In early September FormarHub, along with IQLatino and the IDEA Center at Miami Dade Community College, hosted a multi-day conference with young Latino leaders in education called Leading Education. Though the conference’s central theme was education a common secondary thread was entrepreneurship and it’s potential to solve the education gap in Latin America as well as other deep-seated issues plaguing Latin American countries like lack of access to health care and finance for low-income populations.

In early September FormarHub, along with IQLatino and the IDEA Center at Miami Dade Community College, hosted a multi-day conference with young Latino leaders in education called Leading Education.  Though the conference’s central theme was education a common secondary thread was entrepreneurship and it’s potential to solve the education gap in Latin America as well as other deep-seated issues plaguing Latin American countries like lack of access to health care and finance for low-income populations. 

Of the thirty-five conference attendees at least half had started their own socially-focused business or non-profit, as had many of the speakers like Fernanda Guliak from Reaching U in Uruguay and Angelica Ocampo from World Fund.  While discussing building and creating a social enterprise or non-profit these speakers, and many attendees, remarked that one of the first critical issues they faced was the need to raise funds. 

Fundraising is an ongoing focus for established NGO’s like the ones mentioned above, and it is critical and even more difficult for brand new startups and non-profits.  Data shows that initial “catalytic” capital is extremely hard to access because potential funders are concerned by the lack of a track record inherent in starting a new organization which makes them higher risk investments.  In addition funders may be concerned by the knowledge that 90% of startups fail.

One might think that impact investors would be prime targets for high-risk startups with potential for major impact on social problems, but they’re not.  In their Impact Investor Survey JP Morgan found that 89% of investors polled were planning on investing in mature or growth stage social enterprises and that only 8% were planning on investing in startups.  This is because, even if impact investors focus on both social and financial returns from their investments, they nonetheless can be risk averse and concerned about untested companies as they are still aiming to turn a profit on their investments.  The many ways in which social enterprises assess impact and the lack of data on successful exits from investments, largely due to the relative newness of the sector, can also dissuade investors. 

So who can a social entrepreneur turn to for seed funding?   Foundations, multilateral organizations like the IDB, and governments can and are working to fill the initial funding gap because they have a higher financial risk tolerance and an interest in finding innovative solutions to social issues. 

The IDB for example through its Multilateral Investment Fund (MIF) invests in projects in Latin America which increase access to finance, markets and basic services and is a major lender to venture funds with a social focus and microfinance lenders.  It has a special focus on social entrepreneurs through its Social Entrepreneurship Program which invests in business-oriented pilot programs that increase access to finance or services for bottom of the pyramid populations.  The MIF was one of the first to invest in social ventures, it started in 1999, and has since continued taking risks and leading the sector; in 2014 it became the first multi-lateral organization to pilot a Social Impact Bond program for member governments. 

Many Latin American governments, both national and local, have started incubators and accelerators to help early stage socially minded entrepreneurs define, develop and scale up their companies.  The best known example from Latin America is Start Up Chile.  Ali Al Jabry, a Leading Education conference attendee and founder of the Santiago de Chile based ed-tech startup Tabacus Initiative, graduated from Start Up Chile; he says that he found that it provided an important initial investment to, “get the ball rolling,” particularly as he estimates that most socially-focused startups will need two years to become cash flow positive.  Even more critically though Al Jabry found that the accelerator provided a network of supporters who would further enable his company’s expansion.  Following the initial popularity and success of Start-Up Chile regional copycats like Start-Up Brazil, Innpulsa in Colombia, and Inadem in Mexico were all kicked off to enable social entrepreneurs in these countries. 

Though multi-lateral organizations, non-profit investors like Acumen, and governments have a critical role to play there is space for greater private sector investment.  Some, like AGP Miami an investment club of angel investors interested in investing in “disruptive startups” with a social focus, have taken the jump into investing in earlier stages- but only in projects where they see potential for rapid scaling.  This already is something which social entrepreneurs can keep in mind, that the impact investment market is growing overall and that some private sector actors are starting to hedge their bets on earlier stage investments; nonetheless the sector is far away from majority private-sector seed funding and there is room to grow.