An Innovative Financial Mechanism · Haas!School!of!Business,!UC!Berkeley!!!! !...

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Haas!School!of!Business,!UC!Berkeley!! ! ! !

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An#Innovative#Financial#Mechanism!

A!proposed!model!to!improve!the!financial!sustainability!of!Funbio’s!future!territorial!projects!

Tom!Arterberry!

Jenn!Kimbal!

Michael!Lebow!

Eliza!Rosenbaum!

June!7,!2013!! !

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An!Innovative!Financial!Mechanism! 2!

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Executive!Summary!.....................................................................................................................................................................!4!

Chapter!1:!Funbio!Overview!and!Key!Challenge!.........................................................................................................................!6!

Funbio!Overview!.....................................................................................................................................................................!6!

Key!Challenge!..........................................................................................................................................................................!6!

Chapter!2:!Preliminary!Research!&!Best!Practices!......................................................................................................................!8!

Preliminary!Research!..............................................................................................................................................................!8!

Best!Practices!..........................................................................................................................................................................!8!

Description!of!Best!Practices!..................................................................................................................................................!9!

Chapter!3:!Original!Model!Hypothesis!......................................................................................................................................!13!

Introduction!..........................................................................................................................................................................!13!

Model!Hypothesis!Phases!.....................................................................................................................................................!14!

Chapter!4:!The!Brazilian!Context!..............................................................................................................................................!15!

Introduction!..........................................................................................................................................................................!15!

Brazilian!Context!Themes!.....................................................................................................................................................!15!

Funbio!SWOT!Related!to!Proposed!Financial!Mechanism!....................................................................................................!16!

Chapter!5:!Outline!of!Proposed!Model!.....................................................................................................................................!18!

Introduction!..........................................................................................................................................................................!18!

Financial!Mechanism!Phases!................................................................................................................................................!19!

Donation!Funding!..................................................................................................................................................................!20!

Anchor!Agent!Funding!..........................................................................................................................................................!21!

Special!Purpose!Vehicle!........................................................................................................................................................!21!

Second!Stage!Investor!...........................................................................................................................................................!22!

Investment!Committee!.........................................................................................................................................................!24!

Community!Council!...............................................................................................................................................................!25!

Selection!Framework!............................................................................................................................................................!26!

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Advisory!Services!..................................................................................................................................................................!27!

Monitoring!and!Evaluation!...................................................................................................................................................!28!

Territorial!Project!Timeline!...................................................................................................................................................!29!

Chapter!6:!Optimal!Implementation!Conditions!&!Decision!Tree!............................................................................................!31!

Introduction!..........................................................................................................................................................................!31!

Optimal!Implementation!Conditions!....................................................................................................................................!31!

Description!of!Optimal!Implementation!Conditions!.............................................................................................................!31!

Decision!Tree!.........................................................................................................................................................................!32!

Chapter!7!^!Recommendations!and!Conclusions!......................................................................................................................!34!

Introduction!..........................................................................................................................................................................!34!

Recommendations!................................................................................................................................................................!34!

Appendices:!..............................................................................................................................................................................!37!

Appendix!A:!Opportunities!for!Further!Research!and!Networking!.......................................................................................!37!

Appendix!B:!Summary!of!Interviews!Conducted!..................................................................................................................!38!

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Executive!Summary!

This!report!addresses!a!key!concern!in!Funbio’s!current!funding!model!for!territorial!projects,!in!which!donation^sourced!

funding!is!issued!in!the!form!of!grants!to!selected!projects.!!In!many!cases,!this!practice!instills!in!these!projects!financial!

dependence!and!a!lack!of!exposure!to!growth!stage!investment!capital,!hindering!their!long^term!sustainability!after!the!

initial!donation!funding!is!exhausted.!!The!objective!of!this!project!was!to!mitigate!this!concern!via!the!design!of!a!financial!

mechanism!that!prepares!projects!for!Second!Stage,!for^profit!investment!funding,!making!Funbio’s!territorial!projects!

more!financially!viable!in!the!long!run.!

A!team!of!four!MBA!students!from!the!Haas!School!of!Business!at!the!University!of!California,!Berkeley!worked!with!Funbio!

to!develop!this!report!as!part!of!the!school’s!International!Business!Development!program.!!Over!the!course!of!several!

months!in!the!United!States,!followed!by!an!intensive!three^week!engagement!with!Funbio!in!Rio!de!Janeiro,!the!Financial!

Mechanism!was!built!through!a!synthesis!of!the!following:!

1. An!analysis!of!diverse!funding!models!in!mature,!for^profit!investment!markets!

2. Investment!best!practices!extracted!from!a!focused!list!of!seven!investment!funds!

3. Field!interviews!with!industry!experts!in!Rio!de!Janeiro!and!São!Paulo!!

The!Financial!Mechanism!(explained!in!detail!in!Chapter!5)!integrates!the!philanthropic!and!for^profit!investment!

communities!by!establishing!relationships!with!two!critical!actors,!the!Anchor!Agent!and!the!Second!Stage!Investor.!

By!partnering!with!an!Anchor!Agent,!Funbio!will!be!able!to!significantly!increase!the!success!rate!and!thus!the!impact!of!

their!territorial!projects,!and!begin!a!trend!toward!value^chain!targeted!businesses!in!Brazil.!!The!Anchor!Agent!must!have!a!

need!that!Funbio’s!projects!can!fulfill,!such!as!a!supply!chain!demand!that!coincides!with!the!needs!of!the!territory.!!Since!

these!businesses!have!the!end!demand!established,!resulting!in!a!reduced!level!of!risk,!Second!Stage!investors!will!be!more!

likely!to!invest.!!!

The!financial!sustainability!of!Funbio’s!projects!will!be!enhanced!through!the!involvement!of!the!Second!Stage!Investor,!

defined!as!the!organization!that!provides!the!next!infusion!of!capital!to!successful!projects,!in!three!key!initiatives:!

1. Shaping!the!Selection!Framework!

2. Serving!on!the!Investment!Committee!

3. Providing!advising!and!mentoring!services!!

The!early!involvement!of!the!Second!Stage!Investor!will!improve!the!initial!selection!process!by!incorporating!for^profit!

investment!expertise.!!Over!the!life!of!the!projects,!their!capabilities!of!providing!advisory!and!mentoring!services!will!help!

guide!projects!towards!Second!Stage!investment!readiness!and!financial!viability.!!In!return!for!these!services,!the!Second!

Stage!Investor!will!be!given!the!opportunity!to!invest!in!all!projects!that!meet!their!investment!criteria.!

Other!best!practices!will!be!instituted!by!the!Special!Purpose!Vehicle,!the!entity!jointly!created!by!the!Anchor!Agent!and!

principal!donor’s!funds.!The!establishment!of!an!Investment!Committee,!Community!Council,!and!a!formal!Monitoring!

