2019 Toyota Impact Challenge, Phnom Penh

Creative Catalysts Lead The Way

“Invention is 1% inspiration and 99% perspiration” – Thomas Edison

Edison’s insight sheds light on the fact that between the idea and the reward to society there is much work to be done. When invention is in the context of entrepreneurship, 99% perspiration must include a combination of the hard work of building a business and the skills and capital required to sustain growth. For impact entrepreneurs, particularly in emerging markets, accessing the skills and capital to sustain growth is a challenging task and the reward to society of expansive social and environmental benefit hangs in the balance.

According to the latest GIIN report, the field of impact investing continues to grow steadily, with an estimated current market size of $715 Billion (AUM). With this growth, more entrepreneurs are moving forward with ideas for businesses that improve environment and communities. Continuing to grow the pipeline and success of market-based solutions requires developing creative ways to increase access to skills and capital. Catalytic capital is an emerging, dynamic tool to increase this critical flow.

source: GIIN

Catalytic capital is the investment of money or services that address the needs of entrepreneurs that lack access to investment, aren’t ready to access investment, or are viewed as too risky by investors. These investments are often philanthropic and are provided with the expectation of a reduced rate of return. The objective of catalytic capital is to close the risk gap to help entrepreneurs get the investment they need to grow and to attract more conventional investment capital to the market.

Catalytic capital investments, which typically support solutions to social and environmental issues, are a particularly useful tool in emerging markets with higher perceived risk. By aligning the interest of impact motivated foundations and organizations, catalytic investments facilitate the financial support, time, and capacity building required for solutions to reach sustainable and profitable status. This is an important component of success as entrepreneurs strive to build businesses that change, disrupt or solve complex social and environmental issues.

At Global Urban Village, we support social and environmental entrepreneurs with an emphasis on women-led businesses and a focus on Southeast Asia. We work with entrepreneurs with exciting solutions such as blockchain based clean energy exchange, meters for managing household electricity use, app based mental health access, and bio-composite building materials, just to highlight a few. To support the growth of innovations like these, we provide guidance and assistance to help entrepreneurs reach investment readiness, as well as marketing, finance, and strategy consulting. We also participate in entrepreneur support programs and education and provide investment matchmaking and facilitation. Much of this work happens prior to conventional investment and requires various risk sharing strategies across multiple organizations.

This sustainable startup competition is focused on solutions for low carbon energy, low carbon mobility, and plastic waste reduction. The winning entrepreneurs receive catalytic awards including grant money, coaching, video production, and a comprehensive bootcamp experience that addresses business skills, sustainability, carbon foot-printing and marketing support. In our role as judges we saw an exciting field of innovations competing in each category, and the selected winners all represent viable, market-based solutions. On week 5 of the bootcamp we will be guiding winners through “Telling your story with numbers.” An approachable step-by-step method to financial forecasting in a format and language appreciated by investors.

Another creative strategy for catalyzing impact businesses is the work of the RISE Platform, which is funded by USAID and operated by Swisscontact. This platform is designed to meet the need for catalytic investment that mitigates risk for investors and supports impact entrepreneurs in reaching their goals. The RISE Platform and its partners provide accessible and affordable technical assistance to businesses, developing investment and growth opportunities and allowing more impact businesses to secure funding. RISE operates in four countries in Southeast Asia and supports businesses in the agriculture, digital solutions, energy, health, and water and sanitation sectors.

The use of catalytic capital is seen as critical in the impact investing industry, but its role in the landscape is still at an early stage. Many of the current approaches in the market are pioneering new models to build evidence and outcomes. According to a Tidelands report on Catalytic Capital, “more guidance and consensus around best practices could increase investor use of catalytic capital more broadly.” The UNEP and RISE Platform models contribute to building the body of evidence for the use of catalytic capital. These collaborative, creative solutions are leading the way forward for more widespread use of this powerful tool.

By Lisa Hanson