Post on 12-Aug-2015
Contents
A. Understand Causes of Rural Poverty
•4 Halves of Have-Nots•Farmers lack access to finance and markets•Value chains are weak•Needed solutions are businesses
B. Solve Poverty by Creating Livelihoods
•Mission: Turn crops into cash•Strategy 1: Solve finance for higher crop yields•Strategy 2: Invest in value chains to create markets•Strategy 3: Achieve scale
C. Shift Charity to Impact Investment
•Not enough aid money to end poverty•Underlying nonprofit foundation•Africa Farmers Collateral Fund•Africa Agriculture Equity Fund
SECTION A: Understand Causes of Rural Poverty
• Rural poverty is profound.
• Subsistence farmers are majority of poor on earth.
• While aid has helped with healthcare and education, rural poverty is often getting worse.
• There is not enough money in aid to end poverty.
Subsistence Farming & Food, Rough
Statistics for Most African Nations
Half of people are chronically malnourished
Half of year famine:
wet/dry cycle becomes
feast/famine
Half of food imported, esp. by value: local
markets are huge
Half of farmer’s
production never
consumed
4 Halves of the Have-Nots
4
Most of a farmer’s production from the wet season is lost: the lack of processing, preservation, and logistics businesses causes hunger and poverty. There is no model to invest in them. Aid competes with them.
UnderlyingProblems
Farmers Lack Access to Crop Input Finance
UnderlyingProblems
• With careful manual application, it costs $200-$1000 per acre for seeds, fertilizer and treatments
• There is not enough money in aid to lift farmers out of poverty. BIG LOANS are needed; (more than microfinance offers farmers.)
• Microfinance limits people to subsistence.
• What is a market? -List of buyers to negotiate terms (a business function)
• Distribution systems lacking so need market building (rather than ‘market linkages’)
• Access paradox: market is BIG but farmer is SMALL (too small to connect)
Farmers Lack Access to Markets
UnderlyingProblems
Farmers produce little for sale• So no commercial loans• So no reliable market causing much
waste
Food businesses lack crop inputs• So limited growth and investment• So they import needed volume
competing with nearby farmers
UnderlyingProblemsDysfunction in the
Food Value Chain
Cheetah must work on both halves because the problems are linked in a
vicious cycle
UnderlyingProblems
Markets Solutions are Needed Too
that damage investments
Aid organizationsCompanies
Subsistence farmers
Doing Big Business(big scale)
with the Dirt PoorSolution
Summary
Business is the Bridge
STRATEGY – Farmer Partnership:New ways to finance farmersNew businesses for small farmersMake farmers investable
STRATEGY – Solve Industry Gaps: New businesses in value chain closely serving farmersSolution
Summary
Building Bridges
SolutionSummary
Is a last mile problem/opportunity: connecting backbone industry to small suppliers/users at the end of the line.
SECTION B: Solve Poverty by Creating Livelihoods
• Mission Summary• Strategy 1: Increase crop
yields with new kind of finance to commercialize farmers.
• Strategy 2: Make investments in value-chain to create markets and serve farmer needs.
• Strategy 3: Achieve scale.
Mission Summary
CropsInvestments
(Markets and Finance)Cash
Agriculture & Food
Markets
Finance
Focus on markets and finance
because they are lacking in
traditional development
approaches
Strategy 1: Commercialize Farmers
Beyond subsistence:Maize fields planted on the same day. (Cheetah supported farmer on left.)
It’s not giving gifts, it’s growing gifts
4 Steps to Leave Subsistence Poverty
1. Organizing
in Registered
Groups
2. Technical Farming
(Agronomy and Inputs)
3. Large
Commercial Loans
4. Guaranteed Markets
Farmer Commercialization
Prefer to partner with NGOs for training, organizing and data
collection
Pearl’s focus and income
Partner w/ local banks
(metafinance)
Africa Farmers
Collateral Fund
Healthy Commercial Loan – 3 Legs
Business (Farmer’s
Group)
Economic Benefit
(Markets)
Lending Bank
Receive no cash, only inputs, pay with crops, loans guaranteed between members
Guarantee markets and
first 10% of loan
Kept in USD accounts
Spreading the risk unlocks the deadlock
Investment Solution
From MIT group that made the first major review of microfinance:
“… the structure of [microfinance’s] success in lending to the poor is such that we cannot count on it to be a stepping-stone for larger businesses to be created and financed. Finding ways to finance medium scale enterprise is the next big challenge for finance in developing countries.”
