ARGIDIUS FOUNDATION 2014 REPORT TARGETED PHILANTHROPY: TESTING INNOVATIVE APPROACHES TO PROMOTING ENTREPRENEURSHIP

ARGIDIUS FOUNDATION 2014 REPORT TARGETED PHILANTHROPY: TESTING INNOVATIVE APPROACHES TO PROMOTING ENTREPRENEURSHIP CHAPTER #3 TAKING CALCULATED RISKS TO DRIVE INNOVATION LETTERS FROM THE CHAIRMAN AND THE EXECUTIVE DIRECTOR CHAPTER #2 HELPING PARTNERS TO SCALE SUSTAINABLY CHAPTER #4 OUR ACTIVITIES AND IMPACT CHAPTER #1 A SYSTEMATIC SEARCH FOR THE MOST EFFECTIVE INTERVENTIONS

A LETTER FROM THE CHAIRMAN CHAPTER #1 We are happy to present the Argidius annual report, which gives an overview OUR MISSION These activities are focused on our mission to promote the growth of small businesses in order to improve the lives of the poor through increased income generation. This mission builds on the two key principles that have guided Argidius work from the beginning: The promotion of human dignity by helping people to help themselves Grants made by Argidius should enable people to generate income. We see this as an essential condition for sustainable development and for the promotion of human dignity. The leveraging of our work through cooperation and knowledge sharing We have found that size does not have to be a barrier to making a meaningful contribution to change. We leverage our activities and network by providing support to innovative leaders, by making connections among stakeholders, and by facilitating knowledge building and sharing. BUSINESS AS A FORCE FOR GOOD We believe that business is a critical contributor to sustainable development. Businesses not only create value for their customers, they also create employment, generate income, contribute to learning and human development, and support the development of the formal economy. In short, business is a force for good. And this role is not limited to large businesses. of the main activities and learnings we achieved in 2014. The importance of SMEs in developed countries is evidenced by the fact that they typically account for more than half of GDP and for a similarly high proportion of jobs. In developing economies, formal SMEs account for only 16 per cent of GDP and 18 per cent of jobs. We believe that the growth of the small-business sector represents a tremendous opportunity for sustainable development. A FOCUS ON CAPACITY BUILDING This is why our vision is to enable thousands of small businesses to thrive in low-income countries, by creating the capacity-building infrastructure they need. We aim to support the effectiveness and growth of successful capacity builders as they identify promising entrepreneurs and help them build a profitable business and gain access to finance. We also support initiatives to strengthen the skills of employees. We aspire to be knowledgeable about and supportive of the ecosystems within which these capacity builders and entrepreneurs operate. We are proactive in bringing partners together whenever possible, and we are also prepared to strengthen ecosystems by occasionally deviating from our primary focus on capacity building by supporting access to finance, for example. 2

LEARNING AND IMPACT MEASUREMENT Learning is an important part of our agenda, because it helps us to become more effective. Our approach to learning is showcased in the report through the examples of projects we have supported and the learnings we are deriving from them. An important highlight of the year was the conclusion of the first competition ever funded by Argidius. The Argidius-ANDE Finance Challenge (AAFC) aimed to support an innovative financing model for small but growing businesses in Africa or Central America with investment needs of USD 50,000 to 250,000. The award went to I&P for an equity-investment vehicle for small businesses in Africa, but the other programmes also were very strong. We have found the AAFC to be a powerful intervention that has contributed to the development of innovative financing models that are now actually being implemented. Its success will encourage us to consider similar interventions in the future. Impact measurement as a means to learn and make better decisions is an important ongoing area of focus. Nothing replaces the insights gained from actually seeing projects and their leaders on the ground. However, we must also invest in the development of impact measurement tools. Argidius has been using ROTI as an impact measurement instrument since 2008. It gives us an additional perspective on the effectiveness of the projects we re supporting and also allows for better comparability. We hope to add other measurement tools in the future that will give us an even better idea of social and environmental impact. I would like to thank the Argidius team and the members of its Investment Committee for their dedication and engagement to these and other efforts. I hope you will find this report on our activities and learnings useful and wish you enjoyable reading. An important programme to facilitate learning about capacity builders is Emory University s Impact of Entrepreneurship Database, which gathers and analyses performance data from accelerators. Argidius funded this, together with ANDE and the Kauffman Foundation. The project is scaling up and delivering first insights on the effectiveness of different accelerator models. Herman Brenninkmeijer Chairman, Argidius CHAPTER #1 3

