Five common confusions on Fundraising vs. Partnerships.

A lot is happening in the world of international development cooperation and the resources available for the coming years. There are public discussions in many countries regarding the (sustainable) impact of development aid. Many (governmental) donors are cutting back their funds and many foundations have less resources to spend and therefore engage more than ever in fundraising or partnership activities. Philanthropy advisory (fundraising) firms are probably making record breaking revenue by providing training, workshops, fundraising consultancies and recruitment activities for many nonprofits worldwide. Sometimes these firms paint the picture as bright as ever, using data from 2006 or 2008, hereby providing a list of top 50 foundations by expenditure, where at least five of the top ten foundation had lost 20-50 percent of their spending for 2011 onward.

With the scarcity of resources, new opportunities arise, topics such as Venture Philanthropy, Impact Investing and Social Investments. Funds are being developed that serve the BoP, however still demanding a minimum of 10% ROI. So, bottom line – for many nonprofits not a feasible option to pursue for their grassroots operations. Fundraising is more than ever key for many organizations in order to continue their activities and even so to survive. So, based on my experience, I selected five confusions organizations create while developing and implementing their fundraising or partnership strategy on attracting resources from other international players.

1. Two agenda’s principle.

The principle underlines my experience with fundraising strategy development of nonprofits in order to raise additional revenue for their programs. It is simple – develop a fundraising strategy, which to external stakeholders is presented as a partnership. Of course one can argue, whether organization really know the difference between partnership development and fundraising. I believe organizations understand the difference, however use the partnership definition to convince their fundraising target group to “partner-up”.

It all depends on your target group: Fundraising is feasible from corporate foundations or multilateral institutions and government programs regarding development cooperation. Multilateral institutions, (some) corporate foundations, as even the larger (international) foundations have annual tender application rounds where nonprofits (if eligible to the criteria) can submit a Letter of Inquiry. Others are directly invited to submit a concept note (based on the visibility in the media and results achieved in their programs).

2. Benefiting who?

But who benefits? If a strategy is based on fundraising for your own programs and partners, how does a partnership fit in? A partnership is based on openness, sharing knowledge and network in order to create more impact to joint (developed) programs or projects. Leveraging resources is not only financial, but also measured in dissemination of knowledge, visibility, develop new initiatives and attracting other donors to contribute (joint fundraising).

3. Deliverables – understanding what one expects from you and vice versa.

Fundraising is an one-way street, where the relationship has clear and set parameters. A nonprofit develops a letter of inquiry for funding and the grantor approves the proposal. The relationship is based on the outcomes of the funded project. A partnership for that matter is a two-way street – focused on deepening the relationship, creating added value to the collaboration and challenging each other on programmatic topics or strategic issues.

4. Start & End or Evolve the relationship?

Fundraising relationships have a agreed start and end (e.g. project end), new proposals have to follow the same principle of application, there are no exemptions. The role of the grantor is on macro level towards a project and/or program of the grantee. There is little sharing of knowledge or other joint activities. That said, a Partnership is based to evolve and grow the relationship. Hereby  for instance, starting with leveraging resources in each other’s programs – to identify and develop new opportunities – to share expertise and disseminate knowledge to others – as to attract other investors to participate (alliance building).

5. Leave the work to outsiders – wise idea?  

Fundraising can be done by a specialized bureau or agency, which through direct marketing attracts donors. This is very common in community and/or public fundraising. International nonprofits may hire expertise to assist in identifying the landscape of funds, as to develop the project proposals for submission. However, some organizations tend to hire external consultants to develop and execute the partnership strategy (read fundraising) and initial outreach. Hereby the consultant not only being involved for desk research and advice, but also being in the driver’s seat for external communication towards the identified target group.

For fundraising it does work, as the consultant acts and speaks in behalf of the organization. The relationship is “platonic”, based on raising additional revenue. If a grantor requires more in-depth information about the applicant (programs, projects etc.), the grantor will be transferred to a staff member of the nonprofit. Partnerships are based on trust and starts with a group of trustees from both organizations whom believe that collaboration will benefit each other and hereby seek leverage within their organization to develop the partnership and monitor the progress and results achieved.

