Closing the Gaps: How an NGO identifies and effectively uses synergies to spur underdeveloped inclusive business ecosystems
As a part of our series on NGOs and inclusive business, we spoke to Jaap Jan Verboom, Director of the Agribusiness Booster, an impact investment fund backed by ICCO Cooperation, a Dutch NGO that is part of an international network of NGOs with a protestant background.
The blog post was authored by Susann Tischendorf and Carolina Zishiri.
1. What is the Agribusiness Booster?
The Agribusiness Booster supports small and growing businesses in developing countries through capital investments and business development services (BDS). Our aim is to help companies mature and ensure they overcome the so called 'Pioneer Gap' that occurs when they are too large for seed funding but too small and considered too immature for impact investing.
2. How do you identify the companies you are working with?
We focus on agri-food companies close to the production site of the value chains. We do not invest in commercial farms or in companies that work on commodity products, such as bulk rice, bulk cocoa or bulk coffee, but into products that have a higher value like fruits, vegetable or fish. We are quite 'value chain agnostic' but only select companies that source from smallholder farmers. We believe that by integrating those farmers into the value chain, the companies we support create the social impact that we aim to achieve. We work with the local offices of ICCO to scout and assess the companies.
3. What kind of support are you offering exactly?
We offer a smart mix of support that we call co-entrepreneurship. As a co-entrepreneur we provide technical assistance to a company and at the same time we do investment, usually equity between 100.000 – 250.000 Euros. As for the technical assistance, we help the company effectively run their business, identify and work towards their strategic growth opportunities and also give access to markets, especially the Dutch one.
4. Please give a concrete example of a company that you invested in?
One example is the company Natur in Bolivia. It processes fruit and other forestry products from forest communities and smallholder famers, and then freeze-dries the product. Freeze-drying is a huge value step in the value chain process. It enables the company to sell both to the local and the international market. We invest in the company but at the same time we work towards importing the products for the Dutch retail market.
5. How are the Agribusiness Booster, the ICCO Cooperation, and ICCO Investments linked?
They are complementary. Without the three entities, we would not be able to offer our services. For example, operating as an NGO only, we would not be able to offer investment and business development services effectively nor would we be able to realize economic return on our investments.
Therefore, we formed the Agribusiness Booster investment company. The ICCO Cooperation is one of the larger shareholders and investors to the company. In the execution of the work we make use of ICCO’s local presence. Sometimes we even use ICCO staff, for example when we need to improve the finance functions of a company.
The idea is that our investment re-enforces the value chain development work of ICCO Cooperation. At the same time, the value chain development work of ICCO - like working with the farmers - de-risks our investments. So what happens is that ICCO Cooperation runs a value chain development programme through an NGO approach, while the Agribusiness Booster invests in companies in the value chains where ICCO Cooperation is active in.
Then there is a third entity, ICCO Investments that does funding beyond the pre-growth stage. So the Agribusiness Booster functions as a pipeline and its current investees are potential future investees of ICCO Investments.
6. Compared to other impact investors what do you think are the advantages and disadvantages of your special approach?
The advantage is that we have a whole ecosystem in place: As an NGO, ICCO Cooperation can scout and identify entrepreneurs by doing some initial business development training. As Agribusiness Booster we can actually invest in the company and ICCO Investments can do investments at a later stage.
If we would not have the local presence of ICCO Cooperation, we could never do what we do. Its decentralised structure enables us to operate in ten different countries and to pursue a hands-on approach that is close to the entrepreneur. The disadvantage is that ICCO as an NGO has a different culture and a different mode of operation.
7. What are the strengths and weaknesses of NGOs in impact investing?
As mentioned before, the strength of NGOs is their decentralized local presence. They do not only know the people on the ground. They also have a very strong network in terms identifying and scouting new businesses and checking the credibility of entrepreneurs. Finally, they are strong in reaching out to the farmers that work with the companies and hearing from the farmers if the companies are trustworthy. There is no investor that can do that.
However, the weakness is that NGOs work needs-based. It is the DNA of NGOs, while an investor works opportunity-based. From an investor perspective you would say that NGOs get constantly drawn away from the opportunity and that they spend too much resources addressing the needs they see.
8. What is the Business Booster Academy?
The economies that we work in have an underdeveloped ecosystem for entrepreneurs. Hence, it is difficult for local entrepreneurs to get access to proper business development services, certainly not in the rural areas where the most of our investees are located. We therefore started the Business Booster Academy that trains our own staff in the ICCO offices, as well as local consultants, to provide those lacking services. For example, we built special tools like a business case financial model tool or a lean start-up tool. We developed internet-based trainings and use YouTube videos and Google classroom to teach. By now, we also train other practitioners, like the entrepreneurs we work with, other investors or business development consultants. And by now everyone can access the service. In order to access the Academy just approach us by sending an email to my colleague Walter.
9. If we are imagining the NGO landscape in 5 or 10 years, will the DNA of NGOs change or will NGOs continue with the approaches that they have today?
What I hope is that a new class of organisations will emerge: Organisations and social companies that are similar to what we are. I think NGOs could be the shareholders or investors in those companies, but I wouldn't want NGOs to trigger that transformation themselves. I also hope that NGOs will continue doing the things that have no investment business model but that are very much needed. Instead, I hope that NGOs continue to focus on that while the new class of organisations will do the economic development work that has a business case.
Have a look at another example of the Agribusiness Booster's investees: +CAMPO in Colombia.
This blog is a part of the October 2017 series on NGOs in inclusive business, in partnership with endeva.
Read the full series for insights on what kind of roles NGOs have carved out for themselves, either as partners of companies, as intermediaries, investors, or even as entrepreneurs and their lessons learnt in doing so.