A LETTER FROM THE EXECUTIVE DIRECTOR One of our long-standing partners, Root Capital, just celebrated its 15 th year of helping agricultural enterprises to gain access to capital and technical assistance. It is in its sturdy adolescence, but many of the other organisations we work with are much younger. CHAPTER #1 Small-business development is a new form of assistance. As such, it requires careful, thoughtful support if it is to grow and deepen and make a significant contribution to economic prosperity and poverty reduction. We need to continually explore what works best to secure effective, sustainable interventions that reach scale. To do this, we must take calculated, managed risks and drive innovation. And it s worth noting that the need for innovation and effectiveness applies equally to the interventions and to the organisations that deliver them. So for example, we have been watching the young, highly capable team at our partner Alterna, in Guatemala, slowly refine its intervention model, working closely with more than a hundred entrepreneurs who would have been overlooked by conventional business accelerators. It is beginning to build an evidence base for the effectiveness of its work. And as it grows, it must develop a structure and income streams that can sustain that growth. FINDING MODELS FOR SUSTAINABILITY The models of sustainability developed by our partners will be diverse. Some will move to commercialise their programmes, as entrepreneurs recognise the value of the services and grow willing to pay for them. Others, because of the context or the size of the underlying enterprises, will require ongoing public and/or philanthropic funding. Some will be hybrids, where high-value services for larger or fast-growing businesses will subsidise their work with smaller enterprises or startups. The possibilities are many, and we have embarked on a journey to help organisations find the variant that works best for their particular situation. Most innovation is incremental, rather than breakthrough, and it is incumbent on us to stick with our partners as they gradually improve what they do, rather than be distracted by the next big thing. Thus the question for TechnoServe, which has run successful business-plan competitions and assembled a capable team, is not what do we do next, but how do we build on this? 4

WHAT WORKS AND WHAT DOES NOT... Effectiveness requires evidence, hence our renewed commitment to the Emory University-based research into accelerators. Thanks to its collaboration with the Aspen Network of Development Entrepreneurs, Emory is now poised to turn a research project into a knowledge platform, widening and deepening its findings about what works, and making them widely available to accelerators, funders, investors and, most importantly, entrepreneurs. For in the end, it is the entrepreneurs and their employees who matter most. Enabling more of them to more effectively build successful and responsible businesses in their communities is critical. Two such examples I encountered on a recent trip to Central America stand out in my mind. The first was a marketing business that seemed ordinary, until one discovered that its promotional staff was comprised entirely of young women, often single mothers, from so-called red zones (violent areas whose residents are often disqualified from employment). Their hiring was a deliberate act by a business that our partner, B-Peace, had helped to place firmly on a growth trajectory. The second was a shoemaker who had received business advice and help with leasing equipment from our partner, Thriive. He had hired three of the young men he had trained as part of paying forward the loan. Businesses like these can be a force for good. Our task is to extend those businesses an effective helping hand and enhance their possibilities for growth. Nicholas Colloff Executive Director, Argidius CHAPTER #1 LETTERS 5

