Financial sustainability of AIIC incubators

7 February 2012 NIABI 2112, New Delhi, India

Ralph von Kaufmann
UniBRAIN Facility Coordinator
Forum for Agricultural Research in
Africa

AgBIT - Zambia CAF - Mali CURAD - Uganda CCLEARr - Ghana IDPA - Uganda SVCDC - Kenya

FUNDING AND
SUSTAINABILITY OF
OF AGRIBUSINESS
INCUBATORS

FUNDING AND SUSTAINABILITY OF AGRIBUSINESS INCUBATORS

Content
• Background to UniBRAIN
• UniBRAIN’s purpose, objectives, outputs
• UniBRAIN Agribusiness Incubators
• Functions of agribusiness incubators
• Types of incubators and nature of financing
• Sources and nature of incubator financing
• Financial management
• Take home messages

Background to UniBRAIN
• Wide scale investment in agribusiness and
agro-industry in Africa is presently
constrained by: Human and institutional
capacity deficits

• African universities are not sufficiently
geared to meet the needs of industry

• Graduates often cannot find employment
while many small businesses lack staff with
the education and skills needed to drive
innovation

• Essentially the relationship between the
demands of the private sector and what
universities teach is too weak

• Nowhere are the these deficiencies more
critical than in agriculture, Africa’s dominant
industry

• However, studies show that when university
graduates do business they create more jobs
than those without university education

Purpose of UniBRAIN
UniBRAIN will break the barriers and foster
collaboration between universities, business and
research to create cultures and environments that
will:
• value, encourage and enable innovation
• produce graduates who are problem solvers
• who are potential entrepreneurs
• especially women and youths

UniBRAIN will establish agribusiness incubators
to accelerate the creation of successful
enterprises by providing them with
comprehensive and integrated support, including
incubator space, business support services and
clustering and networking opportunities

UniBRAIN’s unique synergies of
the interactions between the partners

Activity Line A: Fostering agricultural
innovation

Access to high
Opportunities to
level human and
acquire and share More efficient & institutional
experience in effective capacity
promoting innovation innovation in
African
Activity Line C: Exchanging agriculture Activity Line B:Improving
experience, resources and agribusiness teaching
knowledge learning and research
Access to hands-on learning
and stakeholder guidance in
changing curricular and
improving teaching and
learning

UniBRAIN Agribusiness Incubator Consortia
 The Consortium for enhancing University Responsiveness to
Agribusiness Development (UniBRAIN-CURAD) focusing on plantation
cash crops Specific value chain: Coffee
 The Incubation and Diversification of Banana Products for
Agribusiness (UniBRAIN-ABP or Afri Banana) focusing on staple food
and cash crops Specific value chain: Banana
 The Sorghum Value Chain Development Consortium (UniBRAIN-
SVCDC) focusing on smallholder dry land food grains
Specific value chain: Sorghum
 The Creating Competitive Livestock-bias Entrepreneurs in
Agribusiness (UniBRAIN-CCLEAr) focusing on Smallholder livestock
Specific value chain: Livestock
 The Innovative Centre for Agro-forestry (UniBRAIN-CAF) focusing on
agro-forestry products
Specific value chains: non-timber forestry products, cereals and fruits
 The Agri-Business Incubation Trust (UniBRAIN-AgBIT) focusing on
tropical fruit Specific value chain: Mango


Locations of UniBRAIN agribusiness incubators

UniBRAIN CAF

UniBRAIN CCLEAr

UniBRAIN AgBIT


Functions ofand Agribusiness Innovation Incubators
Why the how will African universities
link with agribusiness
UniBRAIN will support universities, businesses and research
institutions to establish agribusiness incubators, which will
provide:
• facilitation for creating competitive agribusinesses through
technology development and commercialization
• handholding services starting from business conceptualization
to implementation and scaling up
• support for realising business concepts from university faculty
and graduates, researchers and agribusinesses
• consultancy services to agribusiness
• help in accessing financing for SMEs and start-ups approaching
impact investors and social capitalists

Example Incubator Client Categories and Services

Start Up Growth Expansion Mature
Networking
(domestic and
International)
Assistance and linkages to funding and
market Technologically capable,
Productivity driven and
Handholding through business coaching, mentoring, consultancy and Globally competitive
training on mindsetting, Business plan, Accounting, marketing,
communication skills etc

Biotech; Assistance in Brand
Agribusiness; Development
Production
assistance

Incubation services •Technology commercialization
and shared facilities •Product and process improvement
•Technology Transfer Office
Selection/ •IP Management
Assessment
Pre-incubation/
Preseed