Framework!will!ensure!that!the!carefully!screened!projects!have!the!highest!likelihood!of!success!by!creating!an!

entrepreneurial!ecosystem!with!community!support.!

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The!proposed!Financial!Mechanism!will!benefit!from!being!implemented!in!a!pilot!project!within!a!territory!with!a!high!

biodiversity!conservation!need,!along!with!a!reliable!and!engaged!Anchor!Agent!and!Second!Stage!Investor.!Under!these!

conditions,!the!Financial!Mechanism!can!be!deployed!and!Funbio’s!environmental!agenda!can!be!better!fulfilled!by!using!

donation!based!funds!to!generate!environmentally!sustainable!business!opportunities!in!otherwise!neglected!regions.!

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Chapter!1:!Funbio!Overview!and!Key!Challenge!

Funbio!Overview!

The!Brazilian!Biodiversity!Fund!(Funbio)!is!a!private,!non^profit!organization!involved!in!the!design!and!management!of!

financial!mechanisms!that!provide!support!for!biodiversity!conservation!initiatives,!as!well!as!the!selection!and!

management!of!programs!and!projects,!the!procurement!of!goods!and!services!for!environmental!projects,!the!integration!

of!the!climate!change!and!conservation!agendas,!and!the!coordination!of!actors!and!projects!in!national!and!international!

networks1.!

Since!its!inception!in!1995,!Funbio!has!administered!$400!million!for!197!projects,!supporting!211!protected!areas!that!

represent!around!51%!of!the!protected!land!in!Brazil2.!

Key!Challenge!

Despite!these!investments!over!the!past!two!decades,!and!other!significant!investments!from!global!stakeholders!dedicated!

to!the!Brazilian!conservation!and!sustainability!agenda,!many!of!the!projects!being!funded!today!are!unsustainable!after!

the!initial!donation!funding!is!exhausted.!!Given!the!growing!demand!for!socially!and!environmentally!sustainable!projects!–!

and!investors!willing!to!invest!in!these!initiatives!–!Funbio!must!continue!to!explore!new!financial!mechanisms!in!order!to!

maximize!the!number!of!funded!projects!that!can!ultimately!become!viable!investments.!

Funbio’s!current!funding!model,!based!on!non^repayable!grants!given!to!selected!projects,!threatens!the!long^term!viability!

of!projects!by!instilling!financial!dependence!and!lack!of!exposure!to!later!stage,!growth!investment!capital.!Within!Probio!

II,!a!fund!in!which!Funbio!has!sought!to!combine!public!grants!with!private!investments!in!order!to!mainstream!biodiversity!

in!the!private!sector,!there!is!readily!available!first!stage!funding!for!the!creation!of!projects,!but!no!agenda!in!place!to!

ensure!the!progression!of!these!projects!to!later!stages!of!investment!funding.!!As!a!result,!many!of!Funbio’s!investments!

are!largely!unsustainable!without!the!participation!of!investment!markets,!such!as!impact!investing,!venture!capital,!and!

value^chain!focused!corporations.!

The!Berkeley^Haas!team!conducted!an!analysis!of!relevant!investment!markets!to!extract!best!practices!and!design!a!

financial!model!that!would!increase!the!long^term!sustainability!of!funded!projects!with!Probio!II!and!Funbio’s!other!arms.!!

The!project!encompassed!three!main!phases,!outlined!below:!

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2"Brazilian"Biodiversity"Fund"(Funbio),"Annual"Report"2012."

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Figure'1.1:'Project'Phases!

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During!Phase!3,!the!team!conducted!interviews!with!various!experts!and!relevant!stakeholders!in!Brazilian!markets,!

including!representatives!from!the!following!sectors:!

! Venture!Capital!

! Private!Equity!

! Impact!Investing!

! Entrepreneurship!

! Economic!Development!Investment!

During!the!interviews,!the!team!tested!the!feasibility!of!the!new!model,!and!incorporated!feedback!and!recommendations!

to!optimize!the!proposed!financial!mechanism,!which!will!be!presented!in!the!following!report.!!

Phase!1!• Analysis!of!funds!in!nonprofit!and!for^profit!investment!markets,!such!as!Impact!Invesjng,!Venture!Capital,!Microfinance,!Corporate!Social!Responsibility,!Tradijonal!Bank!Lending,!and!Crowdfunding!

Phase!2!

• Extracted!best!pracjces!from!a!focused!list!of!7!funds,!selected!by!their!use!of!the!following!criteria:!Established!Fund,!Innovajve!Funding!Model,!Venture!Capital,!Proprietary!Selecjon!Tool,!and!Standard!Rajng!Tools,!and!Value!Chain!Financing!

Phase!3!

• Incorporated!best!pracjces!to!build!a!new!!financial!mechanism!to!increase!the!long^term!sustainability!of!projects!• Conducted!field!interviews!from!various!experts!and!relevant!stakeholders!to!shape!and!remodel!proposed!financial!mechanism!• Outline!recommended!financial!mechanism!in!a!detailed!report!and!presentajon!

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Chapter!2:!Preliminary!Research!&!Best!Practices!

Preliminary!Research!

Phase!1!research!began!with!an!analysis!of!30!impact!investing!and!for^profit!funding!models!from!various!organizations!

around!the!world.!!The!firms!were!selected!to!encompass!a!wide!range!of!models!that!represented!six!broad!categories:!

Impact!Investment,!Venture!Capital,!Corporate!Social!Responsibility!(CSR),!Traditional!Bank!Loans,!Microfinance,!and!

Crowdfunding.!!The!organizations!were!assessed!using!21!criteria,!and!the!information!was!distilled!down!to!three!or!four!

“key!differentiating!factors”!for!each.!!!

The!differentiating!factors!were!then!synthesized!to!select!seven!funds!that!were!most!relevant!and!interesting!to!Funbio’s!

operations!for!Phase!2!research.!!The!seven!funds!were!selected!to!represent!a!variety!of!important!factors!that!could!help!

Funbio!address!their!key!challenge!of!supporting!financially!sustainable!projects.!!The!factors!used!to!select!the!funds!were:!

Established!Fund,!Innovative!Model,!Venture!Capital!Firm,!Proprietary!Selection!Tool,!and!Standard!Rating!Tool.!!Table!1!

provides!an!overview!of!the!seven!funds!that!were!selected!and!the!criteria!for!which!they!were!chosen.!

Table'1.1:'Phase'2'research'findings'

Fund' HQ'Location' Geographical'Scope' Unique'Quality'

Bamboo!Finance!Geneva,!Switzerland!&!global!offices!

Latin!America,!Africa,!Asia,!Australia!

Proprietary!Rating!Tool!

Eco^Enterprises! Costa!Rica! Latin!America! Standard!Rating!Tool!(IRIS)!Global!Partnerships! Seattle,!WA!&! Latin!America!and!the!Caribbean! Established!Fund!! Managua,!Nicaragua! ! !Grassroots!Business!Fund! Washington,!D.C.! Africa,!Asia,!Latin!America! Innovative!Model!Khosla!Ventures! Mountain!View,!CA! Global,!with!concentration!in!CA! Venture!Capital!