CHAPTER #1 A SYSTEMATIC SEARCH FOR THE MOST EFFECTIVE INTERVENTIONS LETTERS CHAPTER #2 6

In recent years, Argidius has funded several programmes that test different approaches to promoting SME development, through either business accelerators or more systemic interventions. These have begun to yield some preliminary insights that will help inform future investments. Business accelerators are generally viewed as a good way to empower entrepreneurs with the knowledge and tools to grow their businesses and generate greater employment and income opportunities. But there is a lot of variability among accelerators and no solid data to support their effectiveness. So Argidius set out to determine, in a systematic way, how well such programmes meet their objectives, and which elements have the biggest impact. It has been exploring these questions using different approaches. One involves supporting TechnoServe s staging of eight business-plan competitions in four countries (Guatemala, Honduras, Nicaragua and Burkina Faso), in a way that enables the NGO to compare different programme elements. TechnoServe is also testing an e-learning platform and looking at whether linking entrepreneurs to banks improves access to finance. It s too early to draw conclusions, but data collected thus far from 900 businesses that have gone through the programmes suggest that volunteer mentors may be more cost-effective than paid business advisors, and that business-model training which focuses more on how to run a business and test the market rather than on the financial evaluation of a business idea may be more useful in some cases than business-plan competitions. Meanwhile, Peter Roberts, the academic director of Social Enterprise @ Goizueta at Emory University, has been engaged in a broader examination of accelerators around the world. He is collecting longitudinal data from all applicants to various accelerators around the world and comparing outcomes of those who completed the programmes to those who applied but were not accepted. The data thus far, from 19 programmes in 88 countries, suggest that companies that go through accelerators grow revenues and employees faster than those that don t. OVERCOMING RESEARCH CHALLENGES In both cases, data collection has presented some challenges. About a third of programme graduates are not sharing information with TechnoServe, making it impossible to report the full impact. Meanwhile, Roberts and his team think a lot about data quality. Spot checks are impractical, so he currently relies on judgement to assess whether certain responses and relationships make sense, especially regarding self-reported profitability figures. Increasing the breadth and quantity of data will help to address the signal-to-noise ratio and allay some of these concerns, while allowing Roberts and a growing team of researchers to generate nuanced insights about accelerator effectiveness. We want to go from asking one simple question (do accelerators work?) to a set of more nuanced questions what about accelerators works better, and when and where do we see increased effectiveness? He adds that to fully answer these questions will require pairing his quantitative data with qualitative insights that come from talking to programme managers, entrepreneurs, and other actors within the business ecosystems. There is also the question of how much of a business success can be attributed to a specific intervention. TechnoServe found that its entrepeneurs, on average, credit the programmes with helping them generate LETTERS CHAPTER #2 7

LETTERS It is important to understand a financial institution s capacity to change, not just its commitment. 41 per cent of their increased sales. This is still very subjective, says TechnoServe project manager Oscar Artiga. Then we ask why, and they say a business advisor or mentor helped me build this. What we want to do next is build a more objective model to get this attribution, perhaps by breaking down the specific activities the advisor or mentor was involved with,and the contribution of each one to the total sales. These insights will allow TechnoServe and other providers to re-design their offerings and increase their efficiency, ideally using the same teams for the sake of continuity whenever possible. But Nicholas Colloff says there s a bigger unresolved matter: We still don t know whether accelerators can stand on their own two feet. TechnoServe tried to charge entrepreneurs for their services, but found them unwilling to pay. However, if the programme helps entrepreneurs mobilise finance, especially from local banks, it means this is an engine that will keep running even when TechnoServe finishes its work, Artiga says. We can use this as an approximation for sustainability. SYSTEMIC INTERVENTIONS Argidius has also been funding two programmes with a more systemic focus, and looking for lessons in how they unfold in two different countries, led by two different groups. It has supported Enclude s efforts to help a major bank in Nicaragua to successfully lend to small and medium-sized businesses, by helping the bank establish suitable policies and procedures, and training its personnel to apply them effectively. That programme is now entering its final phase. assistance to the bank to improve its ability to effectively serve women clients. WISE is also engaging more broadly with a variety of local partners (including entrepreneurship training organisations, indigenous women s business organisations, a small-business banking network and a research institution) to push for changes that will make the entire ecosystem more supportive of such businesses. Oxfam is currently refining the programme based on learnings from the first cohort of entrepreneurs, placing a greater emphasis on financial literacy training and getting buy-in from the women s family members for their participation in the programme. Other lessons gleaned from these programmes thus far include the fact that it takes a lot of time to build effective partnerships, and that it is important to understand a financial institution s capacity to change, not just its commitment, says Roland Pearson, Enclude s managing director of capacity solutions. It takes consistent effort to make all the changes that are necessary to sustain strong lending to SMEs. Another lesson is the critical need to help entrepreneurs better understand their markets and how to position their products or services. So Enclude, along with Agora Partnerships and Santa Clara University (SCU), are collaborating in a new Argidius-funded project that will build on initial progress in Nicaragua, but focus on women entrepreneurs and include business-development support. It will also feature a new variable-payment-obligation financial product, based on the Demand Dividend that SCU entered in last year s Argidius-ANDE Finance Challenge. 8 CHAPTER #2 Oxfam s WISE (Women in Small Enterprises) programme, meanwhile, has been working with one of Guatemala s largest banks to increase its focus on small but growing businesses led by women entrepreneurs, who face the greatest barriers. WISE incentivises this change in behaviour by mitigating risk through a partial loan guaranty provided by the WISE Fund, and offering technical In this model, loan payments will be made during the SMEs positive-cash-flow periods and will be administered through a trust in which the bank will participate with outside investors. The trust will take a portfolio view of risk-return and ask that a portion of the loan proceeds pay for capacity development resources from Agora to help strengthen the financial management of loan recipients, says John Kohler, director of impact capital at SCU s Miller Center for Social Entrepreneurship. This should make the assistance more sustainable over time, Colloff adds.