Microfinance
Small loans averaging $300 filling
microfinance space
Less successful and smaller in rural areas
and for agriculture
Best suited to micro enterprises with no
usage control
Credit often based upon peer pressure or
average risk factors
Cheetah’s Metafinance Innovation
Loans (and equity) $5000-$500,000 filling “Missing Middle” gap
Designed for communities or
midsized businesses
Requires strict structural control,
which is built in
Credit based on production capability
Strategy 2: Invest in Value Chain Businesses
Solve value chain problems holding farmers back:Example: Solar food dryer preserves food, is affordable to farmers, opens new markets and recovers harvest losses.
It’s not giving gifts, it’s growing gifts
Target Investment Criteria
ProfitableHigh impact –
change livelihoods significantly
Ag or ag value chain
Replicable – can be replayed and
cross cultures
Scalable and able to grow quickly
meeting the needs of many
High need, fills a critical gap, ‘last mile’ to farmers
High leverage – few employees or low
investment changes many lives
Cluster – fit with other investments to multiply effect
Red: priority preference
Green: important preference
Cheetah Innovation:
• Franchise approach replays business successes• Pilot concepts tested before investments• Shared back office resources between investments
Africa Agriculture Equity Fund
Inve
stab
le
Micro Venture Capital
Inve
stm
ent E
xam
ples
Pearl Foods – opening markets and finance to farmers
Reservoir – ending the feast/famine cycle, now with
solar food dryers
Kabisa – creating rural transport, especially for
transporting crops
Sunborn – dried food marketing
Prot
otyp
ed
Initial Operations
OperatingO
pera
ting
Strategy 3: Achieve Scale
The problem is massive – 2 billion people. The solution must be scalable:It must employ strategies that are replicable and can be widely adopted.
It’s not giving gifts, it’s growing gifts
We have a moral obligation to scale
it. That is different…
Because there is a
solution that works…
Our Operating ThesisPoverty is intrinsically offensive and a major contributor to many of the most serious problems on earth (war, disease, climate change).
Goi
ng to
Sca
le
Directly impact a 1 million+ people and indirectly far more
Operate in 2-3 regions/continents,
more than 12 nations
Open more than 20 locations(a common
test of franchising skills)
Found more than 10 new companies
Cheetah Five Year Objectives
Investment Steps
Ideate •Identify opportunities•Select
Pilot •Prototype•Validation requirements
Activate •Demonstrate business model•Verify validation requirements met
Propagate •Invest•Grow in origination and new locations
Board approval required to advance to each new step.
Avoiding the Gartner Hype Cycle
By piloting companies, Cheetah is able to provide much more realistic expectations of performance in advance of significant investment.
Supporting pilots is part of the reason the investor fees are front loaded.
SECTION C: Shift Charity to Impact Investment
• Leverage current farmer assets – first let them succeed where they are.
• Increase crop yields with new kind of finance.
• Make investments in value-chain to create markets and serve farmer needs.
• Go to scale.
The solution to poverty isn’t charity; it is investment: what’s needed is wealth creation not redistribution.
It must attract donors AND investors;
it’s the only way to fund the scale of the problem.
Cheetah offers a fundamentally new way to capitalize wealth creation for smallholder farmers.
Gives impact investors a financial and social return: double and even triple bottom lines.
Financing a revolution in rural economic development
"...investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return.
Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending upon the circumstances."
