Foundation and impact investment firm Omidyar Network has released a new report detailing how investors can benefit from frontier capital investments. Entitled Frontier Capital: Early Stage Investing for Financial Returns and Social Impact in Emerging Markets, the report contains information from interviews with leading investors, data analysis, and meta-analysis of existing research.
Frontier investing focuses on the US$2-8 per day earnings income bracket. Populations within this bracket range from bottom- to lower-income-middle-classes within the economic pyramid. According to a press release sent to Ventureburn, these segments have greater purchasing power and a steadier income, but still benefit from products and service that improve their lives.
“There are a range of investing strategies investors can explore directed at those earning between $2 and $8 per day as they make impact investing a truly viable part of their portfolios,” says Omidyar Network’s global lead for impact investing and a lead author of the report, Paula Goldman.
The report studies entrepreneurs who target these income brackets and where market opportunities lie to improve people’s lives.
“The report offers investors guidance for how to approach early stage investments in emerging markets, identifying key considerations that will help better align funders with opportunities,” adds Matt Bannick, managing partner at Omidyar Network.
It outlines three strategies for impact investors, venture capital firms, and individuals wishing to “align their investing with their social values.”
The first of these strategies is Frontier, which is effective with traditional VC financing tools. Frontier looks at investing businesses directly targeting low to lower-middle-income population with popular business sectors, such as fintech, edtech, consume, internet, and mobile. The report gives South African company Siyavula as an example of Frontier strategy.
Companies in the Frontier Plus category are more asset intensive and require patience with risk-tolerant investors. Frontier Plus targets poorer income segments, or consists of entities operating in countries with less-developed capital markets. An example of this group is MEDEEM, an early-stage business developing affordable, accessible land rights documents in Ghana.
The final strategy is Replicate and Adapt. The bulk of funding from VCs in emerging markets lies in this category as it focuses on replicating proven business models and adapting them for emerging markets.
“Our experience after 11 years in impact investing in emerging markets, including many throughout Africa, is that one can get strong returns and make a tremendous difference in people’s lives by focusing on people who are not the poorest of the poor but still have significant needs,” adds Goldman.
Image: Jamie McCaffrey via Flickr