The East African social venture fund launched recently by Global Partnerships and the Eleos Foundation aims to fill a gap in providing seed-stage investment and advisory support to social startups in the region.
That is according to Jim Villanueva, managing director of the Global Partnerships/Eleos Social Venture Fund, launched last month with backing from the likes of the Sorenson Impact Foundation and the Linked Foundation.
The fund was created to address the “pioneer gap”, by capitalising and supporting social enterprises in the earliest stages of development. The fund itself is worth US$10 million, US$5 million of which is earmarked for capital investment, and US$5 million to cover operations and expenses, including advisory support.
Investments have already been made in Kenyan startups Sanergy, Penda Health and Eneza Education, and is targeting other investments in high-potential, early-stage social enterprises focused on education, energy, health, rural livelihoods, sanitation and water.
Villanueva said the pipeline for the fund was “pretty robust”.
“We have another seed investment that is in the process of being documented, and there will be another shortly after that,” he said.
The goal of the fund is to fill a gap in funding for social startups at a very early stage.
“We will come in earlier than other institutional investors, at the seed stage with investments of between US$50,000 and US$100,000. That is tied to milestones agreed with entrepreneurs that demonstrate clear traction,” Villanueva said.
“There is a scarcity of seed stage social investment and advisory support. What we call the two wings of the airplane.”
After that, he said, the team will “roll up our sleeves and jump in”, playing an active role in the development of the portfolio company. It will also, in certain cases, join a Series A or B round if sufficient traction has been demonstrated.
“At that point we would join the board and jump in even deeper in terms of support,” said Villanueva.
Though the fund is focused on East Africa as a whole, the majority of investment – at least initially – is expected to go to Kenya as opposed to Uganda, Tanzania and Rwanda.
“Experience would indicate most of the investment will go to Kenya. Hopefully we will do some spade work in those other countries. Kenya has a head start as the ecosystem is more developed,” Villanueva said.
For the fund’s investors, which include institutions, family offices and high net worth individuals, Global Partnerships and Eleos are targeting returns in the mid-to-high teens.
“We’re very confident of returning capital to our investors,” said Villanueva.
He said the fund is sourcing “every which way we can”, through its networks and events, while entrepreneurs are also getting in touch directly.
“We try to be everywhere and see everything that’s coming up. Having someone full time in the region helps a lot,” Villanueva said.
“Later stage investors are a great source of referrals, because of our reputation as a trusted pair of hands to get companies ready for larger investments. We look at it as part of our job to prepare product for these kind of investors.”
This will hopefully be the first of many such funds.
“We’re starting small to prove this hybrid model will work and will return capital. Once we do that we can broaden the geographic spread and the dollar size,” he said.
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