- Global Impact Investing Network
Impact Investing:Aligning Investments with Values
Three Pillars: Success to Significance
Philanthropy
Impact focus
Kick-start businesses
Business
Profits for sustainability
Accountability
Capital Markets
Debt and Equity
Needed for Scale
Training on the use of solar food dryers
often attracts crowds of women in villages.
65% of world’s uncultivated arable
land. Uses less than 2% of renewable water.
Moving from an extractive economy
to a value added economy
GDP grown at a 5% rate over
the last decade
High birth rates with falling
infant mortality
Growing middle class food consumption
increasing demand – already a net importer
Demand for food from Middle East, India and China
African Agriculture Holds Opportunity
Farmers lack access to crop input & equipment finance
Farmers lack access to markets & value chain
Africa Farmers Collateral Fund
Africa Agriculture Equity Fund
Financing Solutions with Accredited Investors
Africa Farmers
Collateral Fund I
Economic and Social Returns
Metafinance
Africa Agricultural
Equity Fund I
Economic and Social Returns
Micro Venture Capital
Risk MitigationAfrica Farmers Collateral Fund I Africa Agriculture Equity Fund I
On-the-ground presence, active management in portfolio companiesCheetah keeps control of accounting, reducing likelihood of corruption
Shared back office services and location reduces startup costsPreferred share position for investors in many cases
Local village leadership for most activities bridges cultural gapsLoans made by local commercial banks that have rights of loan enforcement
Usually have controlling interest in companies
Money stays in US dollars to avoid currency exchange
Prototype many company activities before receiving investment
Farmers cross-guarantee loans between members of groups
Partnering when possible reduces investment required
Farmers receive crop inputs or equipment rather than cash; loan is paid by delivering crops
Keeping companies small and scale achieved through franchising reduces risks of concentrated capital
Diverse crops and climates Franchising approach creates a higher dedication to standardized procedures, thus more predictable outcomes
Africa Farmers Collateral Fund I
•Farmers turn in crops, they are sold, loan is paid•If crop does poorly, crops produced are sold, farmers achieve no profit, loan is paid•If farmers do not pay, other farmers cover costs, loan is paid•If group fails, bank enforces loan and farmers make payments over time•Supplier (usually investee of AAEF Equity Fund) of crop inputs or equipment covers a minimum of 10% of first loan losses, including profits from other groups, loan is paid•Fund investors are in tiered risks A, B, C so losses covered in lower tiers
Africa Agriculture Equity Fund I
•Companies are sold to outside investor•Fund has preferred shares, equity is converted to debt and repaid (this is built into the fund model from outset – for more information see SEAF model)•Future fund buys out current investorsInvestor
Exit Strategies
Equity Fund Debt Exit Strategy
Created by SEAF (30 yr. proven experience, impact investment model)
Local Investors, Employees
Common Shares
Cheetah investment –
preferred shares
1. Cheetah raises needed investment and has board control
Common Shares
3. Loans are repaid, shares divided pro rata by others
Common Shares Cheetah shares
4. Company is revalued by pre-agreed formula
Local investors equity – common shares. However by contract Cheetah controls accounting function to guarantee
transparency. Sale of shares is restricted by agreement.
Cheetah Preferred (15% minimum), dividing repaid Preferred Shares with Common, (optionally, Cheetah
may be repaid while retaining equity)
6. Equity and control revert to local shareholders
Fund investment –preferred shares A & B
Common SharesEquity to
Debt Round 1
Cheetah shares
2. Preferred shares divided into loan and equity
Preferred shares
Loans repaid Cheetah sharesPreferred
shares
Preferred shares
Common shares Cheetah equity subordinate to fund debt
5. Remaining preferred shares are converted to debt and repaid (24-36 months)Fund equity – preferred
shares, may be limited by coupon value
7. All shareholders enjoy profit distributions pro rata with ownership
Exit Strategy: the Process for Fund Liquidity
Terms Africa Farmers Collateral Fund I LLC Africa Agriculture Equity Fund I LP
Manager or General Partner
Cheetah Development, Inc., a 501(c)(3)
Size Up to $3.5 million by 31 Dec 2015 Up to $20 million by 31 Dec 2015
Target Return 2% 12% – 15%
Term 18 months, one 6-month extension. Multiple series with rollovers.
