New Ventures accelerates the growth of environmental SMEs in emerging markets

New Ventures provides business development and investment facilitation services to environmental small and medium enterprises (SMEs) in emerging markets that have high growth potential. It also addresses key barriers to “green” entrepreneurial growth through building in-country support networks for environmental SMEs and working on increasing investment capacity for this sector.

About You

Organization: World Resources Institute - New Ventures Visit websitemore ↓↑ hide↑ hide

About You

First Name

Ella

Last Name

Delio

Your Organization

World Resources Institute - New Ventures

Country

United States, DC, Washington

About Your Organization

Organization Name

World Resources Institute - New Ventures

Organization Website

Organization Phone

202-729-7600

Organization Address

10 G St. NE, Suite 800, Washington, DC 20002

Organization Country

United States, DC, Washington

Organization Type

Non-profit/NGO/Citizen-sector Organization

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Your solution

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Name Your solution

New Ventures accelerates the growth of environmental SMEs in emerging markets

Describe Your Solution

New Ventures provides business development and investment facilitation services to environmental small and medium enterprises (SMEs) in emerging markets that have high growth potential. It also addresses key barriers to “green” entrepreneurial growth through building in-country support networks for environmental SMEs and working on increasing investment capacity for this sector.

Country your work focuses on

n/a

If multiple countries, please list them here. If your solution targets an entire region, please select it below

Brazil, China, Colombia, India, Indonesia and Mexico

Region(s) your solution focuses on:

Range of turnover in your target firms, in USD

Less than $1 Million, $1-5 Million.

Average turnover in USD of your target firm

Number of employees in your target firms

Average number of employees of your target firm

Specify the size, average and range of expected loans or investments in each target firm

The range of expected loans or investments in each target firm is between $100,000-$3,000,000. If we remove a sizable later stage, follow-on investment made in one of the companies, which is a data outlier, we would have an average investment size of around US$1.8 million.

What stage is your solution in?

Operating for 1‐5 years

Innovation

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What makes your innovative solution unique?

New Ventures occupies a unique position in the enterprise development field as we are the only enterprise development intermediary with a specific focus on environmental sustainability for emerging market SMEs. Commonly, enterprise development intermediaries focus on just building an investment pipeline of SMEs. On top of building an investment pipeline, New Ventures also works on systemic change to fundamentally drive more resources (including investment) to environmental SME growth. :

1. An important part of facilitating greater investment into SMEs is to develop an in-country entrepreneurial support system of coaches, investors, and media. We have developed networks of investors interested in environmental sectors in India, Indonesia and Colombia, and Brazil as well as coaches’ networks in India and Mexico, and continue to build similar partnerships in other countries. We have strong media partnerships in Mexico and China.
2. Another part of our approach focuses on increasing capital flows to the environmental SME sector as a whole. We provide investors with information and mechanisms to help them make better investment decisions and channel more funds into environmental SMEs through
• Performing research that analyzes the investment potential of key environmental SME sectors and the barriers to their growth
• Working with financial institutions and investors to pilot innovative financing mechanisms to support environmental SMEs
• Developing sector-wide tools and standard metrics to enable environmental SMEs to inform investors of their financial, environmental, and/or social potential and performance.

How does your proposed innovation leverage public intervention in catalyzing private SME finance?

First, public funding can support SME finance by supporting the piloting of new or creative financing mechanisms that can reduce perceived or actual risks in environmental SMEs. Public funding can also help take on some of the risk involved in these new or improved mechanisms.

Second, the government can support the creation of an SME in-country support networks, which will ultimately drive more financing and growth to the SME sector. For example, the Secretary of the Economy in Mexico funded our New Ventures Mexico program. This funding enabled the New Ventures Mexico program to build a strong in-country support network for environmental SMEs in Mexico.

What barriers does your proposed solution address?

Asymmetry of information, Lack of financial capacity, Lack of SME access to skills / knowledge / markets, Unavailability of financial products tailored to SME needs, High transaction costs for financial intermediaries to serve SMEs, General barriers to SME development related to investment climate.

If you checked any of these barriers, describe how your solution addresses them

a) Asymmetry of information – New Ventures addresses this barrier through providing investors with analysis on the market and investment potential of environmental sectors in emerging markets, which are normally unfamiliar to them. Moreover, we are one of the leaders in the SME development space that is developing tools and mechanisms for SMEs to report on their environmental, social, and financial performance so that investors have the information necessary to make better investment decisions.

b) Lack of financial capacity and unavailability of financial products tailored to SMEs – New Ventures addresses this barrier through the piloting of new or improved financing mechanisms in collaboration with financial institutions and facilitating the creation of new investment funds focused on environmental SMEs.

c) Lack of SME access to skills/knowledge/markets – New Ventures provides business development services to environmental SMEs through mentoring and training workshops. Moreover, it also trains the environmental SMEs on how to effectively measure, manage, and improve their environmental impacts.