PhiTrust!Partenaires! Paris,!France!60%!France,!25%!Europe,!5%!Asia,!10%!Africa!

Proprietary!Selection!Tool!

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During!the!analysis!of!the!seven!selected!funds,!the!Berkeley^Haas!team!extracted!seven!best!practices!used!in!impact!

investing!and!for^profit!funding!models!that!could!be!applied!to!build!a!new!financial!mechanism!for!Funbio’s!future!

projects.!!The!identified!best!practices!are!listed!and!described!below.!

Best!Practices!

1. Hybrid!for^profit!and!nonprofit!model!

2. Stringent!Investment/Selection!Criteria!

3. Monitoring!and!Evaluation!rating!framework!

4. Internally!Fit!Model!

5. Control!

6. Flexible!Financing!Models!

7. Value!Chain!Finance!

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Description!of!Best!Practices!

1. Hybrid!for^profit!&!nonprofit!model!

A!best!practice!identified!in!multiple!impact!investing!funds!in!Phase!1!and!displayed!by!PhiTrust!Partenaires!and!

Grassroots!Business!Fund!(GBF)!in!Phase!2!was!a!hybrid!nonprofit!and!for^profit!model!utilizing!separate!funding!

streams.!!Under!this!hybrid!model,!for^profit!investments!in!the!form!of!equity,!quasi^equity,!and/or!debt!instruments!

are!provided!to!target!investments!and!are!expected!to!achieve!a!marketable!rate!of!return!over!a!5^8!year!time!frame.!!

These!funds!are!typically!raised!via!private!investments!from!limited!partners!such!as!foundations,!pension!funds,!

endowments,!and!high!net^worth!individuals.!!The!unique!aspect!of!the!hybrid!model!is!that!nonprofit!funding!can!

simultaneously!be!used!to!either!invest!in!projects!that!may!not!be!expected!to!meet!the!financial!return!requirements!

of!the!for^profit!investors!(PhiTrust),!or!to!strengthen!the!probability!of!success!of!the!for^profit!projects!(GBF).!!In!both!

situations,!these!funds!are!predominantly!used!to!support!endeavors!that!are!expected!to!have!a!strong!impact!on!the!

impact!investment!firm’s!mission.!

When!the!nonprofit!funding!is!used!to!increase!success!rates!in!the!for^profit!investments,!it!is!often!done!through!

advisory!and!counseling!services!that!provide!support!to!the!companies!in!the!following!areas:!

! Human!Resources!

! Governance!

! Budgeting!/!Financial!Management!/!Accounting!

! Operations!/!Supply!Chain!

! Strategy!&!Marketing!

! Environmental!/!Social!Goals!

! Technical!Assistance!

In!GBF’s!model,!the!firm!balances!these!advisory!services!by!employing!consulting!experts!in!regional!offices!and!on^

site!service!providers.!!Funding!for!the!non^profit!services!remain!separate!from!the!investment!funds,!and!are!raised!

exclusively!in!the!form!of!grants!and!donations.!!GBF!can!benefit!from!synergies!in!their!fundraising!capabilities!by!

combining!the!for^profit!investment!and!nonprofit!advising!entities.!!For!example,!GBF!is!able!to!attract!for^profit!

investors!by!highlighting!the!advisory!services!they!are!able!to!provide!to!the!companies!in!which!they!invest,!and!

similarly,!they!are!able!to!attract!additional!grants!and!donations!to!pay!for!the!advisory!services!because!of!the!impact!

generated!from!successful!investments.!

2. Stringent!Investment/Selection!Criteria!

Another!feature!that!was!found!to!be!extremely!valuable!was!the!use!of!stringent!investment!and!selection!criteria!for!

entrepreneurs!and!businesses!in!which!the!for^profit!entities!invest.!!Each!firm!that!was!explored!in!Phase!2!had!a!well^

defined!and!structured!way!of!assessing!investment!opportunities!and!selecting!projects!that!aligned!well!with!their!

mission!and!had!a!high!probability!of!meeting!their!financial!goals.!!Research!yielded!four!key!components!of!selection!

criteria!methods!that!led!to!successful!investment!decisions,!which!are!described!below:!

a. Investment!Committee!

Many!impact!investment!and!venture!capital!firms!utilized!a!committee!to!guide!the!vetting!process!and!select!the!

companies!in!which!the!firm!would!invest.!!The!committee!was!generally!composed!of!8^16!people!and!involved!a!

mix!of!stakeholders!that!typically!included!members!of!the!board!of!directors,!individual!investors!or!

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representatives!from!the!limited!partners,!industry!experts,!technical!or!academic!advisors,!and!occasionally!

members!from!the!public!sector.!!Many!of!the!firms!interviewed!in!Phase!2!found!that!heavy!involvement!from!the!

investment!committee!members!was!crucial.!!For!example,!PhiTrust’s!investment!committee!met!every!six!weeks!

to!assess!the!most!promising!opportunities!that!the!firm’s!employees!had!identified!since!their!last!meeting.!

PhiTrust!believes!that!its!process!is!successful!largely!due!to!the!early!and!active!involvement!of!the!investment!

committee!members.!!!

b. Standardized!due!diligence!process!and!selection!tools!

Many!of!the!firms!explored!in!Phase!2!also!have!a!formal!and!established!due!diligence!process!to!help!guide!their!

selection!of!investments.!!This!strategy!reduces!biases!in!investment!decisions!and!results!in!more!efficient!and!

objective!decisions.!!One!common!component!of!the!due!diligence!process!is!a!standardized!selection!tool!or!

questionnaire,!which!is!often!proprietary!to!the!firm!and!helps!filter!a!large!number!of!potential!projects!down!to!

the!most!promising!opportunities!that!fit!its!investment!objectives.!!One!example!of!this!method!is!the!proprietary!

questionnaire!that!PhiTrust!developed!to!gather!information!from!entrepreneurs.!!This!45!question!survey!extracts!

an!abundant!amount!of!information,!which!PhiTrust’s!staff!and!investment!committee!utilize!to!assess!the!

business!idea.!!This!process!often!helps!the!entrepreneur!as!well,!by!stimulating!the!consideration!of!key!issues!

such!as!governance,!human!resources,!scalability,!and!an!exit!strategy.!!Many!of!these!important!factors!are!often!

overlooked,!especially!by!entrepreneurs!with!social!or!environmental!objectives.!!A!Social!Investment!

representative!for!PhiTrust!explained!that!this!task!actually!provides!an!outline!of!a!business!plan!for!many!of!the!

early!stage!companies!that!seek!their!support.!

c. Personal!Interactions!with!Entrepreneur!