PROFILE WISE Weaving a Better Future Ana Dominga Cuc Baquin, a native of Sololá, Guatemala, decided to start a business to supplement the irregular income earned by her husband in the construction industry. Her education had ended in primary school, so she sought to capitalise on one of the domestic crafts she had learned growing up. She opened an artisanal bread bakery from her home, which she shares with her husband and two sons, but struggled to compete with other bakers. So she closed the bakery and launched a weaving business called Típica Sinaí in 2009. Baquin buys raw material from six other women in the local wholesale market, and then she and a colleague spin the threads in an annex of her house. When finished, they hand them over to six other women who weave them into suits, sashes, scarves and other apparel, and then another woman adds any necessary embroidery. proposition depends on differentiating her product by its high quality, so she is paying more attention to thread quality and the handcrafting process. She also learned a lot about maintaining cash flow; pricing and discounting; administrative processes to control inventory and other elements; marketing; negotiating with suppliers; order management, and other essential business functions. She has already supplemented her market-stand sales by visiting client sites. Now she hopes to implement everything else she s learned and then attend post-investment training sessions to expand her knowledge base further and achieve her goals. Because buying the raw products and paying her contractors costs Baquin about USD 265 per suit, she got a loan from a local microfinance institution. She is now eager to expand her business by adding a wider range of designs and sizes, so that she can sell to additional clients and even become a wholesaler. She joined the WISE programme to help her achieve this goal. CHAPTER #2 She attended pre-investment trainings and peer-to-peer sessions, working with a coach to refine her business model and develop growth projections. One of the things she learned is that her value LETTERS 9

CHAPTER #2 HELPING PARTNERS TO SCALE SUSTAINABLY CHAPTER #1 CHAPTER #3 10

Programme expansions can pose numerous challenges and require large investments of capital, as well as new processes to ensure the growth is sustainable. Argidius is currently helping two partners to significantly expand their reach. One partner was identified through the Argidius-ANDE Finance Challenge (AAFC), which concluded in 2014 and sought to identify innovative ways to unlock finance for small yet promising businesses in developing countries. Five groups received funding to test their concepts over the course of two years. The winner of the grand prize of EUR 1 million was Investisseurs & Partenaires (I&P), a Paris-based social-venture-capital company that was judged to have the highest impact potential, largely because of its good prospects for replication. For the competition, I&P created a local fund (Sinergi Burkina) dedicated to financing small and medium enterprises in Burkina Faso. Modelled on a similar pilot fund the company had previously launched in Niger, its brief is to offer long-term equity or quasi-equity investments to entrepreneurs, actively monitor them, provide mentoring as needed, and use financial incentives that make it easier for entrepreneurs to buy the shares at the end. Sinergi Burkina takes minority stakes in the enterprises and sells its shares at the end. The fund was launched in early 2014 with eight founding shareholders (most of them entrepreneurs from Burkina Faso) and a trained managing director; it raised most of its capital domestically and made its first investment later that year. I&P is using its second round of funding to replicate this concept in five other African countries: Mali, Ghana, Côte d Ivoire, Madagascar and Senegal. I&P sponsors local management teams by providing them with training, networks, catalytic capital and overall support. LAYING A STRONG FOUNDATION We ve learned that to set up an investment company in our target countries is a very long process, especially the fundraising part, which requires a lot of pedagogy and patience, because the private-equity industry is still nascent there, says I&P Investment Officer Hugues Vincent-Genod. New investment teams have to be ready to spend one to two years fundraising. This raises financial issues how do you pay yourself for two years? That s where the Argidius funding is extremely necessary. The second challenge is the operational dimension, because you have to proceed with a lot of things in parallel developing a pipeline of investable companies, processes, and fundraising and make sure they converge well. It s crucial to identify a strong team to manage the fund, which also takes time. We are much more confident when we are approached by a team that is looking for a sponsor, Vincent-Genod says. This represents less work for us compared to recruiting the team ourselves. Also, when a team exists and shares initiative, there is stronger ownership of the project, which is very important when you are dealing with a 10-year timeline. The I&P team works with the members of each local investment team to build their capacity in the skills they need most, he says. If someone was previouslyan entrepreneur, we would help them on the finance side, and if someone was previously a banker, we would help them on the business development and analytical side. We find that the best training is to work very closely CHAPTER #1 CHAPTER #3 11

