Common challenges to impact investing in social enterprises
Investors and enterprises in the early stages of an impact investment market often encounter the obstacles below. These obstacles grow out of or are worsened by a gap in intermediation. 1) Little origination. Intermediaries, not investors, usually put deals together. Without intermediary help, investors may lack the skills or capacity to originate investments. 2) High complexity. Investors often shy away from the complex terms sometimes required to invest in an enterprise. 3) Opaque risk. Investors may not have enough information to accurately estimate the financial risk posed by social enterprises, especially those applying novel business models. 4) Little flexibility. Without financial instruments to align investor and enterprise interests, enterprises may not find enough finance offered on long terms, in small sizes, at high risk or for low prices. 5) Weak secondary markets. Only in occasional circumstances can investors trade securities issued by a social enterprise on a secondary market. Exiting a social enterprise investment can be difficult.
Transformative technologies, including in food tech, often wish to draw parallels to the rate of consumer adoption of modern phenomena such as social media and digital communication platforms. But unlike digital technology—whereby billions of users download applications nearly instantaneously with incredibly low distribution, transaction, and marginal costs via digital interfaces—food is tangible, real-world stuff that needs to be grown, stored, transported, processed, and distributed in almost every corner of the globe
Almost all catalytic capital and blended finance deals have been targeted at poverty reduction, global development, public health, and sustainability.
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