Another!common!component!of!the!due!diligence!process!is!the!investor’s!need!to!meet!the!entrepreneur!and!

their!team.!!Most!of!the!impact!investors!and!venture!capital!firms!interviewed!in!Phases!1!and!2!stated!that!their!

belief!in!the!entrepreneur!is!one!of!the!top!three!criteria!for!investment.!!Many!of!them!even!admitted!that!the!

decision!came!down!to!a!“gut!feeling”!or!connection!with!the!person!or!team!behind!the!proposed!business.!!They!

also!stated!that!it!was!important!to!go!onsite!and!meet!with!the!team!in!person!to!help!facilitate!a!reliable!two^

way!information!channel!throughout!the!due!diligence!process.!!As!a!result,!many!firms!will!travel!to!the!site!of!the!

proposed!project!prior!to!investment.!!This!factor!is!so!important!that!Root!Capital!opens!regional!offices!so!that!

they!can!have!employees!close!to!the!projects!in!which!they!invest.!

d. Seed!vs.!Growth!Stage!classification!

A!best!practice!identified!in!multiple!firms!was!the!decision!to!classify!and!assign!appropriate!risk!to!the!particular!

stage!of!the!company!in!which!they!would!invest.!!The!two!common!classifications!were!Seed!Stage!and!Growth!

Stage.!!Seed!Stage!refers!to!an!entrepreneur!with!an!idea!generally!in!its!infant!stages.!In!some!cases,!these!

proposals!are!without!a!business!plan!or!formal!operating!entity,!and!there!is!almost!always!no!established!

revenue!stream!or!set!of!customers.!!This!stage!is!very!high!risk!and!the!investment!decision!is!largely!based!on!the!

investment!firm’s!assessment!of!the!entrepreneur!and!the!potential!of!his!idea.!!Alternatively,!Growth!Stage!

investments!are!made!in!companies!that!have!an!operating!business!with!customers!and!revenue.!In!this!case,!the!

investment!decision!is!based!on!the!market!opportunity!and!scalability!of!the!business,!as!well!as!a!clearly!defined!

exit!strategy!for!generating!a!financial!return!on!the!invested!capital.!

In!one!model!analyzed!in!Phase!2,!GBF!focuses!exclusively!on!growth!stage!investment!opportunities!that!have!an!

established,!defensible!business!and!could!scale!five!to!ten!times!over!the!six!to!eight!year!investment!horizon.!!A!

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focus!on!this!stage!mitigates!some!of!the!risk!associated!with!investing!in!underdeveloped!regions!with!limited!

exposure!to!credit.!!In!an!alternative!model,!Khosla!Ventures,!a!prominent!venture!capital!firm!in!Silicon!Valley,!

diversifies!their!investments!in!both!Seed!and!Growth!stage!investments.!!For!Seed!Stage!funding,!they!look!for!

very!risky!investments!that!can!yield!enormous!financial!returns,!and!conversely,!invest!in!Growth!Stage!

organizations!such!that!a!reasonable!portion!of!the!risk!associated!with!seed^type!investments!has!been!mitigated.!

Research!does!not!suggest!that!one!of!these!models!is!more!valuable!than!the!other,!but!it!is!apparent!that!making!

this!distinction!on!the!stage!of!target!investments!is!valuable!when!assessing!investment!opportunities.!

3. Monitoring!and!Evaluation!rating!framework!

A!best!practice!that!is!ubiquitous!in!the!impact!investing!space!is!the!use!of!a!rating!tool!that!periodically!tracks!the!

progress!of!investments.!!This!type!of!tool!can!also!be!used!to!allocate!additional!funding!or!advising!services!to!

projects!lagging!behind!desired!timelines,!or!to!define!success!metrics!and!measure!progress!towards!those!goals.!!For!

example,!the!Impact!Reporting!and!Investment!Standards!(IRIS!v2.2),!a!publicly!available!rating!tool,!can!be!used!to!de^

construct!the!different!components!of!an!investment!and!identify!goals!or!target!metrics!for!each!component.!!

Examples!of!these!components!include!financial!performance,!social!impact,!product!impact!and!organizational!impact.!!

The!data!for!each!subcomponent!is!inserted!into!the!framework,!which!then!gives!a!visible!snapshot!of!the!company’s!

progress!across!each!component.!Establishing!and!maintaining!impact!metrics!enables!impact!investing!funds!to!

present!periodic!reports!for!both!financial!and!impact!to!their!investors.!!From!this!data,!a!reputation!for!financial!and!

social/environmental!impact!may!be!earned!making!the!fund!more!attractive!for!increased!funding!from!both!current!

and!potential!investors.!

4. Internally!Fit!Model!

Another!overarching!theme!that!was!identified!as!a!best!practice!in!the!impact!investing!and!venture!capital!space!is!

the!focus!on!an!“Internally!Fit”!model.!!Internal!Fit!can!be!described!as!a!situation!where!all!aspects!of!the!business!are!

aligned!to!achieve!a!specific!goal.!!In!the!case!of!impact!investment!firms,!the!organization’s!goal!is!generally!a!

combination!of!a!mission!to!address!a!social!or!environmental!issue!and!a!target!rate!of!financial!return.!

In!order!to!select!projects!that!address!a!firm’s!mission,!many!impact!investors!generate!clearly!defined!criteria!to!

guide!their!selection!process.!!For!example,!Global!Partnerships!has!a!mission!to!“expand!opportunity!for!people!living!

in!poverty”3.!!As!a!result,!they!have!established!four!funds!that!target!specific!sectors!in!this!arena,!including!Micro^

entrepreneurship,!Health!Services,!Rural!Livelihoods,!and!Green!Technology.!!Global!partnerships’!strict!selection!

process!is!a!great!example!of!an!Internally!Fit!model!that!only!allows!for!investment!in!organizations!that!align!with!its!

mission.!

The!other!key!component!of!an!Internally!Fit!model!that!was!discovered!in!Phase!2!research!was!the!design!of!a!

selection!process!that!fit!the!business!lifecycle!stage!of!the!targeted!investments.!!As!previously!discussed,!many!

impact!investment!and!venture!capital!firms!focus!their!selection!criteria!on!businesses!that!are!either!in!the!Seed!

Stage!or!Growth!Stage.!!Since!these!two!types!of!firms!are!so!different,!it!is!important!to!use!distinct!tools!and!criteria!

to!assess!their!viability!and!probability!of!success.!!Khosla!Ventures!provides!an!example!of!a!firm!that!does!this!well.!!

When!they!analyze!Seed!Stage!business!ideas,!they!focus!their!selection!decision!on!the!team!and!market!opportunity,!

but!when!they!are!performing!due!diligence!on!Growth!Stage!organizations!they!direct!their!attention!towards!other!

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factors!that!deal!with!the!reduction!of!risk!and!predictable!revenue!generation4.!!Khosla!Ventures’!ability!to!pair!their!

selection!criteria!with!their!targeted!investment!stage!represents!how!firms!use!Internal!Fit!to!align!their!objectives!

with!appropriate!operational!practices.!

