Unlocking Early-Stage Financing for SDG Partnerships

Chapter 2

Partnership Financing Challenges

Partnerships have consistently had difficulty securing funding—it was a repeated theme in our first report on transformative partnerships and has inspired the partnership financing focus of this follow on report. Here, we surveyed 66 commercially driven partnerships to better understand their experiences navigating the financing journey—providing a perspective that may be helpful for funders to consider as they make investment decisions. We also provide six partnership case studies to add color to these challenges and present ways partnerships are working to overcome the missing middle.

ColdHubs Limited

2.1 Background

To overcome the missing middle and maximize their transformative potential, commercially driven partnerships need capital and more funding flexibility. Partnerships quickly run into roadblocks in their funding journeys because developing new business models or refining old business models can be viewed as risky and often necessitates a long runway (e.g., three to eight years) for Stage 1 activities. In this chapter, we examine common grant and investment challenges through the lens of commercially driven partnerships. As this partnership lens is new to this area of research, we draw primarily from the experiences of partnerships in our survey pool, focusing on challenges that span multiple SDG areas and partnership business models. The second half of this chapter provides six case studies of partnerships at various stages of maturity, detailing their funding journeys and presenting lessons learned and recommendations for how to address these challenges.

2.2 Partnership Profile

The research in this chapter presents findings from a survey of 66 commercially driven partnerships sourced from nine partnership platforms. P4G is the best-represented platform in our sample because the majority of P4G’s partnerships fit our partnership criteria (multistakeholder, with transformative potential, and focused on the SDGs) as compared to other partnership platforms. Partnerships also focus on at least one of our five SDGs of interest: SDG 2 (Zero Hunger), SDG 6 (Clean Water and Sanitation), SDG 7 (Affordable and Clean Energy), SDG 11 (Sustainable Cities and Communities), and SDG 12 (Responsible Consumption and Production). As Figure 2 shows, partnerships are also distributed across different business models, geographic regions, and stages of maturity. Partnerships included in our analysis have secured returnable investment, are actively seeking investment, or plan to seek investment in the near future. Figure 3 shows how funding was structured across our 66 partnerships, with each dot representing an individual funding source. Overall, this figure highlights that grants were the predominant source of funding for the 66 partnerships, with most grants being $2 million or less. Additionally, there is a big drop-off after $2 million for any funding type, highlighting the missing middle challenge. Our case study partnerships represent a subset of these partnerships that have been successful in achieving some level of investment.

Although the primary goal of the survey was to get a better understanding of financing challenges faced at different stages of partnership maturity, the survey also collected information on 10 partnership characteristics to allow for statistical analysis to understand whether any characteristics might lead to greater success in securing returnable investment. Analysis results using a logit model showed that only two factors were statistically significant in improving the chances of securing investment: having a business plan that included a strategy to secure investment and having partnership objectives focused on the energy sector. This aligns with existing literature and research showing that the energy sector is better financed than other SDG areas (Dalberg 2020; GEF 2020; Tonkonogy et al. 2018). This also demonstrates the need for partnerships to be intentional about creating a business plan with a financing strategy in the early stages of development.

Interestingly, partnerships focused on the cities sector were statistically less likely to receive investment than were partnerships focused on other SDG areas. Over 90 percent of partnerships that listed cities as a focal SDG area also indicated that their objectives were tied to at least one other SDG focal area (e.g., food or water). This occurrence was higher for cities than any other SDG area. For example, only 48 percent of partnerships focused on food and agriculture and 61 percent of partnerships focused on energy had overlap with other SDG areas. This result may indicate that partnerships focused on cities are less attractive from an investment point of view because they are, by nature, more crosscutting and hence do not fall easily into investors’ focal areas or eligibility criteria. Finally, despite previous research having identified Sub-Saharan Africa and East Asia as regions with higher blended finance potential, our analysis did not show that region was a significant predictor of securing investment (Crishna Morgado and Lasfargues 2017; GEF 2020). Appendix B provides more information on our survey, including other partnership characteristics that were included and tested in the logit model and uncertainties associated with the survey data set.

Figure 2 | Survey Pool Snapshot

Notes: ANDE: Aspen Network of Development Entrepreneurs; CPI = Climate Policy Initiative; EU = European Union; P4G = Partnering for Green Growth and the Global Goals 2030; SDG = Sustainable Development Goal.

Source: Authors.

Figure 3 | Partnerships’ funding sources and amounts

Note: Funding amount categories correspond to our partnership survey (Appendix A); through subsequent research we determined that four categories were more suitable.

Source: Authors.

2.3 Challenges

Many of the challenges that partnerships in our survey pool face reflect challenges that are well established in development financing literature. However, there are important nuances that reflect the uniqueness of taking a multistakeholder approach as well as working in less-financed SDG areas and in emerging economies. Here, we discuss some of these top challenges and how they apply to partnerships working to overcome the missing middle, or, as one partnership surveyed described it, “the valley of death.” We provide direct quotes from our partnership survey to add color to these challenges and note which challenges are more common than others. As our sample size of partnerships that achieved investment was small (25), we include challenges even if mentioned by only a handful of partnerships if they were also reflected in the literature. Figure 4 shows where along the traditional funding journey these challenges typically arise. And while this chapter focuses on challenges, Chapter 3 discusses ways in which partnerships can overcome them.

Figure 4 | Partnership Funding Journey Challenges

Source: Authors.

2.3.1 Grant funding challenges

Commercially driven partnerships often start with grant funding and experience multiple challenges early on, hindering their ability to innovate, pilot their solution, scale, and attract public and private investment. These challenges include strict funder eligibility criteria that limit the investment pools available and burdensome application processes—or, once they have been awarded funds, roadblocks related to the size, term, and flexibility of grants as well as monitoring, evaluation, and reporting—all of which are compounded by the fact that partnerships frequently must layer grants to conduct early-stage activities.

Challenge 1: Grant funders’ eligibility criteria limit commercial activities and innovation potential

All capital providers have requirements. For grant funders, they must determine eligibility criteria for who and what they are willing to fund in accordance with their organizational mission. Partnerships reported that grant funders tend to focus on specific SDG or focus areas (e.g., clean water or energy access) and specific project types. Additionally, grant funders may be limited in whom they can fund (e.g., NGOs as opposed to businesses) and the types of activities they can fund (e.g., operational costs as opposed to commercial activities), which can limit a partnership’s ability to be commercial. Grant funders may also place constraints on partnerships, such as requiring them to demonstrate matching funds or to bring on additional partners. Overall, these eligibility criteria and grant requirements can be overly burdensome and resource intensive for partnerships to fulfill, ultimately limiting a partnership’s ability to take a more innovative approach. Additionally, if grant funders are beholden to specific eligibility criteria either by their board or regulations, they may not be able to see a potentially available pipeline of projects that are developing new or cross-sectoral business models (Dalberg 2020; Crishna Morgado and Lasfargues 2017; Peterson et al. 2015; Stibbe and Prescott 2017).