What’s new?  

If your organization is looking for funds to continue or expand your current programs, please continue the path of fundraising. Mind you that the resources are becoming less available and more competitors are active in your area of programs or topics.

However a partnership is an interesting opportunity to pursue. Hereby keeping in mind that leveraging current programs means that perhaps other topics need to be reduced or transformed (be flexible). Partnership is based on give and take, a two-way street which will enable your organization to continue the work, but it does not mean that sacrifices (cutbacks, new focus or strategy development) do not have to be made. Be careful not to engage in a partnership due to lack of funding for your programs (due to cutbacks donors or weak programs – outcomes). A partnership is based on equal respect and successful outcomes of the joint projects. By starting the partnership on a weak basis, it might turn sour and you lose the partner. Start the partnership with a successful formula, hereby challenging the partnership to other more risk full opportunities in a mature phase of the relationship is a more sustainable approach.

Important is not to confuse Fundraising with Partnership development. You will have a short term gain, but on the long term you might lose the partner due to the fact that expectations were not met.  And gaining a partner is much easier than retrieving a lost partnership!

WANTED: Investors in social impact start-up business ventures

The header sounds familiar to the experienced impact investors, nonprofit organizations, development banks, investment funds and many more in the field of business and poverty alleviation.

The purpose of this blog is to share my experience and views on bridging the gap between a business opportunity, the inclusion of the BoP and the social investors that can make it possible.

 

Throughout 2011, I had the pleasure of meeting a variety of US and European Investment Funds, Impact Investors, Foundations, NGO’s, Entrepreneurs and Corporate Foundations whom all are engaged in philanthropic activities and in impact investment related opportunities. The projected outcomes sometimes dazzles me– ranging from the beneficiaries reached (100.000) – the carbon credits generated (250.000) – to the projected ROI of the business (over 20%).

 

Now these numbers are excellent, even more if it means improving the lives of low income populations in developing countries. When asked for the risks involved, some investors noted that they will averse every possible risk. An minimum ROI and an average EBITDA margin of over 20%, with at least tripling annual revenue by year 3. Even more, with a return on investment of over 20%, after year 1, I wonder whether it is really bridging the gap between a business opportunity and poverty alleviation (the very poor).

 

Let me explain: Most of the proposals that were presented to me, concern service or product provided type of deals – (i) Small farmers have access to purchase (through microcredit) hardware to work their fields, (ii) Urban families have access to mobile banking (once more, microcredit), (iii) poor rural/urban families will use renewable energy (cooking stoves, lightning etc.), poor families will have the opportunity to move out of the slums and live in affordable housing projects, (iv) through microfranchising, the BoP has access to basic healthcare etc).

 

These projects have huge impact, are scalable and replicable as a model. However, the risk associated with (social) impact investing is not very feasible. Most of these projects are service or product related, tackling a need (or demand) from the (previous seen as unreachable) bottom billion.

 

I would like to challenge the impact investment community a bit more.

Think of a joint-venture between an (successful) Entrepreneur from a developed country – already having a profitable international business in high value niche commodity – and a local (producer/wholesaler) entrepreneur in a developing country. Both want to grow and expand their business, however with a CSR – pro poor approach. Meaning that they want to integrate small farmers into their supply chain. Comes along a NGO, that has the network of local cooperatives and farmers’ associations, providing (through international grants) capacity building training of the farmers and basic management of the cooperatives. By combining the strength of the private sector (the business approach) and the experience of the nonprofit working with poor marginalized communities, there a possible match made in heaven…

 

So far, nothing new or innovative, right?

Well, imagine that the nonprofit is able to invest (equity) in the joint-venture, hereby becoming a shareholder and monitoring the input and integration of the small farmers in the supply chain of the company. For the company the participation of the nonprofit with risk capital, gives a boost in the relation and trust that even the NGO sees the business as a viable and sustainable opportunity. Said that, the development banks hereby express their interest to participate, either with a grant (for the smallholders) and/or loan (to the company).

