Companies seeking to provide solutions — whether for the climate or community — should have a clear path to profitability, if they are looking to attract any form of financing, says Srini Nagarajan, managing director and head of Asia at British International Investment.
Nagarajan was one of the panellists speaking on democratising access to finance at Earthshot+ on Nov 8. Earthshot+ is a part of the week-long Earthshot Prize in Singapore this year. Dawn Chan, CEO of the Centre for Impact Investing and Practices (CIIP) as well as the managing director of investments at Temasek Trust Capital, was a fellow panellist. Marisa Drew, chief sustainability officer (CSO) at Standard Chartered Bank, was the moderator.
In his remarks, Nagarajan advised entrepreneurs to have a clear path to profitability, no matter the time needed. Their business should be scalable as well, so that its unit economics are profitable. This, in turn, will enable such businesses to attract financing from funds.
In addition, he noted that while such businesses will see longer paths to profitability, British International Investment is willing to be patient.
More importantly, entrepreneurs should be able to provide the team with a clear outline of what it takes to scale the business and determine whether it can be commercially sustainable, he stressed.
Drew agrees: “If we can have confidence in the revenue proposition, which is your path to profitability (because sometimes we focus so much on the tech, but if the tech is working), and you can demonstrate that there is a marketplace on the back end… the financial providers are able to mobilise capital.”
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Entrepreneurs should also think about they want to demonstrate their contractual revenues, she adds, as well the ability to monetise some of some of [their products] in the value chain. “These are things that I think if we would give some counsel to the entrepreneurs to think about.”
Chan also pointed out that having profits is not a bad thing. “It’s actually required for sustainability… I think the one thing we will look for from early-stage startups is to please measure and calculate your impact metrics, because that will help us decide whether to [provide capital or not].” Temasek Trust is currently using the IRIS plus metrics by the Global Impact Investing Network (GIIN) as a measurement for sustainability.
Simon Zadek, executive director at Nature Finance, noted that getting such businesses to scale requires a standardisation of metrics.
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“[Inspiration] can get us going, but at some point, one has to turn that into rules. So things that we’re doing here, some of the initiatives we saw yesterday [at the Earthshot Prize awards], the scaling isn’t just doing more of the same thing. It’s a phase shift in moving from an extraordinary set of circumstances to something that actually just runs by a set of rules, and that you could do an enormous scope,” he says.
“You know, there's all sorts of work going on trying out different ways of bringing nature into sovereign debt markets… but we need to scale. And that requires us to understand that what happens in the financial markets, has to be made visible in the record, as well,” he adds.
In addition, Zadek suggests that the financial system needs to reward what is happening upstream.
“We need to make those innovations in the financial system… [where] it needs to begin supporting policy innovation as well as project innovation,” he continues.
Opportunities in Asia
According to Temasek Trust’s Chan, the Asia market for impact investing is underweight, with only 25% of the total US$1 trillion ($1.36 trillion) of impact investing funds under management (FUM) put into the region.
“The Asia opportunity is huge. You're talking about 50% of the world's population, very young, very entrepreneurial, [the] population here is very highly digitised… [There are] wonderful opportunities here [with regard to the green and the blue economy, but it’s still very nascent,” she says.
“So when you think about finance, you know, and the whole continuum of capital, there is a role for philanthropic catalytic capital, to actually come in and fund not only [companies in the] early stage, but also even [those in] the scale-up stage,” she adds.