5. Control!

An!additional!best!practice!that!was!identified!in!Phases!1!and!2!was!the!need!for!some!level!of!control!in!the!invested!

companies.!!Almost!all!impact!investment!and!venture!capital!firms!secure!an!influential!position!in!the!governance!

structure!of!the!companies!in!which!they!invest.!!In!some!situations,!the!investing!firm!maintains!this!position!to!simply!

influence!and!advise!the!management!team.!!However,!it!is!very!common!for!firms!to!require!a!seat!on!the!board!of!

directors!and!vote!on!all!major!decisions.!!For!example,!Global!Partnerships!remains!connected!to!its!investments!by!

holding!seats!on!the!board!of!its!investments!and!attending!quarterly!meetings.!!This!tactic!gives!the!firm!the!ability!to!

monitor!its!investment!and!increase!the!probability!of!success!by!influencing!the!direction!of!the!company!providing!

valuable!information!and!services.!!Similarly,!almost!all!venture!capital!firms,!including!Khosla!Ventures,!secure!a!seat!

on!the!board!of!directors!for!the!companies!in!which!they!invest!in!order!to!increase!their!level!of!control!and!access!to!

information.!

6. Flexible!Financing!Models!

Traditional!investment!firms!that!use!a!single!mechanism!for!financing!benefit!from!the!simplicity!and!efficiency!of!

streamlining!their!investment!process.!!However,!Phase!2!research!revealed!that!many!impact!investors!are!benefiting!

from!the!use!of!multiple!financing!vehicles.!!EcoEnterprises!and!GBF!both!maintained!flexible!financing!instruments,!

including!equity,!convertible!equity!and!debt.!!This!flexibility!allows!them!to!work!in!diverse!regions!with!businesses!

possessing!different!levels!of!understanding!and!comfort!with!equity!investments!or!traditional!debt.!!Working!closely!

to!provide!the!best!option!for!the!entrepreneurs!has!proven!to!be!critical!for!these!firms!because!it!ensures!their!

understanding!and!ownership!of!the!arrangement.!

7. Value!Chain!Finance!

A!key!element!of!Root!Capital’s!hybrid!social!investment!fund!model!is!their!focus!on!“value!chain!finance”!as!a!way!of!

strengthening!the!link!between!rural!producers!and!global!markets,!with!the!ultimate!aim!of!increasing!prosperity!for!

rural!poor!and!making!agricultural!supply!chains!more!sustainable.!By!providing!credit!and!financial!training!to!small!

and!growing!rural!businesses,!Root!Capital!is!able!to!help!its!clients!increase!the!volume,!quality!and!consistency!of!

their!products,!which!in!turn!makes!them!more!reliable!and!attractive!suppliers!for!buyers!in!North!America!and!

Europe.!!Value!chain!finance!specifically!refers!to!a!technique!whereby!the!credit!Root!Capital!provides!to!small!

suppliers!and!cooperatives!is!secured!against!an!assignment!of!payment!for!future!sales!to!buyers!that!include!not!only!

companies!committed!to!sustainability,!but!also!large!multinational!corporations.!!By!embedding!their!lending!activity!

in!global!value!chains!and!aligning!corporate!demand!with!small!business!production,!Root!Capital!helps!mitigate!

supply!chain!risk,!achieve!economies!of!scale,!and!ultimately!achieve!their!goals!of!alleviating!rural!poverty!and!

environmental!degradation.!

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Chapter!3:!Original!Model!Hypothesis!

Introduction!Compiling!research!from!Phase!1!and!Phase!2!with!key!takeaways!from!initial!in^country!organizational!research,!the!

Berkeley^Haas!team!extracted!best!practices!from!for^profit!investment!funds!to!build!a!hypothesis!for!a!new!financial!

mechanism!that!would!increase!the!long^term!sustainability!of!Funbio’s!territorial!projects.!!

The!following!financial!mechanism!was!presented!during!field!interviews!as!the!Berkeley^Haas!team’s!hypothesis:!

Figure'3.1:'Model'hypothesis'

!

The!original!hypothesis!utilized!Probio!II’s!public/private!funding!model!as!a!framework!in!which!public!funds!are!matched!

by!funds!of!a!private!partner.!!Under!the!proposed!model,!the!capital!was!placed!in!a!Special!Purpose!Vehicle!to!hold!and!

distribute!the!funds!to!various!projects.!!The!following!components!were!included!in!the!original!proposed!financial!

mechanism:!

! Investment!Committee!

! Selection!Framework!

! Commitment!from!2nd!Stage!Investor!

! Advisory!Services!

! Monitoring!

! Territory^specific!timeline!

! Community!Council!!

The!details!and!timeline!of!the!hypothetical!financial!mechanism!were!presented!in!the!following!three!phases:!

Funbio'

Probio'II'(e.g.'GEF,'World'Bank)'

Private'Partner/Anchor'Agent'(e.g.'Alcoa,'Ins@tuto'Arapyau)'

Special'Purpose'Vehicle'(e.g.'PorEolio'LLC)'

Financial'Mechanism:'Designing'Financial'Models'that'Work'

Investment'CommiLee:!!Donor!Rep.,!Private!Partner,!Council!Members,!Financial!Advisor,!Govt!Rep.,!Technical/Environmental!Rep.!

Commitment'from'2nd'Stage'Investor:!!Commi@ed!funds!for!qualified!2nd!stage!Investments!

Monitoring:'!Monitoring(Framework:!RaGng!and!Success!metrics!!!use!to!assign!Advisory!Services(

!

Advisory'Services:'First(stage:!Basic!Business,!Technical,!Academic!Second(stage:(Governance,!Financial,!Supply!Chain,!Strategy(

Selec@on'Framework:!RFP(design:!includes!Probio!&!Private!Partner!goals!and!input!from!council!Selec7on(Criteria:!Internally!Fit!criteria!to!achieve!goals!

'

Territorial'Project'Timeline:!!Based!upon!economic!maturity!of!territory!

Council:'Community!and!Beneficiaries!

Phase'0'Fund%

Establishment%

Phase'1'Growth%

Phase'2'Scale%

Phase'3'Exit%

Second'Stage'Funding''Seed'Funding'

Monitoring'of'Project'Performance'

Scale'Basic''Business'

•  Iden@fy'territory'•  Iden@fy'partner'•  Request'for'

Proposals'•  Secure''second'

stage'funding'•  Establish'Special'

Purpose'Vehicle'(SPV)' Poten@al'Outside'Funding''

(Government,'NGO,'other'private'organiza@on)'

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Model!Hypothesis!Phases!

Phase!0!

