For emerging managers in emerging markets, fundraising has largely meant making the rounds of international development finance institutions. The DFIs, as they are called, are operating amid a broader pullback in financing for development and the growing volatility in foreign exchange rates that increases the risks of local lending.
Dublin-based Small Foundation is testing two models to build stronger local financing ecosystems for small businesses by backing such managers with grants, loans and investments. The pilots are part of a broader strategy to support rural micro to medium-sized enterprises, which provide the bulk of new jobs in most countries.
“We’re recognizing the range of challenges they [managers] face as they launch,” Karina Wong told ImpactAlpha in a video interview as part of the series, “Pathways to Growth,” produced with the Collaborative for Frontier Finance. “We’re looking across those and trying to catalyze different vehicles that can support a range of funds and a range of fund managers.”
This week, Small backed Kenya-based FrontEnd Ventures, its first loan through the foundation’s General Partner Working Capital Facility. The facility offers debt for up to nine years, along with quasi-equity funding to local fund managers raising funds of under $20 million. FrontEnd is raising $8.5 million for its maiden fund to back Kenyan startups and has already invested in three ventures across fintech, an online marketplace and efficient mobility.
The foundation in April also provided a guarantee to Vista Bank Sierra Leone to test a working capital overdraft facility that fits the cash flow realities of many small and medium-sized enterprises in the country.
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For emerging market fund managers raising funds above $20 million, Small launched a second working capital facility this year in partnership with Kuramo Capital Management. The facility known as Moremi, will help managers cover their operational costs like salaries and the costs of warehousing deals until they can be transferred into funds when they close their financing. In Africa, it’s not unusual for some funds taking up to a decade to hit their targets. Moremi can also act as an accelerator and fund-of-funds for promising funds.
“One of the things that we’ve learned over time is that you can’t focus just on one area like access to finance,” said Wong. “You need to be really building the ecosystem around them to find support and learning and training, getting access to talent, access to more knowledge.”
Small Foundation disbursed €6.8 million ($7.9 million) in 2023, leaving it with assets of €2.7 million. Cavendish Capital, owner of the Irish hedge fund Abbey Capital, donated €5.5 million to the foundation in 2023. Directors of Cavendish founded the foundation.
Small has been an active supporter of the Collaborative for Frontier Finance, which brings together limited and general partners and other players in the ecosystem, to develop solutions for small-business financing challenges. Small is also part of the Growth Firms Alliance, a consortium of philanthropic capital providers mobilizing resources for growth firms in emerging markets, both financial and non-financial. And Small is a new member of the Catalytic Capital Consortium, which seeks to demonstrate the efficacy of capital that can take greater risks or lower returns in order to crowd in more commercial capital.
“Catalytic capital is not just a financial instrument; it’s a mindset, one that embraces complexity, stays longer, and backs local leaders,” the foundation said in a statement. “We call on more investors to move beyond rhetoric and step into more intentional, risk-tolerant roles. This means pooling resources, supporting early-stage intermediaries, and co-creating solutions with communities.”