CHAPTER #1 We are leveraging social impact for the benefit of entire communities, not just for us as the lender. with them on the first investment opportunities. The idea is that the funds will become operationally self-sufficient, reaching the break-even point within three years. I&P has demonstrated that it can set up a local fund and find an effective local manager, local investors, and a pipeline of enterprises that fit its criteria, says Nicholas Colloff. But can we make this a viable proposition over time? Can we achieve a capitalpreservation outcome? And can we give them the needed support when we have six or seven funds? We will have to find out. Argidius is also supporting the expansion of an organisation called Thriive, which provides loans for production equipment and other fixed assets that enable small businesses to grow. But instead of requiring the entrepreneurs to repay the loans in the conventional way, they are asked to pay them forward to low-income residents in their communities, in the form of job training or in-kind donations that have a sustainable impact on beneficiaries (for instance, a textile company might donate school backpacks to children). We are leveraging social impact for the benefit of entire communities, not just for us as the lender, says Thriive s founder and CEO, Erik Schultz. HELPING AN ORGANISATION MATURE Having worked in Vietnam, Kenya, Palestine and Nicaragua since officially launching in 2010, Thriive is now transitioning (with support from Argidius) from a start-up NGO to a mature organisation. We are looking to go deeper in each country, to reach more businesses, more communities, and more people in need, Schultz says. Thus far Thriive has nearly doubled the size of its programme in Nicaragua, working with 21 companies in 2014, versus 12 the year before. We are also thinking creatively about helping businesses get additional resources, such as increased and more diversified business consulting and technical-assistance training from local providers, Schultz says. And we are also piloting an initiative where businesses repay a small portion of their loan in cash, which goes into a fund to support new businesses, to incorporate a financial sustainability component. Sustainability can be defined in a lot of different ways, he adds. In addition to providing much-needed financial capital to help the businesses grow and provide more employment opportunities, we are instilling a sense of social responsibility in businesses, helping them to understand that their success is tied to the success of other people in the community. Thus far, all of the Nicaraguan entrepreneurs who have gone through the programme have continued their charitable activities after the loan was repaid. I would argue that kind of sustainable impact is more important, Schultz says, because it is helping communities be self-sustaining, and if that s through our one-time intervention, then we ve done our job. Although the organisation has found it challenging to find in-country implementers, over the next few years it hopes to expand in each region and double its number of countries, businesses and beneficiaries. By being in a couple of countries in each region, we can then drill down and bring more resources to multiple locations that can learn and share with each other, Schultz says. CHAPTER #3 12

PROFILE I&P Unleashing Local Potential Marcel Ouédraoogo, trained as a rural development engineer, had a job advising soya cooperatives in Burkina Faso but decided he wanted to run his own business. He saw the potential to sell innovative products to the local market and thus create more added value within the soya sector. So in 2010, with capital from crowdfunding campaigns and an NGO, he launched a company called Siatol in Ouagadougou. It now has 10 permanent employees and purchases soybeans from 2,000 smallholder farmers. Within the next five years, Ouédraoogo hopes to triple the number of employees and create a supply network of 5,000 smallholder farmers, while making Siatol the leading regional company in its sector. The company had tested the processing of new products (soya oil and soya cake) using equipment rented from other companies. The products sold well, so Ouédraoogo determined that the company needed to purchase its own equipment and industrialise its production, which requires long-term capital. precisely at the time when Siatol would need cash to grow further. Sinergi Burkina s team helped him to improve his business plan and co-financed two studies: a marketing and sales analysis for the soya oil, and an industrial study on the purchase of a second-hand refinery. The company also benefited from Sinergi Burkina s network to raise campaign loans and find new cus- tomer, and from its assistance with an exploratory mission in neighbouring Côte d Ivoire and Mali. Siatol is using the EUR 150,000 investment by Sinergi Burkina to conduct the first phase of Sinergi Burkina s investment plan, and hopes to continue to benefit from its support as it scales its activities, especially to help it with fundraising from banks and other investment funds. Sinergi Burkina s management support, especially in organisational development and management, will enable Siatol to confidently face the challenges of its growth, Ouédraoogo says. The need for considerable working capital to purchase soybeans in cash from smallholder farmers every year also requires equity to increase Siatol s capacity to take on debt. It sought financing from Sinergi Burkina in order to strengthen its equity and facilitate its access to short- and medium-term bank loans. CHAPTER #3 Sinergi Burkina s longer-term repayment horizon was preferable to the terms offered by another privateequity fund that wanted to exit after 2 to 3 years TO CHAPTER #1 13