Diagramme by ANAFE

Functions of the Agribusiness Innovation Incubators
 The mission of the incubator is to facilitate the creation of
competitive agribusiness enterprises through technology
development and commercialization
 The incubator, helps new entrepreneurs and enterprise clients
with handholding services starting from business
conceptualization to implementation and scaling up
 It is up to the clients to choose the kind of services they want
from the incubator
The agribusiness incubators will provide institutional frameworks for:
 the realisation of business concepts from university faculty and
graduates, agricultural research and agribusinesses of all sizes
 consultancy services to agribusiness
 help in accessing financing for SMEs and start-ups by
approaching banks, impact investors and social capitalists


The nature of the incubator determines its
prospects for local or international
funding:
Type 1: provide a physical location in which
a new business can access facilities,
support services and business advice
Type 2: provide high-tech facilities and high-
level skills that the firms need from
time to time but cannot justify tying
much of their own capital
Type 3: provide in situ institutional support
to enable firms, entrepreneurs and
inventors to access resources, which
they do not have in house
 This is the UniBRAIN model


Type 1: Will appeal to local investors and lenders
 They serve local needs
 They are not easily up-scaled

Type 2: should appeal to international public & private investors if
they:
 offer services that are undersupplied in developing countries
 offer scope for collaboration in training, equipping and usage
 can serve clients nationally and regionally
 promise high impact breakthroughs

Type 3: should attract international public and private donors if they:
 are public – private partnerships
 leverage existing human and physical resources
 offer international collaboration in business and training
 will be financially self sustained in a relatively short time

THE NATURE OF THE BUSINESS WILL DETERMING THE SUPPORT AND TYPE OF FUNDING

Current businesses New businesses

Existing
Business Enhancement Development of new
Functions enterprises
Nature of Activities
Qualtity  Training
Business  Problem solving
Activities
New Expansion Agro-sector enlargement
Business New products
Activities New processes  New business lines
New markets

Source: John Kuada Centre for International Business, Department of Business Studies, Aalborg University

THE NATURE OF THE BUSINESS WILL DETERMING THE SUPPORT AND TYPE OF FUNDING

Necessity-based Growth-based

Imitation- “Entrepreneur among “Giants in the crowd”
oriented others” Good positions in social
businesses  Crowded low-end and political networks
business segments Dependent on social capital
Degree of
 Low profitability to leverage resources
Creativity
 Limited organic growth
&
Innovation Innovation- “Orphans” “Eye – catchers”
oriented  ”lonely entrepreneurs”  Persons with unusual
businesses  May go unnoticed talent
 High entry barriers  Seeking venture capitalist
 Success difficult to support
achieve  Want to attract
 Require support & public/journalistic attention
mentoring

Source: John Kuada Centre for International Business, Department of Business Stu
Aalborg University

Funding Prospects
There are few international donors and investors who
are specifically dedicated to supporting agribusiness
incubators
But if the incubators are themselves businesses there is
a huge number and variety of potential donors and
investors amongst which to search for compatible
mandates, interests and cultures
Whether agribusiness incubators can attract business
investment is still to be tested and will depend on the
merit of their business plans and how well they can
mesh with not just the official policy of the potential
investor but also with the personal convictions of the
investors’ staff and decision takers

FUNDING AND SUSTAINABILITY OF AGRIBUSINESS
INCUBATORS
Sources of financing

Governments
• Most governments are keen to support start-ups and SMEs but research is
required to find the schemes criteria and what kind of proposals are most
likely to succeed

Development Partners
• Promoting public private partnerships is a popular development objective
but it is almost a requirement for success to find a champion in the
development agency who is not only interested but can actually help

Banks
• Bank interest can be high but the incubators can reduce there transaction
costs and risks and they should respond favourably. Islamic banking may
be more appropriate for start-ups


Sources of Financing (contd)
Impact investors
 Impact investors seek to enhance social structure or environmental health
as well as achieve financial returns. They ay take an active role mentoring
or leading the growth of the company similar to a venture capital firm
assists in the growth of an early-stage company.

Social capitalists
 Social capitalists believe that a strong social support network for the poor
enhances capital output and that by decreasing poverty, capital market
participation is enlarged. Social capitalism accept that government
regulation, and even sponsorship of markets, can lead to superior
economic outcomes.