In!the!hypothetical!model,!donated!funds!from!a!public!entity!like!Probio!II!and!funds!from!a!private!partner!were!to!be!

pooled!into!a!Special!Purpose!Vehicle.!!Using!its!network!of!Second!Stage!investors,!Funbio!would!receive!a!commitment!

from!a!for^profit!investment!fund!to!invest!in!the!projects!that!met!their!investment!criteria!in!the!future.!!To!ensure!that!

the!potential!investments!would!be!attractive,!the!Second!Stage!investor!would!maintain!a!seat!on!the!investment!

committee!and!provide!its!expertise.!!The!investment!committee!would!utilize!a!stringent!selection!framework!to!choose!

projects!to!fund!from!the!initial!call!for!proposals.!!A!community!council,!formed!from!stakeholders!from!the!territory,!

would!act!as!an!organizer!to!ensure!that!the!community!was!aware!of!the!availability!of!funds!and!also!provide!inputs!to!

the!investment!committee!about!the!community’s!concerns.!!!

Phase!1!

Once!the!SPV!was!established,!the!investment!committee!would!issue!funds!to!selected!projects!and!fund!initial!advisory!

services!to!assist!the!entrepreneurs!by!providing!technical!assistance!and!basic!business!training.!!In!more!mature!projects,!

the!SPV!would!fund!more!advanced!advisory!services,!such!as!governance,!financial!services,!supply!chain!and!strategy.!!

Throughout!the!life!of!funded!projects,!the!SPV!would!utilize!a!formal!monitoring!and!evaluation!tool,!such!as!Impact!

Reporting!and!Investment!Standards!(IRIS),!to!ensure!projects!progressed!according!to!pre^established!benchmarks.!!!

Phase!2!

In!this!phase,!projects!ready!for!Second!Stage!funding!would!receive!the!previously!committed!capital!from!the!designated!

Second!Stage!investor.!!The!financing!mechanism!would!vary!depending!on!the!Second!Stage!investor’s!preferences,!but!

could!include!equity,!debt,!or!convertible!debt!financing.!!The!projects!would!then!transition!from!Funbio!and!the!SPV’s!

monitoring!and!advising!responsibility!into!the!hands!of!the!Second!Stage!investor!so!that!continued!focus!could!be!applied!

to!early!stage!projects.!!The!time!frame!for!the!Second!Stage!phase!would!depend!heavily!on!the!economic!maturity!of!the!

territory!in!which!the!model!was!applied.!

Phase!3!

In!the!third!phase,!the!Second!Stage!investor!would!utilize!its!expertise!to!scale!the!projects!and!identify!exit!opportunities.!!

The!time!frame!for!this!would!be!the!responsibility!of!the!Second!Stage!investor.!

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Chapter!4:!The!Brazilian!Context!

Introduction!

The!hypothetical!financial!mechanism!outlined!in!Chapter!3!was!proposed!during!interviews!with!industry!experts!in!Brazil.!!

During!the!course!of!these!interviews,!several!themes!specific!to!the!Brazilian!business!environment!emerged!that!

represented!both!enabling!and!limiting!factors!for!implementation!of!the!proposed!financial!mechanism.!!

Brazilian!Context!Themes!

Risk!Aversion!

Although!the!Brazilian!economy!is!rapidly!evolving,!the!financial!industry!is!not!as!established!as!many!developed!countries!

whose!institutions!were!evaluated!in!the!preliminary!research!phase.!!Several!experts!interviewed!in!Brazil!acknowledged!

the!nascence!of!the!equity!investing!industry,!such!as!the!venture!capital!and!private!equity!sectors,!and!stressed!that!

impact!investing!is!an!even!smaller!subset!of!this!industry.!!One!impact!investing!firm!noted!that!this!type!of!investing!is!still!

in!its!infant!stages!and,!as!such,!it!will!be!difficult!to!find!Second!Stage!partners!that!will!advise!and!provide!additional!

capital!for!Funbio’s!projects!under!the!hypothetical!financial!mechanism.!

Additionally,!multiple!economists!noted!that!Brazil!has!a!long!history!of!risk!averse!investment!behavior!due!to!traditionally!

high!risk!free!return!rates!(the!SELIC,!Sistema!Especial!de!Liquidacao!e!Custodia!(SELIC)!rate!is!8%5),!and!the!availability!of!

donation!and!grant!based!funding.!!Through!extensive!research,!these!economists!identified!merely!a!dozen!legitimate!

suppliers!of!funds!for!social!and!environmental!impact!within!Brazil,!which!included!both!impact!investments!and!revolving!

funds.!!To!mitigate!the!limitations!present!in!equity!investing!markets,!they!acknowledged!opportunities!in!creating!

innovation!and!sustainability!in!corporate!supply!chains!to!create!attractive!investments!for!the!limited!number!of!Second!

Stage!investors.!

Ease!of!Doing!Business!

One!expert!in!sustainable!business!in!the!Amazon!provided!anecdotal!evidence!to!describe!the!challenging!business!

environment!in!Brazil.!!Noting!issues!with!illegal!and!unsustainable!practices,!the!forging!of!documents!and!certifications,!

and!a!trend!toward!operating!beyond!concession!permit!limits,!the!interviewee!noted!that!it!is!increasingly!difficult!to!run!a!

profitable,!legally!compliant!business!when!other!companies!do!not!follow!such!regulations.!

Echoing!these!sentiments,!one!entrepreneur!and!investor!with!experience!in!the!Amazon!noted!that!it!was!difficult!to!raise!

funding!to!invest!in!businesses!in!the!Amazon!because!of!the!added!“institutional!risk”!associated!with!this!region.!!For!this!

reason,!some!potential!funders!prefer!to!donate!rather!than!invest,!in!an!effort!to!avoid!negative!effects!on!their!image!

should!the!investments!fail!or!become!associated!with!illegal!activity.!

Despite!these!challenges,!this!entrepreneur!was!still!optimistic!about!the!“explosive!growth”!in!investment!opportunities!in!

the!region.!!These!conflicting!observations!reflect!that!despite!the!obstacles!present!for!entrepreneurs!in!Brazil,!there!is!a!

growing!opportunity!to!spur!sustainable!investment!in!otherwise!neglected!regions.!!In!order!to!mitigate!the!effects!of!a!

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perceived!unstable!business!environment,!partnerships!with!trusted!anchor!agents!in!these!regions!could!prove!critical!to!

attracting!investors.!

Opportunities!in!Sustainability!

The!aforementioned!expert!in!sustainable!business!also!emphasized!that!large!companies!are!interested!in!growing!their!

relationships!with!sustainable!suppliers,!and!that!because!of!this!demand,!it!will!be!companies!^!not!end!consumers!or!

public!policy!^!who!will!change!the!business!environment!in!the!Amazon,!and!other!areas!threatened!by!development.!

One!interviewee!conveyed!some!cynicism!when!noting!that!many!companies!don’t!have!a!true!interest!in!Corporate!Social!