 

Now I’m getting there….

This is a start-up initiative (there is no financial track record more than 3 years of the joint-venture), between two companies (as it happens every day around the globe), the twist is that it entails more risk, because the suppliers are base of the pyramid communities, mostly in remote regions of a country and there is no track record of previous sales. Furthermore, doubling yearly revenue is not feasible, neither a ROI of plus 20%, more likely it will be around 5-10 percent. The estimates are based on current markets and future trends, as to financial records of the individual companies. The commodity irself, is of high potential for the next 10 years (booming industry).

 

Here’s the bottleneck…

With the commitment of the international nonprofit organization, the two companies, the development bank and perhaps one additional local angel investor, there still is a gap to be financed through loans and equity participation. The business plan (with GIIN IRIS indicators) entails the development of an environmental processing facility, including the needed logistics and certifications.

 

The impact generated: inclusion of 2.000 small producers in the supply chain (pilot phase), the generation of carbon credits (which will benefit the marginalized communities), income improvement of 2.000 families, the first business initiative in the Amazon region (with indigenous communities), an environmental friendly ecological footprint, no deforestation of the region.

The projected financials: Third year revenue stream over US$ 4 million and a three year average EBITDA of 12%.

The bottleneck lies in the fact that there is still US$ 2 million needed, of which US$ 1 million is equity and/or debt finance. I’ve spoken to many impact investors, well known foundations (think of PRI’s), however the project is to risk full in their views. I chose not to provide the details of the investors, but here are some of their feedback comments:

 

“It looks like a very interesting and unique model, and one that we hope takes off! After some initial internal review, it looks like the opportunity to co-create with you on these types of projects is not a fit for us.”

 

“Exciting loan prospects this year include a charter school in, a fast-growing company that converts weeds and crop waste into eco-packaging for the food and consumer products industries, and an award-winning non-profit that keeps tons of waste out of the landfills and employs over 30 recovering drug and alcohol addicts.” – United States

 

“From our side, the types of businesses you are describing sound interesting from a social impact perspective. At the same time, these companies would not yet qualify (due to their start-up nature) for our standard loan portfolio. The standard portfolio only invests in companies that have a stable track record, are profitable, have audited financial statements, etc. Therefore, we could only potentially invest in them once they are well past the start-up phase.”

 

 

The model I’m presenting is a different approach on impact investing, it does not concern the distribution of a service or product among the bottom billion clients. This project is value chain integration of the poor. For me it’s the ultimate model of (corporate) social entrepreneurial responsibility. How to include the base of the pyramid, providing them with a sustainable income, training and access to markets through the direct participation of a private sector company with a pro-poor approach of doing business.

 

The return on investment is lower than the average investment in emerging markets, however the social return on investment is just as rewarding. Even more, an experienced entrepreneur with international expansion expertise, will never invest equity from the company if the business opportunity were not to be viable. These are not junior social entrepreneurs that want to make a change in the world – partner up with an entrepreneur that has seen and done it all and now wants to go for the next challenge, within their range of business and expertise (sector).

 

Making the difference to the BoP

“ How to achieve sustainable impact to the BoP through PSD and Development Aid”

A focus on Latin America & value chain integration

Latin America is a region that is characterized by its socioeconomic growth potential. With leading countries such as Brazil, Chile, Peru and Colombia, the region has enabled improvement in competitiveness, infrastructure, international trade partnerships, strengthening of regional and national financial market systems, state reforms and modernization, hereby making improvements in reaching the small & micro enterprises which are growing in numbers, contributing to job creation, economic activity and the gross domestic products of the countries.

Economic growth in the region goes hand in hand with reforms in access to land and means of production, decent wages and international trading opportunities. Healthcare and education facilities, promotion of civil society and attention to vulnerable groups are some of the preconditions for a sustainable development of opportunities in the countries.

