Kirsty Jenkinson talks about how New Ventures, WRI’s center for environmental entrepreneurship, helps environmentally-focused small and medium-sized enterprises (SMEs) in emerging markets compete in a global economy.
What is New Ventures?
New Ventures is a program that helps entrepreneurs in some of the world’s most dynamic, emerging economies– Brazil, China, Colombia, India, Indonesia and Mexico. We have facilitated more than $203 million in investment, and worked with 250 innovative businesses whose goods and services produce clear, measurable environmental benefits, such as clean energy, efficient water use, and sustainable agriculture. Often they also address the challenges experienced by the world’s poor.
For example, one of the companies we work with in China, called Ecostar, refurbishes copy machines from the United States and re-sells or leases them for 20 percent less than a branded photocopier. This company keeps used copiers out of landfills, supplies a valuable and affordable resource for companies across China, and generates jobs and profits. New Ventures helped Ecostar connect with investors and scale up its business to capture 60 percent of the photocopying market in China.
How do you select New Ventures companies?
Each year, New Ventures Local Centers in Brazil, China, Colombia, India, Indonesia and Mexico select five to 10 enterprises to receive six to eight weeks of intensive business development support and mentoring. Selection is based on criteria such as financial viability and profitability; the environmental and social benefits that the companies offer; the quality of the management team; the market opportunity that their products or services address; innovation and intellectual property in the business; and growth strategy – the scalability and impact that they are capable of achieving.
Once they are selected, how do you help New Ventures enterprises grow their business and access investors?
New Ventures’ country-based Local Centers play a critical role in building local support networks for selected enterprises. Along with providing business development training and mentoring, we connect companies to a local community of investors including, for example, angel investors, venture capital funds, and commercial banks. We look for opportunities to showcase the companies to investors, including at an annual Investor Forum in each country where New Ventures enterprises pitch their businesses to potential investors. It’s like speed dating, only it’s speed investing!
Why do environmentally-focused SMEs face challenges in attracting capital?
Historically, SMEs have often been dubbed as suffering from “the missing middle” syndrome. SME owners tend to ask their families or friends for start-up capital, but they can’t raise enough money to give them the scale of financing that they need. And while SMEs are often too large for microfinance institutions, they are too small for most commercial banks, who will not lend to them because they do not have the systems in place to provide transparent information to investors and lenders, or because the collateral requirements would be too onerous. Private equity finance – the alternative to bank loans – is rarely available for amounts under $2 million and therefore is an option only for the largest SMEs in developing countries. So SMEs in emerging markets end up falling between the private equity financing that is available for larger businesses and the microfinance or self-financing that works for individuals or smaller businesses. “Green” SMEs face additional barriers to growth because the sectors that they operate in are relatively new and not that well-understood by investors.
How does New Ventures bridge the “missing middle”?
The role New Ventures plays in breaking down these barriers is threefold. First, we serve as an objective intermediary who brings innovative companies to investors, on a local as well as global level. In April, we are hosting our first “Global Investor Forum” in New York. Unlike our annual Investor Forums that take place in the six countries, our Global Forum will showcase New Ventures companies in the United States to international investors. That is going to be hugely exciting. Along with these events, we work with New Ventures companies on an ongoing basis to get them better at presenting their businesses to investors. We help them collect and standardize the way they report key indicators of their financial, social and environmental performance. Practical tools and training, which help companies easily communicate with the investment community, are critical, we think, to scaling up environmental entrepreneurship. Ultimately, investors base their decisions on information and so we need to make sure they have the right kind at their disposal.
Our second role focuses on the areas where WRI traditionally works - identifying where current policies or frameworks are causing impediments to sustainable growth and investment in environmental sectors. We recently published a report, for example, on how to grow clean energy markets among India’s rural poor. Our aim with this kind of research is to fill in some of the information gaps about environmentally-focused SMEs and the sectors they operate in.
Lastly, we look for ways to work with partners to pilot and encourage new investment and new financing mechanisms to help bridge this capital gap.
What role can New Ventures play to encourage new financing techniques?
Systemic financial challenges require innovative financing solutions and so we are beginning to explore new relationships with different financial providers. Over the long-term, environmental entrepreneurship in emerging markets is likely to need a blend of capital sources including foundations and other sources of “patient” capital; development banks and institutions that traditionally work with companies in-country; and commercial investors. Over time, we will be looking for creative ways for these parties to participate in deals where each may have different return expectations, but all are motivated to invest in companies that will spur sustainable economic development. In these ways, New Ventures can play a critical convening role in the development of this kind of “blended” finance model, which is already being used for some sectors, but not to scale the growth of environmental SMEs.
Our vision is to address the barriers facing environmental entrepreneurs by increasing their access to finance and supporting their businesses so that they fuel the “green supply chains” of the future.
What are your goals for a “new” New Ventures? What do you hope to accomplish?
Over the past ten years, New Ventures has successfully supported an amazing range of environmental entrepreneurs but we’re always looking to the future. One of the questions we get asked a lot is, “Are we looking to expand to different countries?” A quick answer to that is at the moment we think we’ve got a very robust presence in six absolutely critical emerging markets, so our priorities remain focused on getting our model right and most importantly scaling it, in those countries. But, we need to be nimble and respond to opportunities to expand environmental entrepreneurship around the world. SMEs are key to economic growth and if the world is going to successfully transition to a low-carbon economy, SMEs that provide environmental solutions are going to be absolutely essential. Our vision for New Ventures is to address the barriers facing environmental entrepreneurs by increasing their access to finance, and supporting their businesses so that they fuel the “green supply chains” of the future— providing products and services that are required across the globe.