For partnerships in our survey pool, finding and applying for funding opportunities that aligned with their partnership strategy was a significant challenge. Over 40 percent of partnerships with investment, for example, indicated that fitting within grant funders’ application criteria was a major barrier. Several partnerships expressed frustration that grant funders tend to focus on “fancy looking industries,” “new innovations,” or “flashy projects” such as developing a new technology rather than partnerships and projects that are pursuing less flashy approaches but have high impacts and are seeking to develop a strong understanding and solution for systemic problems. Two partnerships specifically noted difficulty getting grant funding to support their products, with one noting that “it is challenging to raise grant funding to develop financial products like first loss guarantees or payment guarantees, although we see a very large potential for such products to unlock large amounts of capital in higher risk markets.” COVID-19 has further limited grant funding for partnerships, with several noting that public funding is being channeled away from their targeted SDG areas towards the public health sector.

Over 40 percent of partnerships with investment and 30 percent of all partnerships surveyed reported that grants can directly conflict with commercial objectives. One partnership stated that “grant funding can often require certain activities or a certain partnership arrangement that limits the innovative potential of a business idea.” Regulations around grant funding also pose restrictions; several partnerships reported, for example, that government grants are sometimes restricted from being used to support commercial activities and that donors cannot legally provide grants to partnerships registered as for-profit entities. Additionally, several partnerships in our pool reported that they needed to either restructure or bring on partners that they would not have otherwise in order to increase their eligibility and attractiveness to a greater pool of funders. This speaks to a general mismatch where grant funders seek to fund nonprofits but investors seek to fund for-profit entities. One partnership noted that “we find it difficult to create a structure where we would have a for profit and a nonprofit. This is due to our being a small team and thereafter having to use the same people in both structures. What we would like to do is to create the proof of concept with grant money to de-risk the investment for the commercial funders.”

Challenge 2: Grant timelines and ticket sizes do not support partnerships’ needs and early-stage activities

Partnerships are constantly balancing the need for funding against the resources required to secure it. Many grant funders that are targeting Stage 1 funding initiatives tend to provide short- and fixed-term grants (one to three years) and/or grants that are of small ticket sizes (e.g., less than $500,000) (Dalberg 2020; Gugelev and Stern 2015). If partnerships are able to secure the funding, it can leave them in a constant chase after piecemeal funding, scrambling to secure multiple grants for Stage 1 funding activities and to produce results against unrealistic and uncoordinated timelines (Dalberg 2020, 2021). One partnership noted that “forestry is highly capital intensive. A few $500,000 grants doesn’t go very far.”

Additionally, the short term and small ticket size of grants diverts resources away from important Stage 1 funding activities such as developing feasibility studies, business plans, and stakeholder networking (Peterson et al. 2015). Partnerships in our survey stated that this is counterproductive to their ambitions and that they need more flexible, unrestricted, and long-term grant funding. Even when partnerships are able to find it, “securing more flexible funding, particularly from foundations, is generally by invitation only—[and] building this network diverts resources from the core business activities, which . . . are the key focus for the partnership.” In Section 2.3.2, we discuss how small ticket sizes can also cast partnerships in a negative light to investors.

Challenge 3: Grant funders’ performance metrics and reporting requirements are burdensome and misaligned with impact

Once partnerships receive grant funding, they still face barriers that prevent them from attracting investment and demonstrating impact. In particular, partnerships noted that grant funders often require their funded partnerships or initiatives to adhere to fixed key performance indicators (KPIs) and monitoring, evaluation, and reporting frameworks. Although there is nothing inherently wrong with this, grant funders’ and other impact investors’ metrics can often focus more on output-level metrics as opposed to long-term outcomes or impacts (Callias et al. 2017; Godeke and Briaud 2020; Peterson et al. 2015). One reason may be that funders find it challenging to align their existing frameworks with the SDG framework (Rockefeller Philanthropy Advisors 2019) or are tracking outputs and outcomes as opposed to impacts. More broadly, grant funders usually have their own unique monitoring, evaluation, and reporting frameworks. In our sample, most partnerships layer multiple grants to support Stage 1 activities; these partnerships stated that having to comply with multiple frameworks “can . . . be too burdensome in terms of reporting and other requirements which diverts resources away from [our] ability to develop a strong business plan.” Several partnerships called for greater coordination among grant providers to reduce this burden as well as more freedom to develop their own KPIs.

2.3.2 Investment challenges

There comes a point when partnerships have made headway in their activities but still have certain risks not acceptable to DFIs or private sector investors. At this point, they may need to seek other sources of capital for Stage 2 activities. Some of the challenges found at this stage, like restrictive eligibility criteria, are echoes of the same constraints found in grant funders. Others reflect new challenges specific to DFIs and private sector investors, such as reaching adequate proof of concept, overcoming perceptions of risk, and convincing investors to truly invest as their environmental and social goals dictate.

Challenge 4: Investors are looking for proven models with strong track records

Over 60 percent of partnerships with investment and 26 percent of partnerships without investment indicated that it is a significant challenge to find investors who are aligned with their business models and geographic focus. Investors understandably have established risk-return profiles that direct their investments and eligibility criteria. As a result, they tend to focus on projects with a proven business model and strong track record that are located in less risky countries. Yet this can be completely at odds with the nature of the SDGs. For example, the United Nations Global Compact—an entity that works with offices throughout the United Nations to better integrate the private sector—states that businesses “need to raise their sustainability ambitions and act decisively to: 1) adopt new mindsets, 2) build and trial new business models, and 3) develop and deploy disruptive technologies” (Whelan n.d.).

Partnerships in our survey pool reported that investors they work with are often reluctant to invest in “green” or new business models despite the clear need for such innovative approaches to address the SDGs (Convergence 2020a; Crishna Morgado and Lasfargues 2017; Lewis et al. 2016; Pinko et al. 2021). One partnership noted, for instance, that its biggest challenge with investors is the “lack of familiarity and experience with household and small and medium enterprise (SME) lending for Water, Sanitation, and Hygiene (WASH) projects, which is a new space for most lenders, including DFIs.” Many partnerships are also operating in emerging economies, where investors are more reluctant to invest due to risks such as uneven economic growth, political instability, conflict, and underdeveloped financial markets (Dalberg 2021; Runde et al. 2019; Sierra-Escalante and Lauridsen 2018; UNSG 2019).

Partnerships in our sample also found that DFI and private sector investors look for initiatives with a 10-year record of success—a criterion most partnerships cannot meet. Investors have noted that a record of success includes not just demonstrating positive financial returns but also demonstrating that an enterprise does not rely on grant funding or subsidization (Statuto and Lavallato 2021). Track record requirements leave partnerships in a challenging funding position. Although they may have received some grant or seed funding to pilot their model, they struggle to find the flexible capital and internal capacity needed to scale operations and build the record of success required by investors. One partnership noted, however, that “it is very hard to go from proof-of-concept capital to commercial scale up funding due to the nature of the financial sector (large tickets, credit ratings, risk averse nature and so forth).” Although there are seed-stage and early-stage investors—such as Acumen and Aceli Africa—that are able to invest in ventures with a much shorter track record, few are in the market and partnerships may not know how to access them.