The private sector plays a pivotal role, accelerating the pace in identifying new business opportunities in which it can partner with multilateral organization, financial intermediaries, nonprofit organizations, institutions and governments. Hereby creating a multi stakeholder engagement where the return on investment is not only profit, but moreover promoting the socioeconomic development of the region. Integrating for instance the low income communities into the value chain through a sustainable business approach. The private sector is increasingly investing time, knowledge and resources into strengthening local small enterprise networks that show promise to become suppliers or otherwise participate in the supply chains. Besides the traditional sectors as agriculture and natural resources, there is a growing demand for investments and innovation in the fields of renewable energy, clean technology, waste management, innovative production technology, financial services, telecom and media as to logistics.

The opportunities in the rural areas of the region are in need of a different structure and approach on poverty alleviation and productive integration. Focusing on themes like (sustainable) agriculture, renewable energy, climate change and access to basic services. A strategy which is based on four key principles:

(i) Sustainable exploitation of the competitive advantages of a region or territory;
(ii) Enhancement of the ability of local productive systems to participate in value chains;
(iii) Involvement of private enterprises as investors;
(iv) Economic inclusion of the local population, particularly the poorer social sectors.

For low-income communities to be able to compete in the global market, it will be an advantage to collaborate with investors and private enterprises that have the linkages to the markets, expertise and technology to transform and add value to their products. Knowledge sharing by exchanging information and strategies and improving the quality of initiatives through learning from shared experiences will help generate a consistent and sustainable impact in low-income communities, not only at the level of local producers, but within the region and in the wider international business community and its counterparts.

Investment in multi-stakeholder collaboration – which must include local NGOs and link with (local) authorities, local businesses, financial institutions, educational facilities, etc. – must be geared towards enhancing sustainable development and socioeconomic opportunities (in terms of entrepreneurship, business, spin-offs). Environmental sustainability may be enhanced through the introduction of a methodologies and requirements for business partners for organic certification and measurement of greenhouse gas emissions. The international joint ventures and the initiation of a multi-stakeholder process are expected to set an example which will have a positive impact.

The Dutch development agency ICCO is engaged in promoting and supporting the multi stakeholder approach, hereby collaborating with European enterprises, Multilateral Institutions, foundations, local civil society organizations as the local business community in Latin-America. Hereby focusing on niche opportunities in agribusiness, waste recycling, renewable energy and more. Bottom line is to provide an sustainable outcome for the base of the pyramid.

Kansen voor Nederlandse Franchise ondernemers

“De nieuwste trends uit de Verenigde Staten”
Begin april organiseerde de Amerikaanse International Franchise Association (IFA) in Washington de Expo over franchise mogelijkheden in de Verenigde Staten. Aanwezig waren ruim 200 exposanten actief in de sectoren zoals food, retail, onderwijs en senioren producten. Een behoorlijk hoog aantal participanten, waarbij IFA ook enkele seminars en workshops aanbood aan de bezoekers.

Europa wordt gezien als een volwassen markt, met een duidelijk potentieel voor innovatieve concepten in een breed scala aan sectoren. Onder de exposanten – waarvan een heel groot deel fast food franchise ondernemers waren – zaten enkele kansrijke concepten voor de Europese markt. De franchise ondernemers die ik gesproken had gaven aan graag hun concept in Europa te willen uitbreiden.

Nederland wordt gezien als een pilot gebied – dat als springplank kan dienen voor grotere markten zoals Duitsland en Frankrijk, alsook opkomende landen in Oost-Europa. Zo sprak ik met een franchise ondernemer die West-Europa en Scandinavië ziet als nieuwe potentiële markt om zijn luxe espresso bar te presenteren, – Kaña, Cuban Coffee Roasters – een traditioneel Cubaanse stijl cafetaria, voor de ‘hispanic café’ liefhebber. Duurzame, biologische koffie van kleine producenten uit Centraal en Zuid-Amerika, behoort tot het keurmerk van het concept.