Aside from access to investment, which it has focused on in the past, New Ventures also plans to provide access to global and local buyers through the strong relationships of the World Resources Institute with multinational corporations and New Ventures local partners with large corporations in their country.

d) High transaction costs for financial intermediaries to serve SMEs – New Ventures decreases transaction costs by providing investors with potential dealflow. New Ventures goes through an intensive screening process to choose SMEs which have high-growth potential. New Ventures hosts investor events or meetings where it showcases these SMEs. Transaction costs can also be decreased through the new or improved financing mechanisms that New Ventures pilots together with financial institutions.

e) General barriers to SME development related to investment climate – Through its research and analysis, New Ventures identifies policy barriers to greater investment in environmental SMEs and prescribes potential solutions. It will communicate the results of its analysis to relevant government bodies.

Impact

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Provide empirical evidence of your proposed solution's success/impact at present. If your project is in the idea phase, please provide evidence that speaks to its potential impact

Over the past decade, New Ventures has supported over 255 environmental SMEs and facilitated the transfer of over $203 million to the sector. Between 2009 and 2010, we showcased over 40 SMEs to investors and helped facilitate over $20 million in investment to environmental SMEs. Our goal is to turn environmental enterprise into a viable and recognized asset class, just like microfinance has become over the past 30 years.

We support profitable SMEs that have a specific mission to produce positive benefits for the environment and society. Our portfolio is composed of SMEs in the sectors of renewable energy (17%), pollution prevention and waste reduction (22%), energy efficiency (18%), natural resource conservation (8%), sustainable land use (19%), biodiversity conservation (8%) and water resource management (8%). In addition, many New Ventures enterprises offer solutions that help under-served people out of poverty. Approximately 23% of our enterprises have received investment

We also work to drive more systemic change in the economy by conducting investor-targeted research on important sectors, and help financial intermediaries develop new or improved financing mechanisms to drive more capital towards environmental SMEs. In 2009, we analyzed the investment and growth potential of the Energy Service Companies (ESCOs) in India, using primary data from the India ESCO industry. Realizing that one of the primary barriers to the growth of the ESCO industry has been a lack of access to financing, we worked with India’s 4th largest bank, the Industrial Development Bank of India (IDBI) to develop a new financial product targeted at the small and medium sized ESCOs in India.

We believe that investment capital is necessary, but not sufficient for the growth of SMEs. Different forms of support are needed by environmentally and socially responsible enterprises to flourish. A key pillar of our work is to form a community of support for environmental enterprises in each of the six countries where we operate. New Ventures builds in-country support networks for environmental enterprises, by developing investor networks (composed of various types of investors, including debt providers, angel investors, venture capitalists, socially responsible or “impact” investors), mentoring and business advisory support, media relations to generate public awareness, and influencing policy-makers through research and demonstrated impact.

In India, we founded the Green Investor Network, composed of a range of investors interested in environmental sectors, while in Colombia and Indonesia we helped facilitate the creation of the countries’ first angel investor networks specifically focused on environmental and social SMEs. In Mexico and India, we have created coaches’ networks, composed of the countries’ most prominent business leaders who provide pro-bono mentoring to environmental SMEs. In Mexico we contributed significantly in building the country’s national network of enterprise acceleration, in collaboration with the country’s Secretary of the Economy.

How many firms do you expect to reach?

Since 1999, New Ventures has supported over 255 environmental SMEs and helped facilitate over $203 million in investment. We aim to provide one-on-one mentoring, business advisory and investment facilitation support to over 40 SMEs each year.

What is the volume of private SME finance you aim to catalyze?

By following a multi-faceted approach of working with SMEs and investors, developing new or improved financing mechanisms for environmental SMEs, facilitating the creation of new investment funds, and educating investors on the investment potential of key sectors, we hope to catalyze $400 million.

What time frame will be required to reach these targets?

We will achieve these targets by Dec. 31, 2015.

Does your solution seek to have an impact on public policy?

Yes

What would prevent your solution from being a success?

There is a possibility that investors will be risk averse as a fall out of the global financial crisis and have limited appetite for investing in SMEs. New Ventures will try to mitigate this risk by reducing real and perceived investment risk strategies – through the development of new and improved financing mechanisms we will try to decrease actual risk and through research for investors we will aim to decrease perceived risk.

There is also the risk of policy barriers that stifle the growth of the environmental SME sectors in emerging markets. New Ventures will strive to mitigate this risk by researching the policy barriers to investment in environmental SMEs and present this policy analysis and recommendations to relevant policymakers and government bodies in order to influence change.

