From November 2018 to May 2019 we had the opportunity to interview more than 90 players in the impact investment sector in Colombia and Latin America . We speak with social entrepreneurs, impact investors, accelerators, articulators, foundations, and organizations in the private, public, social, and academic sectors.
We were able to find that, in Colombia, investors state that they do not efficiently find the projects to carry out the investments that they plan to make in a certain time, that is, they state the Lack of projects ready to receive investment. On the other hand, social entrepreneurs state that they do not know which impact investors are present in the country and the region or how to approach and access funds.
Additionally, a challenge that has been identified by investors in Colombia and Latin America is to design and develop appropriate investment vehicles for the deployment of capital for this type of investment. There is also the challenge of increasing the amount of capital available for impact investing in the region, especially for incubation and early-stage ventures. This is coupled with the challenge of unlocking capital from sectors such as traditional philanthropy and local investors so that they allocate part of their capital to this type of project.
We want to share below the main findings derived from our conversations. This as an additional result of the characterization of impact investors in Latin America, starting with Colombia, which we carried out at ecosistemadeimpacto.org
There is an asymmetry of information between impact investors and social entrepreneurs regarding the impact investment ecosystem in the country
- The need for a space where all the actors can come together to share good practices, knowledge, develop the market, advance public policies, and that is affordable and accessible to all interested parties is evident.
- It is necessary to organize and articulate the actors to jointly advance on issues necessary for the construction and consolidation of the ecosystem in Colombia. There are different initiatives and grouping intentions in the country, mainly by investors such as the Impacto Colombia Alliance for Investment (task force of Global Steering Group GSG in the country), the Innovative Finance Coalition of Concordia, ANDE, the Strategic Philanthropy and Social Investment Network of the IVPC (International Venture Philanthropy Center).
The progress that each one of them seeks is recognized, and the need to join efforts is evident, so that these do not duplicate and/or overlap, and to share information with the other interested parties of the ecosystem regarding the objectives, route and progress of each of the working groups.
- Additionally, the need to centralize spaces is evident so that those who know the markets and field projects in which impact investment is developed can share their experiences and knowledge regarding the social, political, climatic and economic conditions of the projects. .
- Impact investing is a sector that is still very new in the country . We all need to learn: investors, entrepreneurs, accelerators, articulators, legal advisors, and government. Impact investment is tailored to the needs of each business and is a co-creation process, it is not traditional banking nor is it constituted in adhesion contracts, it must be built step by step among all interested parties.
There tends to be a lack of skills and abilities in social entrepreneurs and their teams, not only financial and technical, but also and not least soft skills.
- One of the great challenges for the ecosystem regarding social entrepreneurs is to develop the character of leaders and creators of changes oriented both by the mission and by the projection of their businesses. In addition to the technical and financial skills that entrepreneurs must develop, soft skills such as resilience, conflict management, time management, communication skills, emotional intelligence, change management, among others, are a key aspect that must be included in the construction of the equipment.
- Soft skills along with hard skills will empower entrepreneurs and investors to negotiate more clearly, in a language understandable to all parties, and in a more equitable manner.
- It has been shown that soft skills make it possible to generate closer, stronger and more lasting interpersonal relationships, and that the relationships between different actors have been the preamble in many cases in impact investments. In this regard, most investors stated that finding social entrepreneurs and projects is one of the parts of the investment process that consumes the most time and represents one of the greatest challenges to be able to make it more efficient.
Likewise, they stated that projects generally do not reach them through open calls, but through referrals, events, networks and entrepreneurship spaces.
There is a need and an opportunity to develop human talent for the impact investment sector in Colombia
- The development of human talent is a central challenge to scale investment in social enterprises in Colombia and Latin America. Furthermore, in terms of scalability, it must look beyond the Colombian market as the ultimate goal.
- It is necessary to normalize the fact that a social enterprise, just as it can generate impact, can be financially sustainable. Many financial experts lack experience in the social aspects of impact investing. At the same time, many experts in the social sector lack experience in making financial investments.
Now while a new generation of advisers with expertise in combining philanthropy and investing (as well as related innovative legal issues) is growing, it is only now emerging. Therefore, it is often difficult to assemble teams with the necessary experience in both impact and performance and financial sustainability.