Verder was er dit jaar een Koreaans paviljoen, met Koreaans fast food en stir-fry – er stonden lange rijen voor een sample van de KRAZE burger. Foot Solutions is een concept voor de senioren consument. Een schoeisel specialist die naast het verkopen van schoeisel voor heren en dames, ook via innovatieve methodes (chronische) pijn, blessures, artritis constateert en daarbij de juiste schoeisel of inlegzolen adviseert. Al meer dan 10 jaar marktleider in de Verenigde Staten, hierbij ook actief in een groeiende niche markt met weinig concurrenten.

Betreffende Horeca waren de bekende franchisers aanwezig zoals Baja Fresh, Chipotle, Johnny Rockets en 16 Handles. De laatste is een – frozen yoghurt – franchise, recent in 2008 gestart in New York en opstartkosten tussen de 200.000 en 350.000 euro. Een nieuw concept in fitness is bijvoorbeeld Ellipse, waarbij het revolutionaire fitness concept een niche gecreëerd heeft op de Amerikaanse markt. Voor kinderen onder de 12 jaar heeft de franchise Mad Science een leerzaam concept geïntroduceerd, op basis van natuurkennis en chemie, waarbij op een leuke leerzame manier de wereld van techniek en ‘science’ aan kinderen wordt bij gebracht. Inlevingsvermogen en meedoen is een belangrijk aspect.

De laatste franchise concept die de mogelijkheid verdient om de vraag op de Europese/Nederlandse markt te onderzoeken was een franchise nailstudio. Ook in Nederland kun je terecht – zoals in Den Haag bij een Chinese – nagelstudio, echter kwaliteit, hygiëne is niet altijd aanwezig. Een concept onder de naam Miniluxe, bedacht door Amerikaanse (ex) CEO’s van o.a. Boeing, Kellog’s, Rockefeller, Chevron etc is een model waarbij men heeft gekeken naar lage opstartkosten, minimale risico’s (die bijvoorbeeld bij horeca of fitness veel hoger zijn), return on investment en de garantie voor kwaliteit en hygiëne, waarbij echt een verschil wordt gemaakt met bestaande salons (vaak een combinatie van kapsalon, pedicure etc) in het land. Een franchise nagelstudio bestaat in ieder geval nog niet in Europa, is dit een niche?

Volgende International Franchise Expo is in de periode van 15-17 Juni in New York. Wilt u meer informatie over Amerikaanse franchise concepten en welke bedrijven er meer geïnteresseerd zijn in de Nederlandse markt?

OPIC – Challenge on Sustainable Development

OPIC: Expanding US companies in developing countries through Impact Investing

OPIC has developed excellent tools to challenge the U.S. private sector to invest in developing countries, focusing on niche opportunities in various sectors, combining critical issues and needs into opportunities for the private sector in creating economic growth in emerging countries. Of course, the outcomes have to be sustainable and generate impact to the local communities through jobs, inclusion into the supply chain and transfer of knowledge & technology.

With the development of a new call for proposals focusing on impact investing, OPIC is pushing the boundaries once more, challenging even further the U.S. private sector to contribute in obtaining a higher social return on investment, creating a sustainable model of investing, where low income communities can be integrated in the value chain of a company or industry.

Impact investing involves other stakeholders in the process (proposal), like nonprofit organizations, local governments, multilaterals and civil society organizations. The outcomes goes beyond the creation of jobs or transfer of technology – to create impact on social and environmental level, the private sector needs to collaborate with one or more of these entities mentioned above. Collaboration in knowledge, network and expertise is of important value for the proposal to succeed and guarantee sustainable outcomes for the company (ROI) and impact to the communities in a developing country. Bottom line is that the private sector can’t do it alone; it needs to collaborate with others to achieve impact. I hereby like to point out a few key criteria (in 3 categories) which I recommend to include in the concept or as tools for this call for proposal:

EASY

1) Profile should contribute and/or follow: (i) International standards – OECD Guidelines for international Enterprises on CSR, (ii) ILO declaration on fundamental principles and rights at work, (iii) UN Convention on biodiversity and (iv) Millennium Development Goals.

MEDIUM

2) Supply chain responsibility: The company must be aware (and act) on their role and the role by their stakeholders in the supply chain. For instance: FSC compliance, child labor, quality standard, environmental impact, certification (fair trade) etc.