Challenge 5: Investors have rigid funding criteria and requirements

Similar to grant funders, DFIs and private sector investors often lack flexibility in terms of the ticket sizes they are willing to support and their reporting and commercial project requirements (Dalberg 2020). Many DFIs and private sector investors focus on larger ticket sizes ($10–20 million) that partnerships in Stage 1 of their funding journeys are not ready for, especially since their earlier activities may have been funded by grants, which tend to be of small ticket size. Related to other investor requirements, one partnership reported that “we realized that [receiving financing] at scale required additional investment (by us) into systems, processes and staffing to compensate accordingly, e.g., Environmental, Social, and Governance (ESG) standards, reporting requirements.”

Challenge 6: Investors have negative perceptions of initiatives supported by grants

A more unique challenge mentioned by three partnerships in our sample is that investors sometimes negatively perceive partnerships that have relied on grant funding for too long. One partnership noted that a “grant-based model can often be perceived as [one] with less commercial sustainability and market uptake, thereby limiting the interest from other sources of capital as well as private sector participation.” Another partnership noted that because grant ticket sizes are small, investors can view them as unable to attract funding in the midsize ticket range (e.g., up to $10 million). These negative perceptions perpetuate a vicious cycle where partnerships must seek additional grant funding to continue supporting early-stage activities and leaves no one responsible for providing middle ticket sizes.

Challenge 7: Greater investor transparency and accountability is needed

Although there are investors willing to take on newer business models, it can be challenging for partnerships to keep track of the investors open to providing Stage 2 funding and their eligibility criteria (i.e., focal areas, ticket sizes, geographies). DFIs, for example, may report in a way that is not easy to track and compare. With low transparency of impact management, mixed disclosure of environmental and social risks of investments, and low to nonexistent disclosure of financial information (James et al. 2021), it is difficult for partnerships to know which DFIs they can connect with. This can create additional expenses for partnerships in terms of networking and transaction costs. One partnership in our sample wished that DFIs could provide their funding criteria, historic and current projects funded, catalytic and blended finance opportunities, and other core information in an easily accessible database for stakeholders.

Another partnership expressed frustration that DFIs are not held accountable for meeting their ESG and SDG objectives, which limits financing opportunities for partnerships, but the DFIs are still allowed to claim results. This partnership also stressed the need for greater information sharing between DFIs to increase pressure to adopt new financing models and set up new financing instruments.

Challenge 8: Regulatory and policy constraints

External factors such as international financial regulations and the international policy environment also get in the way of partnerships overcoming the missing middle challenge. For example, one partnership noted that because the financial instrument it is developing would serve both developed and developing countries, the partnership was not eligible for official development assistance (ODA) and was unable to engage DFI financing. Another partnership stated that the international policy environment limits its investment appeal because few countries have a policy framework supporting the partnership’s objective of increasing zero-emissions fuels.

Taken together, these challenges speak to overarching issues with grant funders and investors that are greatly hindering progress on the SDGs and by partnerships. First, grant funders and investors are very much tied to their status quo and focused on their own priorities. This complicates their ability to provide the financing that partnerships need to truly drive commercial endeavors. Second, grant funders and investors also lack flexibility in terms of what they can or will fund. Finally, their current methods for tracking and reporting on impact do not always align with the SDGs and partnership ambitions to make transformative changes. If financiers’ impacts are not aligned with understanding SDG impact, it follows that financiers will be less effective at meeting their stated ESG and SDG impact objectives and at selecting the best initiatives to fund. Though this is beginning to shift, many investors may still believe that incorporating sustainability factors into decisions conflicts with fiduciary duty despite regulations to the contrary and evidence that ESG integration can be a form of prudent investing (Lewis et al. 2016). Chapter 3 provides an overview of financier transparency and accountability issues.

Although overcoming the missing middle is not easy, partnerships in our pool are working to overcome these challenges in creative ways. In the remainder of this chapter, we discuss how six best-in-class partnerships are making initial progress against these funding barriers. Then, in Chapter 3, we look at new financing approaches already adopted by grant funders and investors, all of which can help early-stage partnerships overcome the missing middle.

2.4 Partnership Case Studies

In the remainder of this chapter, we explore how six commercial partnerships have approached funding and navigated investment challenges. No partnerships in our pool have successfully made the textbook leap across the missing middle to become fully commercial and financially self-sufficient (these are difficult to find, hence the premise of this report.) We did, however, identify encouraging stories of what partnerships are doing right as they navigate the complexities of financing. These partnerships stood out from our pool of 66 because they have all secured some investment, and they are also all seeking additional investment at the moment to launch or scale up their operations. These partnerships vary, however, in the amount and type of funding they have sought or are seeking and are operating in different geographic and SDG contexts (Figure 5).

Figure 5 | Partnership Case Studies and Stages


  • GreenCo is disrupting the Southern African Power Pool market by acting as a renewable power offtaker. This case examines how the partnership secured anchor funding from a philanthropy and strategically built relationships with development finance institutions to overcome the missing middle.
  • ColdHubs designs pay-as-you-go, solar-powered cold rooms for farmers in Nigeria. This case explores how the partnership leveraged partnership platform networks to secure concessional finance.
  • Energise Africa is an impact-focused crowdfunding platform enabling individual investors to invest in sustainable businesses in Africa and other emerging economies. This case highlights how the partnership strategically layered grant funding alongside donor and government investment to crowd in private capital.
  • Hasiru Dala Innovations creates employment opportunities for waste pickers in India. The case examines how the partnership’s experienced team and strong systems understanding paved the way for investment.
  • The Nutritious Foods Financing Facility seeks to increase funding to small and medium enterprises that provide access to nutritious and safe foods to domestic customers across Sub-Saharan Africa. This case explores the importance of a strong team with relevant technical expertise and building a relationship with an anchor funder.
  • The Sustainable Investment Clusters partnership develops designated zones for commercial activities with embedded sustainability and circular principles.

Source: Authors.

