- Different parts of an investment plan are suited to different types of investor.
- A first step is to consider investors working in the same region or investing in similar activities.
- The investors most likely to invest should be approached first.
Banks, agricultural traders, NGOs and government aid agencies are all potential investors in this area. Searching for investment should take place alongside the design of the financial mechanism, as the process is iterative: the final design will be tailored to incorporate specific investor needs.
The process to find investors can start with a basic business case. It should not be delayed until there is a full investment plan or financial mechanism in place. There is more on the difference between these stages here. Even if investors insist they are not ready to commit at an earlier stage, it is important to gather their feedback and keep them updated as the initiative develops.
Producers, regional governments and non-governmental organisations may find it difficult to connect with investors. There are several reasons for this. For example, investors evaluate the financial returns on investment in terms of their exposure to risk. In contrast, government bodies use very different language and assess opportunities differently. Incorporating these different points of view is vital for attracting investment.
Investors may also take a broader, portfolio-level view than other stakeholders. This may mean that even when a group of farmers is convinced that a proposed technology is worthwhile, based on cash flow analysis, investors may look beyond one intervention and one group of farmers. This means they may still reject the proposition based on the risk and return on investment profile of the entire portfolio of supply chain interventions.
1. Types of investor
The type of investor best suited to a project will depend on the investment plan itself. It may be that several different investors may fund different activities or stages. Investors can generally be aligned along a spectrum according to whether they are more motivated by sustainability or financial returns:
|Type of investor||Description||Motivated by sustainability?||Terms of lending|
|Institutional investors||Institutional investors include pension funds, sovereign wealth funds, insurance companies, national banks, high net worth individuals and large agribusinesses, as well as relatively smaller actors such as microfinance institutions||Limited interest, though there is growing awareness of the risks of unsustainable investments||Market rate|
|Impact investors||Impact investors are also private companies or individuals which would like to effect change through their investments||Motivated by environmental and social benefits||Market rate|
|National development banks||National development banks may play a critical role in early stages of a project or financing certain activities such as training||May be interested in investing to satisfy certain environmental or social criteria||Market rate or subsidised by government funds|
|Multilateral development banks (private window)||Private windows of international development banks provide loans to private sector entities. They can provide support for innovative ideas||Have safeguards||Market rate|
|Multilateral development banks (public window)||Development banks may play a critical role in early stages of a project or financing certain activities such as training||Have safeguards||Lower than market rate|
|Governments||Regional or national government bodies may be involved as an investor or donor||Mainly focused on environmental and social goals||Lower than market, may be willing to take a loss|
|Donors/non-governmental organisations||Charities, donors and other sources of money where the overall aim is to generate environmental or social benefits||Largely focused on environmental and social benefits||Grants and concessional finance|
There are of course many different types of investor within each category. Moreover, a major study of sustainable landscape projects found that they often need different types of finance at different times, so will likely need to involve funding on different terms of lending.
Different mechanisms may be appealing for different types of investor. This is partly because different investors may operate within different timeframes. For example, private investors are able to raise and disburse funds very quickly, while international multilateral banks may take several years to pass through the stages of project development, approval and disbursement. Similarly, scale is another area where investors differ, as some projects may be considered too small or large.
2. Looking for investors
When looking for an investor, it is important to consider the following questions:
Is there an investor already financing a similar intervention in some form? This may be a local bank, a development bank, middleman, buyer or other type of organisation.
If so, what are the financing conditions available to landowners and producers interested in implementing the transition? Could these be made more attractive?
If not, are there investors financing the activity (or a similar activity) in surrounding regions? Might they be interested in investing in your region as well?
- Are there impact/social investors interested in your business plan?
3. Contacting investors
With the answers to the above questions and a business plan, it should be possible to list potential investors. In order to approach them, initiatives should carry out more detailed investigation than the steps described above in order to know them better and understand how they operate.
Gather as much information possible about their current investments. For example, what does their investment portfolio look like? Where are they seeking to invest in the future? What types of producers do they invest in? What is the financial mechanism for their investments?
Why are these investors not already investing in your specific proposition? Possible reasons include:
Geography (e.g. they only work in a certain region)
Type of activity (e.g. they don’t invest in all the activities intended to finance)
Credit conditions (e.g. they invest in the region but their interest rates are too high to be attractive)
- Rank potential investors according to:
Ability to adapt to the project’s investment requirements (i.e. credit conditions, geography, etc.).
Potential interest in the investment proposition.
- Define a plan to contact these investors in order of their ranking. Face-to-face meetings are usually the most effective method for pitching the investment.
4. Negotiating with investors:
Once investors have been found, it will probably be necessary to negotiate the terms of finance. This means presenting the investment proposition in detail, demonstrating results from financial projections, a proposal for how the funding will flow from investor to farmer and how repayments will be made. Investors will also want to know about the partners on the ground who will help implement the transition.
Even if the investor’s credit conditions do not match the needs of the transition, it may be possible to make it financially viable by building in additional financial catalysts. This may effectively mean developing a financial mechanism with more than one investor. While this would improve the credit conditions offered, it also makes it more complex to juggle different investor needs.