Latin America’s Unique Brand of Impact Investment
The Latin American Impact Investing Forum, better known in the region as the FLII (Foro Latinoamericano de Inversión de Impacto), concluded February 17 after three busy days of activities, panels, pitches, and parties. Held in the Mayan City of Merida, Mexico, the FLII is now in its 7th edition, and has grown significantly in prominence and attendance. The 2017 event included over 400 engaged impact seeking participants from foundations, financial institutions, funds, faith based organizations, social enterprises, development finance institutions, governments and a few corporations. Leaders from the impact investing industry- those that intentionally target specific social objectives along with a financial return and measure the achievement of both, gathered to learn about the latest trends, promote new ideas, network, and match make.
It was evident that Latin American impact investing is growing and evolving its own identity. What had been more of a Mexican event in years past, this year’s FLII had representatives from 18 countries of the region. Many make the journey to Merida each February to see like-minded friends; others to find a different way of thinking about and funding an impact investment; and still others to identify new partners or funding opportunities. Topics discussed included: investing in difficult times, the role of foundations in impact investing, the emergence of corporate venturing for impact, measuring what matters, clean energy solutions, faith based lending, using a gender lens, the role of impact bonds and much more. The vibrant ecosystem of actors and the topics discussed illustrated how sophisticated the impact investing community in Latin America has become. Although there were many participants and panelists from the US and Europe, the discussions were centered on what was happening in the region drawing heavily on Mexican and Latin American based entrepreneurs, investors, foundations, and models.
One session where the regional voice was particularly present, was at a seminar that the Multilateral Investment Fund (MIF) and Transform Finance organized, together with New Ventures Mexico, on the topic of "New Funding Structures for Social Enterprises." What resonated was that many social enterprises in Latin America, especially agricultural or other seasonally based businesses, need greater flexibility; while a number of fund managers said their portfolio companies often want to grow organically in the long-run, rather than prioritizing fast growth and selling their shares. What emerged is a sense that there is room for innovation and a need to customize funding approaches for Latin American entrepreneurs. The seminar presented some new funding models such Adobe Capital, the Mexican based fund that is currently offering founder-friendly mezzanine structures that incorporate royalty-based repayments that respond to the needs of local entrepreneurs. Adobe Capital offers structures that provide a clear path to liquidity in a market with few acquisition opportunities, and this is an innovation that serves as an example for other impact investors.
Perhaps one constituency that continues to be under represented at the FLII is the corporate sector. Two French companies, ENGIE and DANONE, presented their approaches to corporate venturing, the act of leveraging people, ideas, technology, and business assets to drive new forms of value creation, both commercial and social. Innovation and investment teams within these two companies are working on strategies that allow their businesses to explore and experiment with new business models, product and service offerings, and supply chain processes that are intentionally trying to create positive returns to the communities where they operate. But there are many other companies venturing for impact and seeding new startups that the FLII community would benefit from knowing. The Practitioner’s Guide: Steps to Corporate Investment, Innovation and Collaboration contains 20 corporate examples to draw from, including partnerships between companies and impact investors.
The potential of corporate wealth and the way corporate leaders are feeling about disruption and the need to invest in innovation, new business practices, and value creation to remain competitive, make businesses important potential partners of impact investors. With approximately $2.2 trillion in cash on the balance sheets of companies in the US and the UK alone, the question the FLII participants should be asking is how can LAC impact investors unlock some of this corporate cash to enable more impact investing? This will be increasingly true moving forward as we witness a time of maximum uncertainty from government and international organizations; increasing the demand for corporate funding in the impact sector.
As Latin America continues to excel and grow its unique impact investing industry, it will also continue to be a model for other regions and investors. Let’s hope the 2018 FLII has many new models to share on funding structures and corporate partnerships with impact investors.