Overall, the following three key lessons emerged from these cases:

  • We saw that partnerships that have successfully secured investment tend to have found one or two long-term, or “anchor” funders An early-stage funder that provides multiple rounds of flexible funding to a partnership and helps shape an investment fund or a facility. These funders have strong buy-in to the partnership mission and support the partnership as it tests new approaches and works to scale. Support of an anchor funder also helps crowd in other investors. or sponsors willing to provide flexible catalytic capital with a low reporting burden. Often these anchor funders provide multiple rounds of funding and connect partnerships with investors within their circle. (Read more about how anchor funders can be essential in the case studies of GreenCo and Energise Africa.)
  • Several of the partnerships emphasized the benefit of mentorship and networking from partnership platforms and award programs. Partnerships are not always well versed in finance and can benefit from getting counsel from those who are—learning to navigate the complexities of structuring financing to support their commercial endeavors and, more broadly, expanding their network and connections. (Read more about how GreenCo, ColdHubs, Hasiru Dala Innovations, and the Sustainable Investment Clusters (SIC) partnership have found the advice and mentorship from different programs valuable.)
  • As validated by the logit model, all case study partnerships had developed a business plan that included a strategy to secure investment. Additionally, through interviews with these partnerships, it was clear they were adept at putting together a strong team and indicated they spent a significant amount of time building an understanding of the problem they wanted to address and adapting their implementation strategy over time to accommodate issues as they arose. Not surprisingly, these success factors were also listed as being vital for having “transformative potential” (as described in the first State-of-the-Art Report) (Li et al. 2020).

2.5 Case Studies

2.5.1 GreenCo


This case examines how GreenCo secured anchor funding from a philanthropy and strategically built relationships with DFIs to overcome the missing middle. These are the key partnership characteristics:

  • SDG: 7 (Affordable and Clean Energy)
  • Platform affiliation: P4G
  • Year founded: 2015
  • Countries: Zambia, Namibia, South Africa, other Southern African Development Community (SADC) countries
  • Business model: new business venture
  • Funding stage: Stage 3 (see Figure 6)
  • Funding types: grants, convertible loans, equity
  • Partners: Investment Fund for Developing Countries (IFU), InfraCo Africa, EDFI ElectriFI (Government of Zambia, Southern African Power Pool [SAPP], Regional Electricity Regulators Association of Southern Africa)

Figure 6 | GreenCo Funding Stages

Source: Authors.


Via its local operating entities, GreenCo Power Services Limited, GreenCo acts as an intermediary offtaker and service provider, purchasing renewable power from independent power producers (IPPs), pooling energy supply, and selling power to utilities and private sector offtakers (i.e., commercial and industrial users) either bilaterally or through the regional competitive power markets. This model allows GreenCo to pool and de-risk renewable power for electricity buyers while promoting cross-border power transactions and a more dynamic clean energy market in the SAPP (GreenCo 2021).

Funding journey

Creating the “building blocks of profitability.” GreenCo secured early buy-in from funders that have supported the partnership through multiple funding stages. In 2015, GreenCo received a grant from the Rockefeller Foundation to conduct a feasibility study and convene a week-long stakeholder roundtable. The strength of the feasibility study and support generated through the roundtable enabled the partnership to secure two additional grants from the Rockefeller Foundation that were used to develop the partnership’s business plan and begin project implementation. GreenCo also received Stage 1 grant funding from Convergence, the SADC Project Preparation and Development Facility (PPDF), and P4G. This flexible, long-term grant funding allowed the partnership to address barriers to commercialization, such as gaining support from critical government and utility stakeholders.

Playing the long game. GreenCo used grant funding strategically to create an enabling environment for the partnership to launch, closing on its first investment—$1.5 million in convertible loans from IFU and InfraCo—in October 2020. Though the partnership is not currently directly profitable, operations have reached a tipping point where GreenCo has a potential pathway to viability with an established proof of concept, pending contracts with renewable energy generators, and strong government support. This $1.5 million was used to expand the local GreenCo team and meet other operational milestones, such as securing a license to operate in Zambia.

In April 2022, GreenCo secured an additional $15.5 million in equity funding from IFU, InfraCo, and EDFI ElectriFI. The first installment was released immediately to fund continuing working capital. The balance will be released once the power purchase agreement with GreenCo’s first IPP is ready to sign and the grid-related agreements with the Zambian national utility are in place to enable the transmission of power, expected later in 2022.

When GreenCo initially connected with IFU and InfraCo, investors were interested in the concept, but a number of steps were still required before the partnership was in a position to generate revenue. While most DFIs are familiar with investments supporting IPPs selling directly to power utilities, GreenCo’s role as a non-asset-owning intermediary falls outside most rigid investor funding criteria and requirements. GreenCo leveraged P4G’s connections with the Danish Ministry of Foreign Affairs to demonstrate the value of higher-risk and innovative investments to the Danish government, which allocated additional higher-risk capital to IFU to manage through a new fund. InfraCo’s strategy also evolved to enable it to invest in businesses such as GreenCo rather than single projects. Both InfraCo and IFU needed to see that GreenCo had reached a “point of no return” in its operations, where bankability The ability of a partnership to secure investment and generate profitable return (Vermeulen et al. 2018). was clearly within reach and no major administrative or policy barriers would prevent the partnership from becoming operational. For InfraCo, key factors included changes to local regulatory frameworks that meant the partnership would be more likely to obtain trading licenses in target countries.

The IFU, InfraCo, and EDFI ElectriFI investment has potential to crowd in additional investment by enabling GreenCo to build a starting portfolio of IPPs and provide a liquidity buffer to insulate against market movements and ensure GreenCo can pay its IPPs whether the power is sold bilaterally or traded in the SAPP market. Once the partnership has a demonstrated track record through its starting portfolio, GreenCo will seek further investment in debt and equity to scale its operations.


To reach this Stage 3 funding, flexible, long-term grant financing was critical. GreenCo secured early support and multiple grants from an anchor funder, the Rockefeller Foundation, which enabled the partnership to get off the ground and build stakeholder support. GreenCo’s grant providers have also been flexible with regard to agreed milestones, allowing the partnership to adjust milestones based on unforeseen challenges and changing timelines. Finally, GreenCo has leveraged funding that has been relatively unrestricted and designed to be used as catalytic capital for innovative commercial initiatives. While grant funding was formally awarded to the nonprofit arm of the project, some of it could be used to support business components that are expected to generate profit in the future.

Strategic stakeholder engagement has been a key component of securing both grant and investment funding. The partnership tapped into accelerator support, leveraging the P4G network to create funding opportunities with IFU, and demonstrated buy-in from local government and power utility stakeholders through letters of support, which helped the partnership build credibility and unlock specific pools of funding. The SADC PPDF grant, for instance, required support from regional institutions. Strong stakeholder support has also helped the partnership navigate changes to local government and utility leadership while maintaining investor confidence.

2.5.2 ColdHubs


This case explores how ColdHubs leveraged partnership platform networks to secure concessional finance. These are the key partnership characteristics:

  • SDG: 2 (Zero Hunger)
  • Platform affiliation: P4G
  • Year founded: 2014
  • Countries: Nigeria
  • Business model: new business venture
  • Funding stage: Stage 2 (see Figure 7)
  • Funding types: founder equity, grants, concessionary debt
  • Partners: Powering Agriculture—Sustainable Energy for Food Department of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), ColdHubs Ltd., the Smallholders Foundation, the Institute for Air Handling and Refrigeration (Dresden, Germany), Factor[e] Ventures, and Fledge

Figure 7 | ColdHubs Funding Stages

Source: Authors.