PROFILE THRIIVE A Business Grows and Gives Back Dinora Esther Serrano was managing a small shop in her home in Managua, Nicaragua, but was eager to find a permanent job so she could earn a better income for her family, which includes four children. Her lack of either a high school or college diploma limited her options, but in 2010, she found a job as a cleaner at a small local company called Serviplus. clients. She also participated in the company s payback functions at the school and was heartened by the opportunity to help the community and experience the gratitude of the teachers and students. She hopes to continue working with the company as it continues to expand, and, once she has gained the relevant experience, to become an account executive. Francella C. Muñoz Moncada had started the cleaning services company just a year earlier. In 2012, she used a USD 9,500 loan from Thriive to buy a carpet washer and other cleaning equipment. This, combined with knowledge she gleaned from the group s workshops, enabled her to expand her services and her client base, thus also creating 19 new jobs within her company. She repaid the loan in the form of community service, by donating cleaning services, cleaning supplies and hygiene talks to a low-income school; giving motivational talks to formerly homeless young adults; and helping women who have never had a formal job to learn how to conduct themselves at job interviews. CHAPTER #1 Serviplus now has 73 employees. As the company expanded, it presented new opportunities for Dinora, who was promoted first to a shift supervisor and then to a project supervisor position. She now oversees Serviplus personnel at one of the company s biggest CHAPTER #3 14 2

CHAPTER #3 TAKING CALCULATED RISKS TO DRIVE INNOVATION CHAPTER #2 CHAPTER #4 15

Truly innovative entrepreneurs must be willing to take calculated risks, and the same is true for philanthropic foundations. There are many things we do not know in this space, says Nicholas Colloff. In less developed markets, we don t know how much people are willing to pay for a particular service, and we don t have many long-term sustainable business models. CHAPTER #2 CHAPTER #4 This makes testing new approaches to helping small and growing businesses in such countries a big yet necessary gamble. One way to be smart about placing such bets, Colloff says, is by looking at who is behind an idea is this a group of people who will figure it out, with the right skills set, enthusiasm, and understanding of the situation? Argidius has identified two groups that meet these requirements and is funding their new concepts. A NEW TYPE OF ACCELERATOR Alterna refers to itself as an accelerator with a difference. Based in a secondary city in Guatemala, the goal of its Social Business Cultivation Program is to help socially and environmentally focused businesses that other incubators are overlooking, says founder Daniel Buchbinder. Specifically, it wants to support entrepreneurs who did not necessarily have the same opportunities as those from larger cities with university access or social capital. We are trying to bridge a gap. It also wants to elevate the entrepreneurs profiles, so they can inspire others in their communities to follow in their footsteps. Alterna has already worked with more than 100 entrepreneurs and is now refining its programme offering, diversifying leads to funding sources, and advancing the implementation of a monitoring system so it can effectively support more people. Argidius began funding these efforts in 2014. The initial cultivation stage uncovered a need to build trust within the business community in order to encourage entrepreneurs to share information, as well as a need for more sustained assistance. People are used to short-term, discrete projects, Buchbinder says. They may get technical assistance to do farming, for example, but they weren t shown how to sell, how to think about innovating, and how to create long-term, self-sustaining projects that do not rely on grants. Alterna s cultivation programme is therefore designed to create deep connections with selected entrepreneurs and to help them marshal whatever resources are needed to achieve maximum impact. This might vary from developing a business model for an enterprise in the idea stage to preparing an entrepreneur to apply for financing. The goal for the initial deployment in Guatemala is to cultivate 500 entrepreneurs, with the primary focus being on creating a proactive, dynamic, hands-on, entrepreneurial mindset, Buchbinder says. Some idea-stage entrepreneurs may not even launch successful businesses, but that does not matter, as long as they understand the reasons for not launching a business and develop more entrepreneurial mindsets they can apply in other contexts. The main challenges he foresees are finding suitable participants and effectively working within a culture that is just beginning to cope with such essential business practices as being punctual for meetings and replying to emails. How to build that social capital so they can get more value out of cultivation is not obvious, Buchbinder notes. To smooth the way, Alterna is working with entrepreneurs who self-select and are therefore already very close to that mindset shift. We hope that these initial 16