7 years, 2 one year extensions.
Target investors Accredited investors, foundations, family offices and individuals. Impact investments interested in Africa, agriculture, developing world poverty reduction, and/or women’s economic empowerment.
Commitment Minimum 10 units or $100,000.
Fees & Expenses 1.5% per annum of total Commitments. Fund pays its operating expenses.
3% per annum of total commitments, partially paid up front for incubation and R&D. Fund pays its operating expenses.
Legal Counsel Dorsey & Whitney LLP
Audit Firm Recognized audit firm(s) to be selected
Summary of General Fund Terms
Staff•Ray Menard, founder & CEO. Start-ups and business development.•Paul Larsen, VP. African agri-business and financing.•Brad Brown, VP. Impact investment and social enterprise.
Fund Advisory Board
•Investors •Chris Maclellan, Trustee, The Maclellan Foundation•Mark Mortenson, Trustee, Mortenson Foundation
Experienced Management
•Unique direct investment opportunity for the “high touch” impact investment client
Set your firm apart
•Financial and social returns, both highly measurable
Align values of your clients
•On-the-ground / in-the-market / culturally attuned management
Unconventional for success
•Not an NGO solution, a business solutionOn target
Special Offering for Values Based Investment Clients of Registered Investment Firm Advisors
Sum
mar
y of
Fun
ds
Proof of Concept• Past 5 Years, Complete
Proof of Scale• 5 Years, Starting Now• Result: Everyone Believes
A Movement• 1 Billion Lives Changed
Starting Conce
pts
3 year plan to: Use business to end poverty by linking opportunity to the poor
Create an investment model that can be institutionalized and replicated
Connect philanthropy, business and capital in a new intersection of opportunity Pr
oof of Co
nce
pt R
esults
Achieved all starting concepts (6 years) plus:Registered a 501(c)(3) investor
Created two innovative models of finance (Metafinance and Micro Venture Capital)
Set up first ever VC. in Tanzania
Focused on food and agriculture
Launched 2 new companies, 4 companies in the pilot stage
Patented a ½ ton cargo bike, developed a new solar food dryer, more products coming
Created new brands, “Sunborn” for smallholder foods of quality
Have 30 employees operating in around 50 villages directly impacting over 10,000, indirectly almost 250,000
Substantial livelihood impact over 10x demonstrated
Began work in 2 more nations
Set up 2 funds and raised almost $2 million immediately
Plumbed a deal pipeline approaching $10 million
Joined many partners and grants
Recognized as a thought leader
Ne
xt – Go
to Sc
ale
5 year plan to: Directly impact a 1 million+ people and indirectly far more
Operate in 2-3 regions or continents, more than 12 nations
Open more than 20 locations (a common test of franchising skills)
Found more than 10 new companies
History: Plan and Results
Typically, aid gives to the poor
Cheetah’s focus
is to buy from
the poor
Why not buy the fish? -It ends all dependency.
Its better to teach fishing than give fish. -It ends food dependency.
Securities DisclaimerThis document is for informational purposes only and does not constitute an offer or solicitation to sell shares or securities in the Company or any related or associated company. Any such offer or solicitation will be made only by means of the Company's confidential Offering Memorandum and in accordance with the terms of all applicable securities and other laws. None of the information or analyses presented are intended to form the basis for any investment decision, and no specific recommendations are intended. Accordingly this document does not constitute investment advice or counsel or solicitation for investment in any security. This document does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or any invitation to offer to buy or subscribe for, any securities, nor should it or any part of it form the basis of, or be relied on in any connection with, any contract or commitment whatsoever. The Company expressly disclaims any and all responsibility for any direct or consequential loss or damage of any kind whatsoever arising directly or indirectly from: (i) reliance on any information contained herein, (ii) any error, omission or inaccuracy in any such information or (iii) any action resulting therefrom.
Thank you!
www.CheetahDevelopment.org