ColdHubs is a for-profit social enterprise that works to address the problem of postharvest food loss for Nigerian farmers, retailers, and wholesalers. Farmers pay a small daily flat rate to store their fresh produce and perishable food items in walk-in solar-powered cold rooms, or “hubs,” designed and operated by ColdHubs. Hubs are able to extend the shelf-life of food from 2 to 21 days and thus increase access to and the affordability of nutritious foods. To date, ColdHubs has designed, built, and operated 54 cold rooms that serve more than 5,200 customers. In the last year, ColdHubs estimates that it has saved over 42,000 pounds of food from spoilage, created over 65 jobs for women who are now trained as operators and attendants, and saved more than 1 million kilograms of carbon dioxide by using solar energy.

Funding journey

From venture capital to grants to concessionary debt. When ColdHubs first launched in 2014, the team planned to seek grant funding from USAID’s DIV program, a grant-focused innovation program that funds early-stage initiatives seeking to develop breakthrough solutions for development issues. However, due to the long wait period to get funds in hand, the team raised a $20,000 investment in exchange for a 5 percent equity stake from the incubator Programs designed to help start-up businesses grow. Incubators may provide workspace, mentorship, and access to an investor network. These resources allow new initiatives to grow while keeping operating costs low (Draper University 2020). and accelerator program Fledge, the conscious company accelerator. Fledge also provided the partnership with mentorship opportunities with similar businesses and helped connect the ColdHubs team with a venture capital company based in the United States called Factor[e] Ventures. Factor[e] Ventures then invested $280,000 for a 20 percent equity stake to help ColdHubs flesh out its technology deployment and business model. This early-stage equity helped ColdHubs kick-start its initiative and build confidence in its idea. The team decided to then turn back to grant funding to consolidate its technology expansion, gain market traction, and earn robust revenue before coming back to raise commercial capital.

Between 2015 and 2020, ColdHubs raised $3 million in multiple grants from three donor governments, including USAID, the UK Agency for International Development (UK Aid), and GIZ, as well as grants from the Swiss Re Foundation and the International Food Policy Research Institute NGO. Unlike other partnerships, ColdHubs did not face many grant eligibility hurdles due to being established as a for-profit entity because it developed a strategy and identified grant opportunities focused on supporting for-profits to position themselves in the market before raising commercial financing. For example, the Swiss Re Foundation explicitly focuses on early-stage ventures in two impact areas (natural hazard and climate risk and access to health) that are seeking to develop innovative and transformative solutions, and it provides flexible grants and access to the broad expertise of Swiss Re’s staff (Swiss Re Foundation n.d.a). ColdHubs’ main challenge around grant financing was that the ticket sizes were too small, meaning it had to attract multiple grants to support early-stage activities, which created excessive burden on the team in terms of applications and reporting requirements.

Additionally, in 2018 ColdHubs was successful in getting $100,000 in concessionary debt from All On Energy Impact Investors, whose portfolio focuses on energy products and services for under-served and unserved energy markets in Nigeria. The concessional debt from All On is very well positioned to support start-ups; it has a 0 percent interest rate, a reasonable moratorium of two years, and a debt tenor of five years.

The missing middle challenge

ColdHubs is now in its scale-up stage of maturity and looking to attract investment of $4–$5 million to build 60 new large- and small-scale cold storage units, launch transportation services for end-to-end cold storage, and start small-scale production of packaging with recyclable plastics. Its current investment challenge is how to overcome the missing middle. Although it was successful in receiving multiple grants adding up to $3 million, it faces difficulties in finding investors to support a ticket size in the $4–$5 million range it needs. ColdHubs found that investors such as the International Finance Corporation (IFC) and Microsoft Climate Ventures, which showed interest in its mission, only offered finance at ticket sizes of $15 million and up. Additionally, ColdHubs found that some investors perceived grants of less than a million to be an indication that the company was not ready for investment.

ColdHubs says platforms such as P4G can help fill this missing middle, but generally they are not able to fund capital expenditures. ColdHubs is now working again with USAID’s DIV program and other relevant investors to discuss investment opportunities. The team is seeking to attract concessionary debt with 0 percent interest and a long payback period to help with scaling activities.


ColdHubs is one of the few partnerships in our case analyses that started off with equity funding. ColdHubs found that engaging with partnership platforms such as Fledge and P4G provided not just helpful early-stage capital but also vital networking and mentorship opportunities that helped to leverage new business and financing opportunities. ColdHubs has also maintained a relationship with an anchor funder, USAID, in the hopes of securing additional concessional finance through the DIV program and finding funding to scale and address the missing middle problem. Finally, ColdHubs found success in overcoming the common grant-related challenge that grant providers commonly only release funds to NGOs by carefully identifying funders that would support a for-profit working in the food and agriculture space. Its due diligence paid off in the form of multiple grants.

2.5.3 Energise Africa


This case highlights how Energise Africa strategically layered grant funding alongside donor and government investment to crowd in private capital:

  • SDG: 7 (Affordable and Clean Energy)
  • Platform affiliation: P4G
  • Year founded: 2016
  • Countries: Sub-Saharan Africa, expanding to Southeast Asia
  • Business model: financial instrument
  • Funding stage: Stage 2 (see Figure 8)
  • Funding types: grants, equity
  • Partners: Ethex, Lendahand

Figure 8 | Energise Africa Funding Stages

Source: Authors.


Energise Africa, a partnership between Ethex and Lendahand, is an impact-focused crowdfunding platform that enables individuals to invest in innovative clean energy projects in Sub-Saharan Africa and beyond. The partnership aims to fill a financing gap to provide flexible, working capital to sustainable businesses that cannot access finance from traditional banks and financial institutions. To date, the platform has attracted more than 4,000 individual investors, each making investments from £50 to several thousand pounds, and has raised over £30 million, making over £14 million in repayments. Energise Africa has funded over 8,000 micro and small enterprises and smallholder farmers, is mitigating over 180,000 tonnes of carbon dioxide a year, and has enabled more than 850,000 people across 15 countries to access affordable solar energy (Energise Africa n.d.).

The partnership is currently looking to expand its portfolio to Southeast Asia and to include other sectors (such as productive-use renewable, e-mobility, clean cooking, circular economy), and it has already piloted investments in India. In 2021, the partnership was one of four initiatives highlighted by the UN Global Climate Action Awards for financing climate-friendly investment (UNFCCC 2021).

Funding journey

Strategic “layering” of grant funding. Energise Africa was established in 2016 through a public tender process issued by UK Aid and Virgin Unite. This initial Stage 1 funding was structured as a three-year grant, with around $450,000 to be used to launch the platform and establish a sustainable investment flow, and $1.5 million earmarked as match funding or coinvestment.

