The Art of the Pitch: How Startup Social Enterprises Pitch Impact Investors

Published: Jun. 7, 2016

By Naki B. Mendoza for Devex Impact

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Powering Agriculture: An Energy Grand Challenge for Development supports the development and deployment of clean energy innovations that increase agriculture productivity and stimulate low carbon economic growth in the agriculture sector of developing countries to help end extreme poverty and extreme hunger.

The funding challenge has always loomed large over social entrepreneurs wanting to change the world. For many, the difference between their breakthrough innovation going big and their business going back to the drawing board can often come down to securing that next check.

While funding takes on many forms, a transformative step in the life of a social enterprise is the leap from grant to investment capital. Innovative ideas that impact development can draw an array of support from donor entities, from grants to incubator services. But the jump to debt or equity capital from investors willing to bet on the commercial viability of a social business model is typically an early — and critical — litmus test for long-term growth.

So how exactly does one pitch their idea as if their livelihood — literally — depended on it?

Devex posed the question to some of the world’s most promising global development social enterprises. Fifty-four of them convened in Washington, D.C., last week for a two-day summit hosted by the U.S. Agency for International Development that paired private investors with social innovators in agriculture. All of the entrepreneurs had already received USAID funding through one of its programs — Feed the Future Partnering for Innovation and two Grand Challenges, Powering Agriculture and Securing Water for Food — and are now courting commercial investment to scale up their models.

What makes for a compelling pitch to impact investors? What are some key points to hit on that best convey reliability and value in their models? How does a social enterprise distinguish itself to investors in a crowded field? These are a few of the questions that investment-seeking social enterprises around the world grapple with as they ponder growth.

Of course, there is no fixed blueprint to copy. The insights offered by some of the innovators that Devex spoke with are not an exhaustive list and they do not equate to silver bullet solutions. Nor are they necessarily applicable to social entrepreneurs working in other sectors of development.

But their advice may help other social enterprises that are in a position to make a similar leap.

Storytelling

The so-called art of the pitch often necessarily reverts to a back-to-basics approach. “For social impact, a story is really important,” said Sam White, founder of Promethean Power. The idea, he said, is to articulate to funders and investors a broad social issue, often through the lens of ordinary citizens, and to connect that issue to the focus of the social business.

“Clearly explaining the problem and a technology that you’ve developed to resolve part of that larger issue.”

For Promethean Power, the problem that the business is trying to address is the $10 billion of perishable foods that are wasted annually because of unreliable cold-chain supply networks. A major obstacle to establishing those networks is the lack of reliable electricity to power refrigeration systems in villages and rural farming areas. Diesel generators are a costly and environmentally damaging option. To address that shortfall, White’s company is rolling out battery-driven milk chilling systems that are powered by intermittent energy sources such as solar or periodic streams of grid electricity.

A crucial next step, White said, is to advance the story by demonstrating some market traction for product. “You can do that through repeat customers statistics, evidence that you’ve proven the technology or examples that you just have to scale new models for larger capacities.”

Scale matters

Investors are drawn to scale. “You have to be able to ensure that your business model has a compelling story around scale and how you’ll get to scale very quickly,” said Kola Masha, founder of Babban Gona, a social enterprise that offers professional training, input credit and marketing services to farmer groups in Nigeria.

“Even if you have great impact, but in five years you are impacting only 1,000 people, it’s going to be tough to tap into impact investing,” he added. “If you’re able to create a sustainable business model that has the ability to rapidly scale, that is the sweet spot.”

Scale derives from many dimensions. For Babban Gona, the scalability of its model is driven in part by the demographics of the markets where it operates. By 2050 Nigeria will have the third largest population in the world behind India and China, according to official projections that Masha references in his pitch. Agriculture will provide jobs, economic growth and stability of livelihoods over the next 35 years given the country’s stage of development, Masha said. The agricultural franchising service that Babban Gona offers for smallholder farmers targets this growing industrial sector. The company has grown 44 times its initial size in four years and now serves 10,000 farmers and is targeting 1 million farmers by 2025.

Stay true

It’s a motivational mantra that is often meant to guide individual ethics and principles. But for social enterprises, the advice of staying true to yourself can refer to the goals of the funding that you seek.

“If you’re trying to raise good money, you stay true to your values and you stay true to your business model and you move forward,” said Samir Ibrahim, founder of SunCulture. “Take money from people who can add value to your business, who want to see your business grow and whose sole purpose is to help you grow your business,” he added.

A common problem among startup social enterprises, Ibrahim said, is accepting funding from investors whose investment objectives do not align with the entrepreneur’s core business. The growth of the impact investing space means that startups have more funding options to choose from. But even if cash strapped, an entrepreneur should always prudently weigh the goals of the funding against the long-term vision of the business.

“A lot of investors come into the space and try to change business models because they have mandates to hit for their funds and partners,” Ibrahim said. “I’ve seen a lot of friends’ companies be stuck, take a lot of money, be forced to change their business model and fail because their fund needed to allocate capital to satisfy their investors.”

The dynamic creates a Catch-22 for social businesses, according to Jenny Fletcher, chief executive of Ariya Capital Group, a fund manager that invests in clean energy projects in sub-Saharan Africa. “We’re a business. In order for us to have impact our business must be successful. But if you try to alter your business model to fit this or that impact investor, you start moving away from that — if it doesn’t fit, then don’t try to put the square peg in the round hole.”

But despite any best practices and all practical advice, many, or even most, social enterprises, regardless of sector, will not reach commercial scale. There are some common missteps to steer clear of to avoid that fate, according to the entrepreneurs Devex spoke with.

“Hands down what I see social entrepreneurs do time after time is go too big geographically too quickly — that is a death knell for many,” said Masha. “If you look at the numbers of how many people you are impacting, you can still accomplish that scale if you stay local.”

Critical issues to address early on also relate to market due diligence and knowing your customer.

“One of the biggest things we see people do is think that they know how to solve the problems of smallholder farmers,” said Ibrahim. “At the end of the day, the smallholder farmer knows what they need, so you should ask them and build solutions with them.”

Attracting capital is no easy feat but, according to this group of entrepreneurs, telling your story well, staying true to your identity and demonstrating scale can all help get investor dollars.

So how does the advice of entrepreneurs stack up against what the investors who hold the money are after? Look for more articles from Devex that highlight investor advice.

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