Venture capitalists
 Venture capitalists invest in early-stage, high-potential, high risk, high
growth startup companies. They make money by owning equity in the
companies it invests in, which and usually have a novel technology or
business model in high technology industries

Incubator Financing
There are 3 main revenue models for business incubation environments:
1. Income from incubated enterprises – payments for facilities and services
2. Returns to equity - sharing in client success by rising value of equity or royalty
agreements on gross sales
 this can be a very good way to receive payment for business incubation
services once the company succeeds, rather than up front when the
company has little income
 It only applies to high growth companies which have clear exit strategies
otherwise royalties may be a better approach
 it takes up to 10 years to realize returns and a portfolio of at least 20
companies is required to spread the risk, not to mention the high level of
management expertise that is required
3. Generate revenue from non-business incubation activities such as consulting,
collaboration and access to facilities to ongoing businesses
At different stages different amounts and combinations of financing may be needed

Raising Funds
 The incubators should have well developed business models for
itself and for its clients that together form its Business Plan
 These identify the main funding requirements in ways that can
attract the interest of financiers
 These have to be supported by surveys to find potential partners,
sponsors and financiers to know and understand their objectives,
operating modes, contact persons etc.
 Know the projects they already support to identify their
priorities and opportunities so that the incubator can make a
targeted presentation
 Prepare a succinct funding proposal aimed at clearly establishing the
project concept, principal benefits and requirements in line with the
financiers interests


Financial Management
Incubators need to 'walk the talk' and demonstrate high levels of
financial management capability to incubated enterprises.
The main attributes of quality incubator financial management are:
• planning, overseeing and controlling the incubator funds, whether
they are brought in through services or provided by partners and
investors
• Having mechanisms that enable the incubator manager to know
accurately the amounts available, the needs and the investment
capacity
• Financial management also involves bringing in new sources of
funds for the incubator
• Preparation of Investment Spreadsheet
• Preparation of Costs and Expenditures Spreadsheet
• Preparation of Revenues Spreadsheet


Cash Flow  Reliable cash flow projections are crucial to the
successful financial administration and they
must be linked to the budget in order to monitor
the financial performance of the incubator
 Despite the simplicity of the cash flow concept,
its application to a business may result in some
difficulties, arising from the following aspects:
 In a new business, it is hard to forecast the
income and expenditures resulting from
some activities
 It is hard to foresee future cash income and
expenditure amounts, due to the
uncertainties of the projected scenario
 It is hard to quantify the impact on the cash
income and expenditures due to the business
risks

Take Home Messages

Agribusiness incubators are
businesses worthy of commercial,
donor and social capital investment

The funding is there but you have to
find an appropriate source and justify
why it should invest in your incubator

Good business models and plans, a
sound funding strategy, and flawless
financial management are essential for

Thank you both funding and sustainability

INCUBATORS

UniBRAIN’s development objective is:
• to contribute to enabling African
countries to create jobs and raise
incomes through sustainable
agribusiness development.

UniBRAIN’s Immediate Objective, which is
also its value proposition, is:
• to enable universities, business and
agricultural research institutions to
commercialise agricultural technologies
and produce graduates with
entrepreneurial and business skills
through agribusiness incubator
partnerships.


UniBRAIN’s objectives will be realised by:

Output #1: Commercialisation of agribusiness
innovations supported and promoted
Output #2: Agribusiness graduates with the potential
to become efficient entrepreneurs
produced by tertiary educational institutions
Output #3: UniBRAIN’s innovative outputs, experiences
and practices shared and up-scaled.

INCUBATORS
Sources of funding: Development Partners

Several Development Partners have schemes for supporting start-ups and SME’s such as:

 Danish Small Business grants

 Norwegian Investment Fund for Developing Countries (NORFUND) is supporting Uganda's
Small enterprises with Shs20 billion fund channeled through Dfcu Bank

It will boost SME programmes including agro processing and market research among other
ventures

 A recent study commissioned by Sida concluded that:

“Existing knowledge suggests that public sector development support should be
integrated with other types of support, address clusters of factors and take linkages
between them into account.”

This seems to fit with the mandates of agribusiness incubators


Sources of funding: Development Partners

The incubators should seek donors and investors with mandates, interests & cultures that are
consistent with their business models (not vice versa)

UniBRAIN incubators’ business models will be consistent with the Africa Commission’s criteria
including:

 Gender balance in beneficiaries

 Fostering innovation and competitiveness along whole agricultural value chains to create
sustainable growth, jobs for youths and reduce poverty

 The depth, quality and contextual appropriateness of proposed changes in curricula and in
teaching and learning methods

 Fostering collaboration between African institutions and with institutions in other countries
and regions