Because Stage 1 grants are often small ticket sizes offered on limited timelines, the partnership has been strategic in tapping into complementary funders with flexible capital. In 2017, Energise Africa secured grants from P4G and Good Energies Foundation, which funded critical activities where UK Aid was restricted. P4G funding went towards marketing and outreach activities, whereas the Good Energies Foundation grant allowed the partnership to experiment with different approaches, such as the use of vouchers, coinvestment, and first-loss investment. This market research and experimentation has been critical to platform growth. For example, establishing a “new investor guarantee” helped Energise Africa reach over ₤10 million raised from individual investors by 2019.

In 2019, Energise Africa received multiple Stage 1 grants from both P4G and the Good Energies Foundation. The partnership is using this funding to address the systemic challenges limiting platform growth, such as regulatory issues, currency risk, product development, and technology. Because P4G funding cannot be used directly for investment, Energise Africa is using Good Energies Foundation funding to address financial regulatory constraints and local currency risks while executing on blended finance investment opportunities utilizing revolving investment capital from UK Aid and Good Energies.

Energise Africa is using P4G funding to explore new market opportunities. In combination with a small grant from Innovate UK to conduct stakeholder mapping and create a go-to-market strategy, Energise Africa plans to produce a feasibility report, identify key stakeholders, and expand its portfolio to Southeast Asia. Energise Africa is also working closely with P4G to establish a strategy to secure equity investment in order to provide the required financial resources to deliver transformational growth in mobilizing billions of dollars in SDG financing.

Learning along the way

Energise Africa has grown through a test-and-learn approach—deploying different product and market strategies based on available market information and then adjusting. Funders that are flexible and aligned with this approach have been instrumental as the partnership has scaled.

The Good Energies Foundation, for instance, provides flexible funding with a streamlined reporting approach that focuses on “lessons learned” over rigid key performance indicators. The foundation is eager to partner with other funders where it can add value and understands that systems transformation requires high-risk capital. Good Energies found Energise Africa to be a compelling initiative because of its model that crowds in both retail and commercial investment while limiting risk with investments spread across a portfolio of clean energy companies.

Energise Africa has found that this flexibility is a rarity among funders, and the partnership is often caught in the middle of funder requirements as it tries to scale. Funders are eager to invest in new initiatives, but they are hesitant to fund scaling activities for initiatives past the start-up phase. On the other side of the spectrum, funders may require market data and a rigid business plan beyond what Energise Africa can provide at this stage. This lack of flexibility can limit how high-risk capital is deployed, even though it is technically available.

Energise Africa is starting to see things change, particularly around alternative finance platforms. Organizations such as the European Venture Philanthropy Association are educating philanthropic organizations on how to effectively deploy catalytic capital and more standardized EU crowdfunding regulations make it easier for platforms such as Energise Africa to work across regions (EVPA 2022). Additionally, governments, including GIZ and USAID, are adopting similar approaches to those utilized by UK Aid to fund higher-risk investments, ensuring that SDG financing is accessible to sustainable businesses in emerging economies that will help accelerate the achievement of the SDGs.


Energise Africa was built on a unique crowdfunding model that encouraged coinvestment from the start. Its strategic layering of grant funding and donor government and foundation coinvestment really helped it test different approaches, and it has worked with a diverse set of funders to meet its needs. The initiative has showcased how innovative ways of using public money in the form of coinvestment can catalyze significant flows of capital to accelerate the achievement of the SDGs on the ground. In the case of Energise Africa, every one pound of public or philanthropic investment has helped to leverage a further eight pounds of private investment. As the platform seeks to scale its work, Energise Africa is keen to see many other philanthropic and commercial investors take a similarly innovative and forward-thinking approach in order to rapidly bridge the SDG investment gap.

2.5.4 Hasiru Dala Innovations


This case examines how Hasira Dala’s experienced team and strong systems understanding paved the way for investment. These are the key company characteristics:

  • SDGs: 6 (Clean Water and Sanitation), 12 (Responsible Consumption and Production)
  • Platform affiliation: CityFix
  • Year founded: 2015
  • Countries: India
  • Business model: new business venture
  • Funding stage: Stage 2 (see Figure 9)
  • Funding types: founder equity, grants, convertible notes/debt, equity
  • Partners: Hasiru Dala (not-for-profit), Refillables

Figure 9 | Hasiru Dala Innovations Funding Stages

Source: Authors.


Hasiru Dala Innovations is a for-purpose, for-profit social enterprise employing marginalized waste pickers across three lines of business (Hasiru Dala Innovations n.d.):

  • Total waste management services for bulk generators of waste in Bangalore (e.g., apartment complexes, commercial buildings)
  • Plastics recovery, engaging waste picker entrepreneurs and scrap dealers who sell polyethylene terephthalate and low-density polyethylene plastic waste to the Hasiru Dala Innovations Aggregation Centre, where materials are segregated into finer categories, including “clear,” “green,” “pickle,” “oil,” “liquor bottles,” etc.
  • Event waste management, which employs waste pickers to work at events such as weddings, sporting events, cultural events, or corporate events

Hasiru Dala Innovations spun off from a nonprofit of the same name (Hasiru Dala), which has been working in Bangalore for nearly 10 years. Whereas Hasiru Dala Innovations focuses on advancing economic justice for waste pickers by providing a livable wage and employment/entrepreneurship opportunities, Hasiru Dala, the not-for-profit, focuses on social justice issues that impact waste pickers, such as access to education, health care, housing, and financial literacy and inclusion. Hasiru Dala Innovations and Hasiru Dala are not formally affiliated and do not share staff or resources but do work together to engage local communities and collaborate on community outreach activities such as health care camps.

Funding journey

Building name recognition. Unlike many companies in our survey pool, Hasiru Dala Innovations has never been exclusively reliant on grant funding. Instead, the company has pursued any and all opportunities available to it, which have happened to be a mix of equity, competition prize money, convertible notes, debt, and grants in funding Stages 1 and 2. When the initiative split off from Hasiru Dala, the founders invested $30,000 in equity. Hasiru Dala Innovations was able to capitalize on Hasiru Dala’s strong reputation: in 2016–17, Hasiru Dala secured a combined $170,000 in seed funding from Social Alpha and Ennovent. Hasiru Dala built off trust and engagement with local waste picker communities to get to work right away. In its first five years, the company maintained a 49 percent compound annual growth rate, and its waste management business was operationally profitable after 23 months.

Social impact awards have been key turning points in Hasiru Dala’s fund-raising journey. Between 2016 and 2017, the initiative won the Tata Social Enterprise Challenge, the Karnataka Pollution Control Board award for the most environmentally conscious organization, the Urban Innovation Challenge Prize from the Government of Karnataka and University of Chicago, and a Millennium Alliance Award grant. Coupled with Hasiru Dala Innovations’ measurable results, this recognition has made the partnership a compelling investment and helped attract funding from the Shell Foundation, the Unilever Transform Fund, the elea Foundation, and Yunus Social Business.

In total, the company has raised over $1 million in grants and convertible debt.