HARD

3) Multi stakeholder approach: How to include low income communities in the supply chain (?), who is needed for collaboration? If you take an agricultural project where a company invests in setting up a local production facility – how can the company involve small farmers as their main supplier (?), how can the company guarantee production (volume etc) and quality? With whom does the company need to establish a partnership and is there other funding available to assist these low income producers?

4) The role of OPIC in assisting in the multi stakeholder approach: Can OPIC create linkages with institutions (like Inter-American Development Bank, Foundations, NGO’s etc).

5) Joint Venture opportunity with local counterpart: Instead of establishing a local entity of the U.S. company, provide the opportunity to form a joint venture with local counterpart, which has established an excellent track record and is ready to grow into the next phase (the Gazelles). Identification and matching can be done through the U.S. embassies – trade representatives, local federations or chambers of commerce.

Franchising in Europe

FRANCHISE ENTRY POINT EUROPE: START SMALL, GROW BIG: INVEST IN THE NETHERLANDS

April 1st is the start of the International Franchise Expo in DC, the largest franchise expo of the country. The expo provides various parallel programs of seminars and workshops with a variety of topics, including international opportunities to export your franchise model abroad, focusing e.g. on Colombia and Panama. That said, Western-Europe has been serving for decades as an excellent entry point for US franchise concepts, ranging from (good old) McDonalds to Domino’s, Miramax, UPS and Starbucks. Eastern- Europe created a lot of potential since the early ‘90s; especially the emerging countries that became part of the European Union, facilitating franchise concepts enter these markets through regional hubs in other EU member countries.

With the round up of the European International Franchise Expo in Paris (20th – 23rd of March), with over 450 exhibitors and an estimated 30.000 visitors, this is the most significant international franchise event in Europe. Presented as the international hub to Europe, foreign visibility is low, country guest of honor is Canada, is present with (only) five companies. Other non European franchisors present are for instance: Singapore (one, start up), Brazil (two, excluding the Embassy and service provider), Russia (three) and Tunisia (three). Well, what about the US you might wonder? US franchise companies are present with a total of six; this includes established franchisees like Subways and Hertz.

Market in Europe: However Europe proves to be a difficult continent, where a model proves successful in France, might lack the demand in for instance Poland. To expand your market within Europe, you need to take it step by step and re-assess your concept thoroughly, incorporating local inputs, cultural background and habits. Entering the European market, one needs a diverse market of consumers and/or businesses, with a stable business climate; familiar with a variety of franchise models in diverse sectors and of course, a demand for your concept.

Why the Netherlands? The Netherlands serves as an excellent gateway for US franchise concepts going global. A country where your concept gains muscle, utilizes the ‘hub’ position, in order to jump to other countries within the region. A competitive business climate, familiar with US business concepts in food, retail and services, ethnic diversified, international orientated (main trading partners are Germany, France, UK and Russia), good infrastructure and high level supply chain, all factors that will contribute to your growth in a competitive marketplace of over 495 million citizens in the European Union.

The diversity of its citizens makes The Netherlands a model to test sub concepts of your franchise to a diverse audience from the consumer to business to business market. The Dutch are internationally orientated; expanding via The Netherlands to larger markets as France, Germany, Poland etc is an easier step than from Germany to Spain for instance. Furthermore, the government provides a flexible tax policy for foreign entities establishing their European office in the country (did I mention IKEA, who’s global head office is in the beautiful town of Delft?).

US franchises still have many opportunities in the European market, taking into account new topics like renewable energy, creative industry, high-tech systems and materials and food industry. Take on the challenge of entering the European market, using The Netherlands as gateway to successful implementing your concept in the region.

Hello, welcome to my blog!

Hi, thanks for visiting my blog, where my focus and energy will go to topics related to the international development community, sustainable economic development, fair trade and the impact one can have on low income communities and enabling them access to the global market through a multi stakeholder approach. I will provide you with my opinion, based on my work, experience and people I meet.