500 entrepreneurs will provide enough case studies, so people know that if they want to be successful, they have to be like this person, Buchbinder says. We are also trying to build social capital beyond the entrepreneurs, by fostering the business ecosystem. Why should people trust or sell to entrepreneurs with social or environmental impact? We want to develop that sensibility, by raising the profile of our entrepreneurs and showing the good impact they are providing. He adds: We are reducing systemic risk, today and for the long run. People who have had high-quality business support during important periods of development as entrepreneurs are less risky to buy from, sell to, and invest in. We are investing in a pipeline and in a process, not just in the end result. Alterna s main challenge, though, is whether it can build a sustainable funding model, Colloff says. They will have to go deeper or go wider, or a combination of the two. They have to make a lot of decisions in the next 12 months, and we have to be alert. ESTABLISHING ENTREPRENEURIAL HUBS Argidius is also one of the first funders supporting Impact Hub s expansion in Sub-Saharan Africa. Impact Hub seeks to inspire and catalyse selfsustaining communities of entrepreneurial individuals to apply business principles to drive positive change. The Impact Hub Africa Seed Program seeks to support entrepreneurial teams across the continent to replicate an incubation model the organisation has successfully applied in 65 more developed markets on five continents. Each Impact Hub is developed and owned as a social business by a local team that offers mentoring, incubation, and other programmes to its members. The inaugural Seed Program has assisted seven aspiring founding teams, in seven African cities, with the preparation of feasibility studies for Impact Hubs in their markets. There has been a strong emphasis on helping them develop revenue-generating schemes to ensure sustainability. That is one of the biggest issues for hubs in Africa, says Natalie Miller, Impact Hub s head of Africa strategy and business development. Because membership fees have to be kept low and can t serve as the primary revenue stream, the teams are encouraged to explore other options, such as venue hire or programmes for entrepreneurs or aspiring entrepreneurs that generate revenue through the exchange of services with companies or foundations. Any new business venture is a risk, and this market is more complicated, Miller says. In some countries, there is less knowledge about what impact entrepreneurship is about, and fewer investors, especially those willing to take the risk. And there are a lot of complications, such as having to pay rent for a year up front in some cases, or dealing with daily electricity blackouts. We can only support these teams up to a certain point, after which we have to let them figure it out. For this reason, she adds, capital risk is necessary to venture into these frontiers and figure out solutions that don t already exist. Most funders want a proof of concept, but no great new thing comes with a track record. The jury is still out on whether these ideas will work, Colloff concludes. We can see as we go along, monitor progress carefully, figure things out, and be flexible enough to change things if needed. Capital risk is necessary to venture into these frontiers and figure out solutions that don t already exist. Most funders want a proof of concept, but no great new thing comes with a track record. CHAPTER #2 CHAPTER #4 17

CHAPTER #4 OUR ACTIVITIES AND IMPACT CHAPTER #3 18

Since 1992, the Argidius Foundation has been working to catalyse economic development in low- and middle-income countries, especially in Africa and Central America. Convinced of the potential that small- and medium-sized enterprises hold for employment creation, income generation, and poverty reduction, our strategy focuses on building their capacity and improving their access to finance. Seeking to understand our impact and fully realise the potential of our interventions, we have placed a high priority on thoroughly understanding project performance, by evaluating projects throughout their life cycles. Although we continue to use ROTI ( Return on Total Investment ) as a proxy indicator that reflects the value created per unit invested, we have also realised that, as the range of projects and number of partners grow, portfolio evaluation becomes a more complex undertaking. ROTI is very useful for assessing the potential impact of any given project, but there are challenges when it comes to using it simply as an aggregate score. We need to more effectively disaggregate ROTI to account for different types of interventions; better discern the reasons for changes in ROTI within given programmes; and develop a longer-term view of impact over time, rather than just over a programme s lifespan. We also recognise the need for other forms of evaluation. Our sponsorship of the Emory University- based research on accelerator programmes, described elsewhere in this report, is an example of this, as is our new commitment to publish an external independent evaluation of all programmes that receive more than EUR 500,000 in funding. To this end, and to raise the quality of our monitoring, we have decided to hire an evaluation manager who will collaborate with our partners and help us refine our measurement approach based on the diversity of our partners work. We hope that by embracing new and improved approaches, we will continue to evolve, becoming more effective in our work and enhancing the ability of our partners to fulfil their missions. CHAPTER #3 19