 Having sound governance of the institutions and programmes


Sources of funding: Impact investors
The Global Impact Investing Network (GIIN)
 GIIN Investors' Council is a diverse group of leading impact investors
committed to building a coherent industry that effectively channels
investment capital to address social and environmental challenges at
scale
 Impact investment which is intended to create positive social or
environmental impact beyond financial returns
 This should apply to:
- agribusiness incubators dedicated to addressing social (poverty
alleviation) and
- environmental challenges (adaptation for climate change)
- amongst entrepreneurs not reached by ‘normal’ business support
systems and
- at scales beyond that of individual firms


GIIN members include:

 ACCION, Acumen Fund, The Annie E. Casey Foundation,
Armonia, The Bill and Melinda Gates Foundation, Calvert
Foundation, Capricorn Investment Group, Citigroup,
Deutsche Bank, The DOEN Foundation, Equilibrium Capital,
The Gatsby Charitable Foundation, Generation Investment
Management, Gray Ghost Ventures, IGNIA, J.P. Morgan,
Leapfrog Investments, Lundin for Africa, Morgan Stanley,
National Community Investment Fund (NCIF), Omidyar
Network, Packard Foundation, Prudential, The Rockefeller
Foundation, Root Capital, Sarona, Shorebank International,
Skoll Foundation, SNS Asset Management, TIAA-CREF,
Trans-Century, Triodos Investment Management, W.K.
Kellogg Foundation, and Wolfensohn & Company.


Example:

 Kilimo Trust Investors: Gatsby Charitable Foundation and the
Rockefeller Foundation (and the Government of Uganda)

 The Kilimo Trust has a Vision of Broad-based Wealth Creation
in East Africa through agriculture and agribusiness

 It removes constraints that limit the exploitation of business
opportunities and increases the success rate of investments in
agricultural enterprises

 It provides grants directly to private businesses and
disseminates the commercial experiences gained from this to
support other interested parties


Sources of funding: Social capitalists
 Social venture capital is a form of venture capital investing that
provides capital to businesses deemed socially and
environmentally responsible

 These investments are intended to both provide attractive
returns to investors and to provide market-based solutions to
social and environmental issues

 Social venture capital can refer to debt or equity investments in
socially-oriented enterprises, which includes BoP (Base of the
Pyramid)-targeted efforts to stimulate economic development
in the poorest regions of the world

 Commercial banks also need to demonstrate “good corporate
citizenship” and may support start-ups and artisan enterprises
if the incubators prepare business plans and support them


 Among the firms that deploy "social venture capital"
are: Acumen Fund, Grassroots Business Fund, Tandem
Fund, Bridges Ventures, Citizen Capital, Triodos Bank,
Calvert Group, Gray Ghost Ventures, The New
Economics Foundation , Social Venture Capital Fund,
Ventursome Fund, Social Venture Partners, VenturEast
BYST Growth Fund, ennovent, Aavishkaar and Good
Capita (Some of these are GIIN members)

 Research will be needed to determine which GIIN
members, Social Capitalists and commercial banks may
be interested in supporting agribusiness incubators
that pursue social objectives in developing countries


Example:Endeavor Global, endeavor.org

 Endeavor breaks down barriers that prevent emerging-
market entrepreneurs from reaching their high-impact
potential

 Endeavor has supported over 320 entrepreneurs from
over 190 companies

 Endeavor Entrepreneurs have created more than 80,000
new jobs, paying on average ten times the national
minimum wage, and generated approximately $2 billion
in new revenue

 95% of Endeavor Entrepreneurs' companies are still
operating in countries where ventures typically close in
42 months


Example: Venture Capital for Africa (VC4Africa)
VC4Africa.biz - Africa's largest venture capital community,
investors and entrepreneurs, dedicated to building business on
the continent
 The VC4Africa Daily has + 1186 follower on Twitter - Next
update in about 10 hours
 VC4Africa organises Meetups at which aspiring entrepreneurs
can meet venture capitalists wherever there is interest
 e.g., University of California Los Angeles (UCLA) & Santa
Monica
 These are simply a place for members to meet share ideas
 No speeches, no agenda, nothing planned
 The loose structure allows for lots of networking
 Just remember participants pay for their own drinks


The prospects for local and international funding:
 There are few international donors and investors who are
specifically dedicated to supporting agribusiness incubators
 But if the incubators are themselves businesses and there is
a huge number and variety of potential donors and investors
amongst which to search for
compatible mandates, interests and cultures
 Whether agribusiness incubators can attract business
investment is still to be tested and will depend on the merit of
their business plans and how well they can mesh with not
just the official policy of the potential investor but also with
the personal convictions of the investors’ staff and decision
takers

Financial sustainability of AIIC incubators

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