Responsibility,!but!are!rather!driven!by!integrating!sustainability!into!their!supply!chains.!!Regardless!of!true!underlying!

motivations!for!pursuing!sustainable!agendas!as!they!relate!to!supply!chain!management,!it!will!be!crucial!to!capitalize!on!

these!needs!by!identifying!anchor!agents!with!supply!chain!demands!in!targeted!territories.!!

Financing!Mechanisms!

As!noted!in!the!Best!Practices!section!of!Chapter!2,!flexible!financing!mechanisms!can!be!very!valuable!to!investors!working!

with!a!wide!range!of!entrepreneurs.!!This!conclusion!proved!extremely!relevant!in!the!Brazilian!business!environment.!!An!

experienced!investor!from!an!economic!development!institution!in!Brazil!explained!that!his!organization!provides!“equity,!

loans,!and!everything!in!between.”!!The!interviewee!admitted!that!this!strategy!adds!complexity!and!can!be!a!“logistical!

nightmare,”!but!it!gives!the!organization!the!ability!to!customize!a!solution!for!each!project!based!on!the!unique!needs!of!

the!entrepreneur.!!Additional!interviews!with!impact!investors,!academics,!and!economists!clarified!that!entrepreneurs!in!

many!regions!of!Brazil!may!not!be!comfortable!giving!up!control!or!ownership!in!their!business.!!The!common!concern!is!

that!rural!entrepreneurs!may!be!intimidated!by!formal!investment!firms!and!uncomfortable!with!the!equity!model.!

As!a!result,!most!interviewees!suggested!offering!at!a!minimum!an!equity!and!debt!option!for!financing.!!However,!another!

common!suggestion!was!to!include!a!“convertible!equity”!vehicle,!whereby!the!entrepreneur!is!given!a!loan!that!is!

converted!to!a!percentage!of!equity!when!the!first!round!of!financing!over!a!specified!threshold!is!secured.!!Additional!

suggestions!from!an!impact!investor!and!entrepreneur!involved!more!creativity.!!The!interviewee!suggested!offering!

options!like,!“preferential!shares,”!“preferential!rights!to!profit!for!an!initial!period,”!or!“a!percentage!of!profit!after!a!

predetermined!level!of!salaries!are!met.”!!The!key!takeaway!from!these!discussions!was!that!while!investors!in!Brazil!must!

strike!a!balance!between!flexibility!and!complexity,!there!will!be!clear!benefits!to!offering!at!least!two!financing!options!

when!dealing!with!entrepreneurs.!

Funbio!SWOT!Related!to!Proposed!Financial!Mechanism!

In!light!of!the!insights!gained!about!the!environmental!factors!influencing!investing!and!sustainable!business!in!Brazil,!a!

SWOT!analysis!was!conducted!to!determine!the!feasibility!of!Funbio’s!use!of!the!proposed!financial!mechanism.!!

Incorporating!the!array!of!perspectives!and!insights!gathered!through!interviews,!especially!as!they!relate!to!Funbio’s!

unique!challenges!in!the!context!of!the!Brazil!social!finance!space,!the!Berkeley^Haas!team!applied!refined!the!original!

hypothesis!into!a!recommended!Financial!Mechanism,!which!is!described!in!detail!in!the!next!chapter.!

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Figure'4.1:'Funbio'SWOT'analysis'

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Chapter!5:!Outline!of!Proposed!Model!

Introduction!

During!Phase!3!of!this!project,!the!Berkeley^Haas!team!presented!the!initial!hypothesis!described!in!Chapter!3!to!sixteen!

industry!experts!representing!a!variety!of!organizations!in!multiple!sectors.!!Individuals!interviewed!ranged!from!successful!

entrepreneurs!from!the!Amazon,!to!Brazilian!impact!investors,!to!world^renowned!economists.!!Interviewers!provided!an!

enormous!amount!of!information!and!offered!support!and!constructive!feedback!that!was!used!to!refine!the!proposed!

financial!mechanism.!

The!Berkeley^Haas!team!discovered!a!positive!consensus!with!respect!to!the!idea!of!involving!a!for^profit!investor!early!in!

the!process!to!help!guide!the!selection!and!development!of!businesses.!!The!interviews!also!revealed!a!few!key!

recommendations!that!Funbio!and!the!Berkeley^Haas!team!had!not!considered,!such!as!pursuing!anchor!agents!with!a!need!

for!the!products!or!services!offered!by!the!entrepreneurs!through!their!supply!chain.!!However,!despite!a!great!deal!of!

supportive!feedback,!many!interviews!unearthed!critical!concerns!that!needed!to!be!addressed!in!the!model,!such!as!the!

potential!difficulty!in!attracting!a!for^profit!investor!at!below!market!interest!rates!or!gaining!reliable!commitments!from!

Second!Stage!investors!prior!to!the!initial!donations.!!These!insights!were!taken!into!consideration,!and!helped!refine!the!

hypothesis!into!the!proposed!model!below:!

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Figure'5.1:'Proposed'Financial'Mechanism'

!!

The!diagram!above!represents!the!phases!of!the!proposed!financial!mechanism,!including!all!of!the!key!parties,!structures!

and!services!of!the!model.!!The!image!also!visually!depicts!how!the!number!of!projects!managed!through!the!model!will!

decline!as!the!timeline!progresses.!!A!more!detailed!description!of!the!phases!and!each!component!of!the!model!are!

provided!below.!

Financial!Mechanism!Phases!

Phase!0!

The!financial!mechanism!begins!with!the!identification!of!Donation!Funding!and!an!Anchor!Agent.!!Traditionally,!Funbio!has!

been!approached!to!receive!and!manage!donations!from!various!sources,!but!under!this!model!Funbio!would!first!attract!

an!Anchor!Agent!with!an!interest!in!a!specific!region!of!Brazil,!and!then!secure!additional!nonprofit!financial!support.!!Once!

the!two!parties!are!secured!and!the!enabling!conditions!are!met,!Funbio!must!find!a!Second!Stage!Investor!and!establish!an!

SPV.!!The!SPV!will!then!recruit!a!Community!Council,!establish!the!Selection!Framework,!structure!the!Advisory!and!

Monitoring!Services,!and!define!the!Territorial!Project!Timeline.!!The!final!stage!of!Phase!0!is!the!release!of!a!Call!for!

Proposal!to!attract!entrepreneurs!in!the!region.!!This!phase!could!be!completed!in!less!than!a!year,!but!could!take!