REVENUE BY YEAR 151.2mln 88.6mln REVENUE (referring to sales revenue of enterprises assisted by partners/projects in a given year) almost doubled, reaching EUR 151.2 million. As the graph shows, the revenues of sponsored enterprises have grown substantially over the past two years. These results come from our shift towards larger programmes and the evolution of some of our partnerships which in many cases results in the support of second cohorts. This has enabled us to reach over 600 businesses through our partners in the past year alone. 50.3mln 42.5mln 32.8mln 17.2mln 2009 2010 2011 2012 2013 2014 ROTI BY YEAR 1.70 1.74 FOR THE 2014 CALENDAR YEAR, our portfolio ROTI of 1.03 showed a slight decrease from the previous year s figure (1.08), meaning, roughly, that every euro invested by Argidius and other donors helped these enterprises generate an additional 3 cents in revenue. The 2014 ROTI includes data from 13 reporting partners, nine of which started generating the data after 2013. Given ROTI s dependence on a project s stage, with numbers that tend to grow during a project s lifespan, we expect that coming years numbers will improve. Only two of the 11 projects launched in 2014 started reporting ROTI that same year, with the rest either not yet submitting data or conducting work such as research that will not generate such data and thus won t be included. 1.62 1.07 1.08 1.03 2009 2010 2011 2012 2013 2014 20

2014 SME REVENUES BY REGION REVENUES BY TYPE OF ENTERPRISE ASSISTED MOST OF THE REVENUE (83 per cent) is being generated by the growth of existing enterprises, as opposed to start-ups. However, the share of start-ups has increased from four per cent in 2013 to 17 per cent in 2014. Expansion Start-up Central America 71,692,769 9 partners; 383 enterprises Average revenue per enterprise: EUR 187,187 West Africa 54,246,917 4 partners; 185 enterprises Average revenue per enterprise: EUR 293,227 Eastern Europe 25,252,485 2 partners; 78 enterprises Average revenue per enterprise: EUR 323,750 THE NUMBER OF PARTNERS has continued dropping, following our decision to concentrate on larger, longer-term programmes that can reach many enterprises across regions or countries. We currently have nine partners in Central America, while our West African partners decreased from seven to four. Meanwhile our partnerships in Eastern Europe remained at two. We have a total of 13 reporting partners (two of them work in both Central America and West Africa, so they are accounted for in both regions). INVESTMENT LEVERAGE OUR EUR 6.35 MILLION worth of support unlocked an additional EUR 5.62 million worth of grant and loan investments for partners that reported ROTI, representing a leverage factor of 89 per cent. 6.4mln 5.6mln 11.98mln Argidius funding Other funding Total cumulative funding 21

CREDITS The Argidius Foundation 2014 Report was produced by: Texts: Catalyst Communications LLC, USA and the Argidius Team Design: Eigen Fabrikaat, the Netherlands Project Management: Argidius Team and the Porticus Communications Team Copyright: Arigidius Foundation, Switzerland, July 2015 Contact: mail@argidius.com Website: www.argidius.com Photos (in order of appearance) Cover: Photo courtesy of Catholic Relief Services A Letter from the Chairman: Photo courtesy of Thriive A Letter from the Executive Director: Photo courtesy of Root Capital Chapter 1: Photo courtesy of Thriive Photo courtesy of BPN Chapter 2: Photo courtesy of Catholic Relief Services Photo courtesy of Thriive Photo courtesy of SOFIGIB Chapter 3: Photo courtesy of Alterna Chapter 4: Photo courtesy of BPN Credits: Photo courtesy of Thriive