Hero Investor

The developing world needs investment that helps develop and scale technologies for small-scale farming. As one of the oldest of human activities, it may seem strange that the agriculture sector requires a great deal of investment. Agricultural investment in the developed world, for instance, involves millions if not billions in research funding, such as for weather tracking by GPS and satellites to ensure adequate irrigation and fertilizing of land or discovering new hybrid varieties of crops that resist pests. However, investors have largely ignored the developing world, where agriculture is still a very manual function, without access to much, if any, technology. In order to jump start these smallholder agricultural businesses, large numbers of investors are required--although not in the guise of angel investors who are not quite prepared for this particular challenge.

The investment challenge

The concept of the hero investor came from an analysis of a long-term agricultural project sponsored by the Swiss Agency for Development and Cooperation (SDC) and implemented by iDE, a global NGO based in Denver, Colorado. The goal of the Scaling Up Productive Water project had been to increase adoption of drip irrigation technologies, which had demonstrably increased incomes and reduced water use when implemented correctly in drought-prone areas. While traditional grant funding provided by SDC was invaluable in identifying barriers and gaps in the market, a different funding style, moving away from log frameworks and typical M&E requirements, was needed to overcome some of the obstacles in these difficult locations.

For example, governmental policies set up to protect local manufacturing can have a negative impact on smallholder farmers. Tariffs on plastic goods may encourage the development of a local plastics manufacturer dedicated to household goods containers (food storage, waste buckets, etc.) by increasing the cost of imported goods to match those made locally. Unfortunately, because legislation tends to generalizations, the same tariff could also be applied to plastic goods such as drip irrigation lines, which are not manufactured locally, and increases the cost for such equipment without any social benefit. Smallholders lack the funding and organizational support to lobby national governments for policy changes to increase market access; however, independent investment could be leveraged to influence key decision-makers.

Another example is how multi-national agricultural companies typically focus on large farms as their primary market. As Naty Barak of Netafim, a large Israeli irrigation manufacturer, said, “If a sales team arrives in Addis Ababa and has to choose whether they will go to the left and serve a 10,000 hectare sugar plantation or go to the right with 500 smallholder farmers, they will obviously turn to the left.” However, what if that sugar plantation doesn’t need additional equipment, yet is constantly visited by sales representatives? The misperception of a large market always being more lucrative needs to be addressed through market research so as to identify the sales potential to smallholders and other market development activities.

In iDE’s experience of stimulating markets for new technologies and innovations, a handful of champions—those early adopters who see opportunity—lead the way for wider adoption once a market is proven. Smart investment that seeds the market with more early adopters has the potential to accelerate the scale and reach of productive water technologies.

Investing for impact

Many institutional and private donors have missions that fund improvements to smallholder agriculture resulting in much progress being made around the world. As market development at the base of the pyramid reaches locations that are distant from population and industrial hubs (as iDE calls them, ‘the last mile’), more research and innovation using agile development is required. Supporting agile methodology, where swiftly shifting priorities and focus are the norm, is a challenge for traditional funders whose reporting and governance requirements often necessitate locking into a single solution or method with little room for change.

This is the space for a hero investor. Hero investment can cut across segments of the market. Hero investors can focus on being the change agent—not to produce specific impact targets or goals, but to improve the environment so that large numbers of people can prosper. Flexible hero investment enables the greatest possible reach—into government, private industry, and local entrepreneurs.

Do you want to be a hero?

What should a hero investor look for when evaluating a potential prospect?

1. The potential for a solid return. Much the same as angel investors who look for a higher return than what they could realize by investing in the stock market, hero investors should ensure that the potential for social impact for their investment is greater than what they would receive if they simply donated charitable funds. As an example, iDE commits to a return of at least $10 in increased incomes or improved livelihoods for its clients for every $1 invested in its programs.
2. A good reason to invest. Not all development opportunities are created equal. Similar to a due diligence process for angel investing, hero investors should evaluate the business plan for a potential investment and determine whether, firstly, it is complete, and secondly, it is convincing. All forms of investing carry risk and many businesses fail. In the case of hero investing, the tipping point is identifying opportunities that will produce significant social impact or provide a body of knowledge to inform future success.
3. A solid, experienced management & implementation team. A start-up may be a new business, but the people behind it aren’t necessarily inexperienced. Many start-up management teams have wide experience in other businesses. Similarly, in the development arena, a team should have experience with the process and the culture in which it is to be implemented. For this reason, iDE has committed to country-specific program offices in select countries, and focuses on adapting solutions to the local context, rather than pursuing just one or two solutions the same way across the globe.
4. The opportunity to be actively involved. Hero investors can make contributions beyond their funding input. By sharing their goals in investing, and how they’re investing, they can attract other investors to successful initiatives. 
5. A viable exit strategy. The principle criteria for hero investment is to fuel sustainable change—one that doesn’t require external investment for it to continue. Because of this, many hero investors look to strategies such as social enterprise that demonstrates strong planning for profitability. iDE’s social enterprise, Hydrologic, which sells affordable water filters in Cambodia, became profitable in 2012 after ten years and hasn’t required external funding since.

For people earning less than $2 a day, all donors who provide assistance are heroes. To truly ignite the change that delivers sustainable market solutions, flexibility and innovation in funding can fuel much needed research, design, and implementation of new market-based approaches.