Is there a ‘Pioneer Gap’ in Nigeria?
As we seek to understand what role Mercy Corps’ Social Venture Fund (SVF) should play in the dynamic Nigerian ecosystem, the question of the ‘pioneer gap’ is salient. SVF was founded (and funded through philanthropic dollars) to help fill this gap for early-stage ventures. Many may remember the SSIR article that popularized the term, coined by the Monitor Group, but to recap: the ‘pioneer gap’ arises as too few impact investors ‘are willing to invest in companies targeting the poor, and even fewer are willing to invest at the early stages of the creation of these businesses.’
But how does this play out in Nigeria?
We’ve explored the ecosystem this past summer seeking to begin to answer this question for our fund. The barriers to building business that positively impact the poor are not hard to see. Weak infrastructure, high customer-acquisition costs, and low incomes together limit the incentives for growing ventures that reach excluded customer groups — and will squeeze profits margins for those that do.
That is not to say that there has not been a expansion of efforts to kindle the entrepreneurial flame that so many see in the country, be it the Tony Elamelu Foundation’s entrepreneurship programme, Mercy Corps’ own programming to support entrepreneurship in girls, or the plethora of hubs and incubators that have been established across the country. Many of these provide a combination of training and (grant and/or equity) funding, supporting early stage founders to develop their ideas. And successful ventures passing through such mechanisms have gone on to grow and raise further investment, with a range of national and international investors seeking deals at larger ticket sizes. Given that Nigeria has now surpassed India as the country with largest population of extremely poor people in the world, such business and economic growth must be welcome.
But despite these positive developments, the picture for those startups seeking to directly impact the least well-off Nigerians is more mixed. While these obstacles are real and challenging to overcome, they present an opportunity for SVF, and like-minded investors, to bridge the gap between available grant and seed funding and more commercially-oriented later stage investment.
Challenges will persist. The economics of maintaining thorough due diligence and investment management practices at small ticket sizes need to be considered. Identifying sufficient, high-quality deals is also a perineal challenge for all impact investors, and is perhaps amplified when focusing on the pioneer gap. Here the temptation may be to drift to larger ticket sizes or away from business focusing on the most vulnerable, and SVF will need to maintain tight strategic focus to avoid mission creep.
We’re not alone in thinking about this. How INGOs might engage in impact investing was one of a range of questions tackled at a lively ANDE West Africa Regional meeting in Lagos, and formed the basis a discussion convened by Arielle Molino of Intellecap, and which shared the approach of SVF, as well as ACDI/VOCA’S AV Ventures’ work in Ghana.
While not the only option, SVF’s approach has been developed from an understanding of Mercy Corps’ skills and capacities, the challenges and opportunities afforded by the markets in which we work, and a continued focus on underserved populations who may otherwise be excluded from the benefits offered by functioning market systems. Beyond aligning these, the question remains at what stage of investment is capital most needed and post-investment support is most useful.
Fundamentally, this is still a new and emerging area. While there can never be a one size fits all approach to impact investing by INGOs, we think it’s important to share experiences and learning as funds and investments mature and evolve and to keep questioning the role of INGOs and other actors in pushing for great impact for the communities we serve.
More to come on our activities in Nigeria and the exciting ventures we’re seeing.
