Investing in Latin America’s startups is terra incognita for most European impact investors. Attracting capital for the ‘missing middle’ in the region is a challenge but also a great opportunity, according to Social Nest Foundation
In brief
- Latin America is one of the less known regions for European impact investors
- Spain’s Social Nest Foundation aims to connect Europe-based investors with impact investment opportunities in Latin America and Spain
- During the recent Fi Gathering in Amsterdam, investors and potential investees debated the urgent need to mobilise more European capital into the region
Amazonia Impact Ventures is looking for extra financial backing from European impact investors as well as philanthropic funds. With a mission to make finance work for the ‘natural guardians of the forest’ – indigenous and forest people, living in the Amazon – the fund connects investors with impactful projects on the ground.
The fund’s project pipeline originates from strategic partnerships with local cooperatives, explains the governance & impact director and co-founder Carla Koffel. Because demand for their commodities is growing, she sees huge opportunities for responsible investors. At present, the fund has outstanding loans in Ecuador and Peru worth $3.5m, and wants to upgrade to $10m in the short term, and beyond.
This was one of the topics at debate at last week’s Fi Gathering in Amsterdam, organised by Spain’s Social Nest Foundation with the aim to connect European investors with impact investment opportunities in Latin America and Spain.
Other examples of Spanish and Latin American impact funds that are presently fundraising to invest in impact startups are Zubi Capital, focusing on companies that are not yet bankable by means of long-term loans, and Kaya Impacto which invests in a women-owned agricultural fund in Mexico.
A startup that is looking for fresh funding from European impact investors to scale-up operations is the Spanish-based Plant on Demand, an e-commerce and logistics management platform that allows single food producers and cooperatives to sell their products online.
Another example is Mamotest, which aims to connect health centres all over Latin America to give access to breast care to millions of women who have never had a mammogram before.
Less modest
Latin America is one of the less known regions for impact investors in the Netherlands. According to Veerle Berbers of the ‘conscious investors community’ PYM, there is an almost complete lack of exposure to the opportunities in the Latin American market and societies. Maybe, she suggested, Latin American people should be a little less modest, and push a bit harder.
What is true for the Netherlands is probably also the case for many other European countries, and the reason why Social Nest Foundation has set up its Fi Impact Investing initiative. By organising a series of meetings across Europe, such as last week’s gathering in Amsterdam, the Spanish platform hopes to encourage the mobilisation of capital in Latin America.
According to Margarita Albors, founder and president of Social Nest Foundation, there is an urgent need to bring together European capital holders, fund managers, philanthropic foundations and family offices to inform them on the impact investment opportunities in the region.
“The size of the business solutions and volume of capital that needs to be mobilised in Latin America must be stepped up in order to meaningfully help find solutions to the most pressing issues affecting the region,” Albors said.
Social Nest Foundation itself is a representative of the fast-growing Spanish impact investing community, which gained momentum in recent years following the creation in 2019 of SpainNAB, one of the 35 national advisory boards (NAB) under the Global Steering Group for Impact Investment umbrella. Representatives of the Dutch NAB were also in attendance at the Amsterdam event.
Paradigm shift
Social Nest Foundation’s role is to connect individual European investors and family offices with real investment opportunities and sharing with them the experiences of private investors who are already deploying capital in regions such as Latin America.
Most impact investments in Latin America so far are focused on agriculture and microfinance. Companies that are too big for microfinancing but too small for private equity find it however extremely difficult to attract capital.
Making capital accessible for that segment of the market entails a paradigm shift in two crucial aspects, according to Social Nest Foundation. The first relates to the inclusion of profitability, risk and impact, with an eye towards investing not only in the best performing companies, but also in those that most positively impact society. The second, the inclusion of a systemic viewpoint, since many problems affecting Latin America are systemic issues which demand systemic responses.
Despite its many challenges Latin America still offers a remarkable stable investing environment, according to Luca Torre, founder and CEO of GAWA Capital. “There are however several market failures that only can be addressed by impact investing,” he said.
In his opinion, the most pressing ones are the enormous inequality in wealth distribution, the highest in the world, as well as the ongoing destruction of the region’s rich biodiversity, with 50% of all species worldwide living in the continent.
With his own impact investment advisory firm, Torre made a focus shift from microfinance to agriculture. “Many people thought this was a very stupid move, but we’ve shown that investments in social agricultural companies promote socio-economic development, whilst also providing a financial return to investors.”
There is a big need in Latin America, added Torre, for new financial actors with lower risk aversion, greater flexibility in returns and high motivation for impact to step in as a catalyst. To attract them, blended finance strategies using public as well as philanthropic capital to incentivise private investment are essential. ‘Blended finance is extremely powerful, I’m a big fan.”