Describe the social impact of your innovation. Please include both numbers and stories as evidence of this impact

New Ventures supports enterprises whose products and services clearly address a specific environmental issue. Many NV enterprises also offer solutions that help low-income populations increase their income and improve their quality of life. We prioritize enterprises that seek results in pollution prevention and waste reduction, sustainable land use, energy efficiency, sustainable energy, natural resource conservation and biodiversity conservation. Two examples of our enterprises’ impacts are:

• SBA Hydro (India) builds and operates small, run of the river hydro-electric power plants to supply sustainably generated electricity to villages in the Himalayas, with minimal impact on the environment. The company supplies electricity to remote villages that previously suffered long periods of blackouts and relied on polluting diesel generators for much of their power needs. SBA Hydro meets the electricity needs of over 2500 rural households, enabling villagers to set up micro-enterprises and crop-processing facilities. After undergoing an intensive mentoring process, the company presented its business plan at the NV India Investor Forum in November 2007. The following year, SBA Hydro received $1.26 million in equity funding from Acumen Fund, a NV India Investor Network member,.

• Southwest Bamboo (China) develops environmentally friendly wood substitute products such as medium-density bamboo fiberboards for the furniture and construction markets. China’s rapidly growing building industry relies heavily on wood products that are unsustainably harvested, contributing to the loss of over 25% of China’s forest cover since 1990. The company purchases bamboo from rural cooperatives in Sichuan province, helping over 1600 subsistence farmers earn an additional $250 each year. New Ventures helped the entrepreneur develop his business skills through its mentoring process, as well as gain international attention. The company received a $1.46 million line of credit from a local bank, as well as $150,000 from the local government to support its poverty alleviation efforts.

Sustainability

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List all the funding sources that are required for the sustainability of this solution

We currently depend on grants from foundations, bilateral, and multilateral donors. However, starting this year, we will be piloting revenue streams tied to the services that we offer investors, including success fees tied to investments made in SMEs that we have introduced to investors. This will decrease our dependence on grant funding.

Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?

The time frame to graduate from dependence on public finance is 5 years We identified two ways for which public funding will be used through the New Ventures approach. We believe that within the span of 5 years, we will not need any public finance to implement these strategies.

We believe that within 5 years and with sufficient financial resources, we would have been able to pilot several new or improved financing mechanisms and either proved or disproved their effectiveness in driving investments into SMEs. Moreover, by that time, we would have also succeeded in building in-country support networks within the six countries in which we operate. These in-country support networks will be the platform through which environmental SMEs will receive the investment and other resources they need to grow, which is our ultimate aim.

Demonstrate how your proposed solution will survive a potential loss of its largest private funding source

Our solution would survive a potential loss of its largest private funding source in around 4 years. By that time, we would have developed a reliable revenue stream, assuming that the pilot of this revenue stream goes well. We will start the pilot within the next year. It will take some time to build up this revenue stream though. Going forward, New Ventures will still need private funding, but will be less dependent on it.

Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation

The type of partnerships, which are critical to the greater success and sustainability of our solution are:
a) Partnerships with investors to provide dealflow and potentially TA services to their portfolio in exchange for being compensated for services offered to them
b) Partnerships with financial institutions to pilot new or improved financing mechanisms
c) Partnerships with investors, businesspersons, and media to be part of local entrepreneurial in-country support networks

Are there non-financial issues that could threaten the sustainability of your proposed solution?

One non-financial risk that could affect the sustainability of our proposed solution is if financial institutions do not partner with New Ventures to pilot new or improved financing mechanisms. We will mitigate this by using our past track record in working with financial institutions to convince new financial institutions to work with us. We will also leverage WRI’s reputation of providing valuable research and information.

Another financial risk is if members of in-country support networks are only involved in this network on a nominal basis. To mitigate this, New Ventures Local centers need to ensure that these members are fully engaged in helping individual SMEs as well as promoting the environmental SME sector throughout the year. New Ventures Local Centers also need to assign a specific staff member to liaise with these key stakeholders.

Please tell us if your proposed solution aims to scale up through a high growth sector, expand immediately to multiple sectors, and/or scale up geographically

Our proposed solution aims to scale up through one high-growth sector – the environmental SME sector. Within this sector, we will work with 7 subsectors: renewable energy, pollution prevention and waste reduction, energy efficiency, natural resource conservation, sustainable land use, biodiversity conservation, and water resource management.

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203 weeks ago Ella Delio updated this Competition Entry.
203 weeks ago Ella Delio updated this Competition Entry.
203 weeks ago Ella Delio updated this Competition Entry.
203 weeks ago Ella Delio submitted this idea.