Tying the pieces together. Hasiru Dala Innovations’ fund-raising success has been driven by three primary factors: local engagement and understanding of the system in which the business operates, a strong business plan with a coherent and consistent social impact message, and strategic networking.

Hasiru Dala Innovations’ unique founding story and impact-first model has stuck out to investors. Founders spun Hasiru Dala Innovations off from Hasiru Dala once it was clear they could increase impact through a for-profit business model that is financially sustainable. Strong business due diligence and the initiative’s market position helped attract funders such as the elea Foundation. Though not a typical investment, the Foundation was impressed by the demonstrated social impact and business model designed to help waste pickers break out of the poverty trap. Other tipping points for the elea Foundation were the 8–9 year community engagement that the Hasiru Dala nonprofit started and the extensive investments India has made into its recycling systems nationwide.

As Hasiru Dala Innovations continues to scale, it will be challenging to establish the proven model and track record that large-ticket Stage 3 funders require. So far, the business has focused on impact investors only, or investors who expect a lower return on investment or a longer return timeline. Since Hasiru Dala Innovations is no longer a start-up, it will also need to demonstrate a level of organizational maturity and due diligence to comply with rigid investor funding criteria and requirements. To address these challenges, Hasiru Dala Innovations’ founders plan to continue to tap into their network of individual and institutional funders.


Hasiru Dala Innovations started with an experienced team with an investment background and a strong systems understanding of waste picker communities and broader local context. The company has also participated in multiple award competitions, which have enabled Hasiru Dala Innovations to expand its network, secure the invaluable advice of investors, and find equity commitments early on. The partnership has relied on network connections and word of mouth to tap into new funding opportunities, allowing it to bypass cumbersome award application requirements as well as the traditional grant funding pathway that most commercially driven partnerships often start off with.

2.5.5 Nutritious Foods Financing Facility


The Nutritious Foods Financing Facility (N3F) case explores the importance of a strong team and building a relationship with an anchor funder. These are the key partnership characteristics:

  • SDGs: 2 (Zero Hunger), 12 (Responsible Consumption and Production)
  • Platform affiliation: none
  • Year founded: N3F is targeting 2022 for first close and launch
  • Countries: Sub-Saharan Africa
  • Business model: financial instrument
  • Funding stage: Stage 2 (see Figure 10)
  • Funding types: grants, equity, concessionary debt, debt
  • Partners: Global Alliance for Improved Nutrition (GAIN) and Incofin Investment Management

Figure 10 | N3F Funding Stages

Source: Authors.


N3F is a first-of-its-kind nutrition impact fund incubated by GAIN that seeks to address a critical barrier to improving nutrition in Sub-Saharan Africa: insufficient financing for SMEs that are vital players for securing access to nutritious, safe foods among domestic consumers. In Africa, for example, SMEs deliver over half of the calories consumed and over 80 percent of animal-source foods, fruits, and vegetables and process or handle about 65 percent of food in later stages of the value chain (Herrero et al. 2017). For low-income consumers in particular, SMEs are essential for ensuring access to nutritious, safe foods.

N3F uses a blended finance structure, aiming to attract investors interested in contributing to improved nutrition in Sub-Saharan Africa, and it intends to launch in 2022. N3F also consists of two other pillars beyond the fund: technical assistance to SMEs and development of an impact assessment framework that includes new metrics to appropriately track success of the fund. Incofin Investment Management, a licensed investment fund manager with 20-plus years of experience in managing private debt and equity funds in emerging markets and investments in agriculture, is GAIN’s core partner and N3F’s fund manager. In this partnership, GAIN provides its expertise on nutrition and SME technical assistance, leading the N3F’s components of technical assistance and impact monitoring and learning (Bove 2022).

Funding journey

Grant funding to support the “building blocks.” GAIN has traditionally supported African SMEs with technical assistance and grants. Increasingly, the GAIN team has recognized a core need of SMEs to access financing opportunities to scale up their offerings and increase the availability and accessibility of nutritious, safe foods. GAIN has found that SMEs struggle to get loans from commercial banks because banks require significant collateral and provide little to no flexibility in repayment schedules, which is needed to account for the seasonality of agricultural activities and its implication on cash flows.

So, in 2017, drawing on its positive experience of the Global Premix Facility (a rotating fund financing purchases of vitamins and minerals for the fortification of staple foods in Africa and Asia), GAIN decided to explore the concept of innovative financing for SMEs through an impact fund. As nutrition in emerging markets is a relatively new investment area, grant funding was necessary to assess the market gap, inform the design, and develop a fit-for-purpose theory of change and business plan. GAIN successfully received grants for these early-stage activities from government donors and foundations, including the Netherlands Ministry of Foreign Affairs, Irish Aid, the Rockefeller Foundation, and USAID. These grant funds have also been used to develop a model for technical assistance and new investment metrics, and they were also instrumental in allowing GAIN to issue a tender to select a fund manager with an extensive investment track record to manage the investment fund: Incofin.

From commitments to investment. The team originally considered the N3F fund as a closed-ended fund with a 10-year timeline. However, considering the pioneering nature of the fund (the first fund fully dedicated to nutrition), it decided to change the fund structure from a closed-ended to an open-ended fund to more quickly prove the concept of the N3F fund and raise further capital as it developed a track record. This approach is modeled on Incofin’s experience in the development of the Fairtrade Access Fund. An open-ended structure without a defined timeline has the advantage of staging investors starting with those more interested in catalytic capital and, in this case, nutrition. In particular, USAID—with its strong interest in nutrition—has been an instrumental supporter of N3F. An open-ended fund also has the advantage of building a solid portfolio without the pressure of a tight investment period.

The N3F team is continuing to work with other donor governments and foundations, some of which have already committed to being investors. Moving forward, the team is in conversations with family offices and DFIs. In their conversations to date, N3F team members have found some DFIs to be significantly risk averse, seeking up to 40 percent first-loss contribution.


One of the greatest challenges N3F has faced is that many funders have climate, smallholder farmer, or sustainable agriculture mandates, but few have a nutrition mandate. While N3F’s goal to support African SMEs with financing is not necessarily new, nutrition is a new theme that investors are not familiar with and so view as riskier. N3F is attempting to overcome this challenge by demonstrating its strong team expertise in nutrition and investment fund management and building a strong relationship with an anchor funder, USAID. The USAID team understood that true, on-the-ground impact is still lacking, and it needed to try something new. As a result of getting commitment from USAID as an early funder providing first-loss capital, N3F has been able to build credibility with investors and reduce perceptions of risk.

2.5.6 Sustainable Investment Clusters


This case explores SIC’s funding road map to commercial investment. These are the key partnership characteristics:

  • SDG: 12 (Responsible Consumption and Production)
  • Platform affiliation: P4G
  • Year founded: 2017
  • Countries: Kenya, Nigeria
  • Business model: project developer
  • Funding stage: Stage 3 (see Figure 11)
  • Funding types: grants, sponsor support, commercial contracts, equity, debt, guarantees
  • Partners: Savo Project Developers, Lagos Deep Offshore Logistics Base (LADOL) Free Zone, SYSTEMIQ, the Made in Africa Initiative, NIRAS

Figure 11 | SIC Funding Stages

Source: Authors.


