income has increased by 16 times. In addition, Vava Coffee is working to expand access to credit and financial training for smallholder coffee farmers in Kenya and beyond, with a goal of reaching 130,000 farmers by 2018.

Vava still faces challenges ahead, and so do entrepreneurs who hope to follow in her footsteps. But she hopes that initiatives like PACE continue to “break down the barriers of access to funding, and make it easier for entrepreneurs that are doing good, changing lives, and eradicating poverty.”

The PACE Initiative continues to pilot and test new approaches for supporting entrepreneurs, like using guarantees from high net worth individuals to allow impact investors like MCE Social Capital to access bank capital that can then be lent to small and growing businesses, or leveraging local talent and local capital through regional impact investing funds with I&P.

I agree with Vava that there is still room for growth. And while I am proud of what PACE has accomplished -- catalyzing more than $100 million of private investment that would have otherwise not happened -- impact investments still represent only 0.02 percent of the $294 trillion in global financial markets.

Imagine what could be done with just a fraction more.

About the Author: Rob Schneider serves as Division Chief for Global Partnerships at USAID’s Center for Transformational Partnerships.

Editor's Note: This entry originally appeared on the USAID Impact Blog.

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Coffee beans are distributed in the shop window of a coffee shop. [AP Photo]
Posted by Rob Schneider
October 21, 2016

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