- There is a need to develop human talent for the impact investment sector in the country, with respect to all interested parties, not only with respect to entrepreneurs. Related to this, we identified a great opportunity to be explored from the academy in the higher education, so that professionals in training can approach these issues before facing the labor market and project themselves by exercising their careers with this approach, either from the side of the entrepreneur, the investor, the incubators and accelerators, the creator of public policies , etc.
- It is also an opportunity for professors and university directors to delve into the issue of impact investment and begin to identify routes in which progress can be made on the subject based on research and practice in Colombia. Likewise, it is a good time to advance and expand participation in international academic spaces such as the Northwestern University Consortium , which was attended by several representatives of Colombian universities in 2019, and generate similar spaces at the national level to generate knowledge and share good practices.
- Additionally, we evidenced the need to develop talent attraction and retention strategies in the impact investment space, especially in the entrepreneurial teams. In some cases, for example, incentives related to future participation in companies have been generated. However, in this space there is still a large field to be explored.
The rural sector in Colombia has a lot of potential but continues to be very disconnected
- Agriculture and Financial Inclusion are the main sectors in which impact investors are focusing their investment theses in the country. Now, to have access to the markets, many of the investors highlight the importance of having local allies and those who are already in the business chains, who know the geography, the social, economic and political situation . In other words, it is necessary to support the creation of bonds of trust between communities and with investors as part of the exploration, rapprochement and finally investment process.
- One of the main challenges in the Colombian context is the disconnection of rural areas in the country . There is a lack of infrastructure and security risks for transport and logistics in general. This means that taking the products from the countryside to the big cities and/or to the ports for export represents a high degree of difficulty and costs. Additionally, there is a significant concentration of the financial sector in Colombia in the cities.
- Several stakeholders stated that there is a great opportunity in the area of technologies applied to generate impact, particularly in the agriculture and education sectors.
There are regulatory challenges and the opportunity to develop public policies and incentives for the development of the ecosystem
- Impact investors expressed the need for the government to play a more active role in the development and construction of the impact ecosystem in Colombia. Additionally, they stated that it is important to keep in mind that the capital allocated to impact investment is risk capital, and therefore public policies and incentives should be developed so that more stakeholders are interested in this type of investment.
- From a regulatory point of view, there is an important space in the country for the development of legal and financial innovations to allow the ecosystem to grow and strengthen, and also generate incentives not only for investors but also for social entrepreneurs.
- Given that most of the investors present in Colombia have their headquarters in the United States or Europe , and make their investments in local and foreign currency , they stated that they face an evident and very high market stability and exchange rate risk.
- Impact investors in Colombia mostly identify themselves as impact investment funds and fund managers . However, we were able to identify foundations, NGOs and cooperatives that are also doing impact investing. In turn, in the world there are banks, DFIs, family businesses, pension funds, permanent investment offices that in Colombia we have not yet identified as impact investors.
Likewise, in the country there are investors who make conventional investments and also impact investment but do not identify themselves as impact investors. Thus, there is an opportunity to expand the capital available for impact investment and impact investors in the country.
Measuring and managing impact is a challenge for the ecosystem
- While there have been great advances in designing standards for impact measurement, such as IRIS , GIIRS and the Impact Management Project , it has been difficult to coordinate just one and define whether having a standard should be the ideal . Traditionally, investing and social impact occupied different walks of life, approaches and sources of capital, with social impact and evaluation approaches being investor-specific.
- From our conversations with impact investors in Colombia, we were able to identify that most of them have their own metrics , which makes it difficult to compare investments and their impact. Each one is measuring differently, although on many occasions their metrics are similar and/or inspired by standardized metrics.
- It is also a challenge for entrepreneurs to be able to generate their own impact measurement metrics and present to each of the investors what each one requires. It is a challenge for the market, at a national, regional and international level, to determine if efforts to promote uniformity or standardization of metrics should continue, or if each organization should determine its own metrics.
- In general, from the different perspectives of the actors in the ecosystem, there is a wide space of opportunities and challenges in education and training regarding impact measurement.
Finally, GIIN developed a roadmap that offers eighteen specific actions that the impact investing community should take urgently and can serve as inspiration and guide to determine the next steps in impact investing in the country. these suggested steps to take today will not only address the most immediate and pressing needs of impact investing, but will also have a significant effect well into the future.
This article was originally published on Impact Ecosystem in September 2019. The 2811 team updated it and republished it in February 2023.
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