The SIC partnership (previously the Sustainable Special Economic Zones, or SSEZ, partnership) aims to advance the development of “sustainable investment clusters.” These are designated clusters of commercial activities that, unlike conventional special economic zones, export zones, innovation hubs, or industrial parks, embed sustainability and circular economy principles at their core to drive enhanced economic, social, and environmental impacts. The SIC partnership aims to develop 50 clusters by 2030 and catalyze the Global Sustainable Investment Cluster Fund to incentivize further replication.

Since its inception in 2017, the partnership has initiated three clusters: the LADOL Free Zone in Lagos, Nigeria; Oserian Two Lakes Industrial Park in Naivasha, Kenya; and the Green Heart of Kenya on the Kilifi Coast, Kenya (Savo Project Developers n.d.). These have all helped to validate the partnership’s theory of change and create a blueprint for future clusters that show that five conditions are incredibly important for success:

  • At least one pivotal private sector champion to ensure the cluster is economically viable and reaches the scalability required for rapid growth
  • A dedicated “change agent” or project “sponsor”—such as a zone owner, a leader of a private company, or a government minister—who understands the need for change and can help execute the project
  • Government policy alignment
  • A vision that aligns with the SDGs
  • A strong strategic value proposition (Savo Project Developers et al. 2020)

In April 2020, the team leading the SIC partnership spun off from SYSTEMIQ to create a specialized project development company called Savo Project Developers. As of 2022, Savo has built a SIC pipeline of $300 million across Nigeria and Kenya, closed $26 million of investment, and secured tenant contracts worth $45 million. The LADOL Free Zone has over 40 hectares that are fully developed, hosting a sustainable port and logistics hub and Nigeria’s largest ship fabrication yard. Oserian Two Lakes Industrial Park in Kenya is now accepting tenants and has the potential to mobilize $500 million investment in green infrastructure, create 10,000 local jobs, and generate 30 megawatts of clean energy. The Green Heart of Kenya development aims to support the creation of 50 sustainable businesses, 500 homes, and 5,000 jobs by 2030.

Funding journey

Structuring finance against a SIC project life cycle. The SIC partnership develops projects across three phases, with investment risk decreasing with each phase. The first is the “preparation” phase, during which the developer (Savo) organizes feasibility studies, develops financial models and a business plan, and organizes contracts with partners. The second is the “construction” phase, during which firms develop core infrastructure and initial industrial units and start bringing in tenants. And finally, the third is the “operation” phase, during which the developer can operate the assets or bring in a specialized operating company. The LADOL Free Zone is in the operation phase, whereas both Oserian Two Lakes Industrial Park and the Green Heart of Kenya clusters are between the preparation and construction phases.

Phase 1 (preparation) and “the valley of death.” Each new SIC project faces a potential “valley of death” during this first phase because a sponsor is no longer able to fund the development privately, and the project team is still jumping through available funding hoops. The SIC partnership states that DFIs would be ideal funders at this stage because of their favorable commercial terms and their impact lens, but the preparation phase does not generally fit within a DFI’s risk appetite. Another challenge is that “DFIs and other investors have not yet developed the financial instruments, modalities and bankability definitions that enable an easy route of investment into Sustainable Investment Clusters.” In other words, these clusters are still new business models; they are also considered complex asset classes because they bundle several assets, such as real estate, infrastructure, and utilities, each of which are considered as their own asset class by investors due to their different investment horizons, business models, and returns. Many investors can have a hard time assessing all of these assets grouped as a single investment. InfraCo Africa has been one of a handful of exceptions; it recently expanded its mandate to explicitly cover industrial zones as a priority funding area (Savo Project Developers et al. 2020).

For most SIC projects, the reality is that the project sponsor (e.g., LADOL in the case of Lagos) provides some of the initial funding but projects must seek additional grant or seed capital. In 2018, the SIC partnership received grant funding from P4G to begin scoping new opportunities and to conduct preparation activities in Kenya and Ethiopia. The benefit of working with P4G and LADOL was that both provided very flexible funding that could move quickly, and both were comfortable with the high level of risk presented at this phase—conditions necessary to significantly increase the likelihood of success of SIC projects.

Savo and P4G are now exploring the development of the Global Sustainable Investment Cluster Fund with $10–$20 million that can support multiple early-stage SIC projects with the goal of streamlining project development.

Phase 2 (construction) and the “chicken-and-egg” problem. The construction phase for a SIC project typically seeks to raise $20–$50 million to build out key infrastructure. This phase is also known as the chicken-and-egg phase because the project needs to build out infrastructure to attract tenants who then provide stable revenues, but it can be difficult to attract investors because tenants are not yet on board, so the project is considered risky. Although Savo considers this phase to be a great blended finance opportunity for DFIs, DFIs are still not generally comfortable with the level of risk. Instead, SIC projects often turn to private equity investors focused on infrastructure and real estate mandates because SIC finds these investors to be more comfortable with risk but want a 7–10 year exit and about a 20 percent return. Savo has found that working with commercial investors can also be challenging because of ticket size misalignment. Savo is exploring a platform model where there is a holding company with a mix of mature and immature assets across multiple geographies, which would allow it to raise funds at a higher (and more compatible) ticket size for commercial investors.

Savo states that although a few DFIs are interested in early-stage project risk, their approval processes can be slow and burdensome, often taking years rather than months (Savo Project Developers et al. 2020). More “patient” grant funding then is incredibly important in terms of keeping the project afloat as it conducts activities to meet DFI requirements.

Phase 3 (operation)—the risk/money exit. In this phase, a project typically has been de-risked because tenants are on board and have set up operations within the cluster that are generating recurring income, which means projects have more success attracting DFI investment (e.g., bonds). Because of the low cost of capital, projects can bring DFIs on through a refinancing instrument that can then provide the commercial investors with the exit they require.


Each phase of building out a SIC project brings new challenges, with the primary challenges being that DFI investors perceive these projects as novel business models that are riskier and there is a lack of investors willing to support the project at small and medium ticket sizes. SIC has been able to address these challenges by having a successful business plan with financing strategy and demonstration of impacts; strong project sponsors that serve as anchor funders, such as LADOL, and patient capital providers with few strings attached, such as P4G, which have helped the partnership navigate the “valley of death” and chicken-and-egg problems; and building out a platform model and its own unique fund to incentivize further replication. SIC states that investors can also support partnerships working on similar issues by reassessing their risk-return trade-off (i.e., taking a higher risk for the higher reward) and by considering new ways to provide the early-stage de-risking, such as enhancing commercial risk guarantee schemes to close the gap between tenants secured and tenants required, which would unblock all sorts of bankable projects.

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