Dona%on&Funding&

Funbio&

Enabling&Condi%ons&Met&

Financially&Sustainable&Businesses&

Advisory&Services&

Monitoring&

Seed$Stage$Funded$

Businesses$$

Growth$Stage$Funded$Businesses$

$

Phase$0$

Advisory&Services&

Monitoring&

Phase$1$ Phase$2$ Phase$3$

Anchor&Agent&Funding&

Second&Stage&Investor$

Exit$Strategy$$

SPV&$$$$$$$

Community&Council& Investment&Commi@ee&

Seed&Stage&Services&Provided&by&SPV&

Growth&Stage&Services&Provided&by&Second&Stage&Investor&

Define&Territorial&Project&Timeline&

Establish&Selec%on&Framework&

Structure&Advisory&&&Monitoring&Services&

Financial$Mechanism$Establishment$&$Call$for$Proposals$

to$AEract$Entrepreneurs$$

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significantly!longer!if!the!optimal!implementation!conditions,!defined!in!Chapter!6,!are!not!present!or!if!Funbio!encounters!

challenges!in!securing!the!appropriate!parties.!

Phase!1!

Once!the!applications!from!entrepreneurs!are!received,!the!Investment!Committee!will!use!the!Selection!Criteria!and!tools!

formed!in!Phase!0!to!select!the!most!promising!projects!in!which!to!invest.!!Chosen!projects!will!receive!Seed!Stage!funding!

and!have!access!to!ongoing!Advising!Services!that!are!provided!by!the!SPV!throughout!Phase!1.!!These!new!companies!

would!also!be!subject!to!the!Monitoring!guidelines!stipulated!by!the!terms!and!conditions!of!the!investment!agreement.!!

The!length!of!this!phase!is!anticipated!to!last!1.5^3!years,!but!could!be!shorter!or!longer!based!on!the!level!of!economic!

maturity!in!the!territory!and!business!skills!of!the!entrepreneurs.!

Phase!2!

As!Seed!Stage!businesses!grow!and!begin!to!satisfy!the!investment!criteria!of!the!Second!Stage!Investor,!they!will!qualify!for!

an!additional!cash!infusion.!!This!next!round!of!funding!will!be!a!for^profit!investment,!in!which!a!targeted!financial!rate!of!

return!determined!by!the!Second!Stage!Investor!will!be!expected.!!This!phase!will!include!additional!advisory!and!

monitoring!services!consistent!with!the!for^profit!investor’s!typical!method!of!doing!business.!!Investors!should!expect!this!

phase!to!last!5^7!years,!but!this!timeframe!will!also!depend!on!the!specific!factors!of!the!region!and!the!specific!Second!

Stage!investor.!!Projects!that!do!not!receive!Second!Stage!funding!will!likely!either!obtain!alternative!forms!of!financing!or!

exit!the!business!once!seed!funding!is!exhausted.!

Phase!3!

The!third!phase!of!the!financial!mechanism!will!vary!based!on!the!investment!vehicle!that!was!used!in!Phase!2.!!If!the!

investment!was!made!in!the!form!of!debt,!this!phase!will!be!characterized!by!businesses!paying!off!their!loans!and!

becoming!independent,!financially!sustainable!enterprises.!!If!equity!investments!were!made!in!the!companies,!the!Second!

Stage!Investor!will!work!together!with!the!Anchor!Agent!and!the!business!owners!to!identify!and!execute!an!exit!strategy.!!

The!timeline!for!Phase!3!should!last!no!less!than!2!years,!but!is!unpredictable!due!to!the!uncertainties!around!the!

probabilities!of!success!and!necessary!timelines!of!the!initial!investments.!

Donation!Funding!

In!the!proposed!Financial!Mechanism,!Donation!Funding!is!defined!as!non^repayable!funding!that!Funbio!receives!from!

donors,!consisting!of!three!main!sources.!

1. Public!Donation/Grant!

2. Philanthropic!Organization!

3. Obligation!Funding!

Donation!Funding!has!long!been!and!shall!continue!to!be!Funbio’s!principal!source!of!funding.!!Funds!are!issued!to!Funbio!

and!allocated!according!to!the!donor’s!preferences!or!to!specific!obligations,!if!such!restrictions!are!included!with!the!

donation.!!In!many!cases,!funding!from!these!sources!is!easier!to!obtain!when!matched!by!a!private!partner!or!Anchor!

Agent.!!For!example,!Probio!II’s!public/private!partnership!model!maintains!a!1:3!ratio!of!Probio!II!funding!to!Private!

Partner!funding.!!Because!Funbio!is!a!nonprofit!organization,!its!donors!do!not!receive!a!financial!return.!!As!a!result,!

Funbio’s!donors!may!not!necessarily!be!interested!in!financially!viable!investments.!!However,!one!of!the!conclusions!of!this!

project!is!that!Funbio’s!biodiversity!conservation!agenda!can!be!better!achieved!by!using!donation!based!funds!to!“build!

the!pipeline”!of!environmentally!sustainable!businesses!that,!at!the!onset,!are!too!risky!for!for^profit!investors.!

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The!objective!of!the!proposed!financial!mechanism!is!to!prepare!funded!projects!for!Second!Stage!investment!funding.!The!

Donation!Funding!in!this!scenario!will!be!pooled!with!funds!from!an!Anchor!Agent!(Private!Partner),!to!be!issued!in!the!form!

of!donation^based!seed!funding!to!projects!approved!by!the!investment!committee.!!Additionally,!funding!for!advising!

services!will!be!provided!on!a!case^by^case!basis!in!order!to!enhance!the!attractiveness!of!Funbio’s!projects!to!Second!Stage!

investors.!

Anchor!Agent!Funding!

The!Anchor!Agent!is!an!integral!part!of!the!proposed!financial!mechanism,!and!is!defined!as!an!organization!that!co^funds!

territorial!projects!and!maintains!a!vested!interest!in!the!success!of!these!projects.!!Based!on!feedback!from!a!prominent!

Brazilian!entrepreneur,!the!Anchor!Agent!must!have!a!need!that!Funbio’s!projects!can!fulfill!and!this!need!must!coincide!

with!the!needs!of!the!territory.!!The!two!principal!categories!of!Anchor!Agents!are:!

1. A!Private!Partner!with!supply!chain!interests!

2. A!Private!Partner!with!other!(not!supply!chain)!demand!interests!

By!partnering!with!such!Anchor!Agents,!Funbio!is!funding!projects!that!produce!products!for!which!there!is!an!inherent!

demand,!thereby!increasing!the!sustainability!and!profitability!of!these!investments.!!Additionally,!because!these!

businesses!have!established!demand,!Second!Stage!investors!will!be!more!likely!to!invest,!since!some!risk!has!been!

mitigated.!!By!involving!larger!corporations!in!its!model,!Funbio!will!be!able!to!significantly!increase!the!success!rate!and,!

consequently,!impact!of!its!territorial!projects,!creating!a!trend!toward!value^chain!targeted!businesses!in!Brazil.!

There!are!also!apparent!difficulties!in!finding!an!Anchor!Agent.!!For!example,!a!Brazilian!nonprofit!organization!that!

supports!small!businesses!that!have!social!and!environmental!impact,!has!found!difficulty!finding!corporate!partners!to!use!

as!an!anchor!agent.!!Additionally,!while!many!corporations!say!they!support!the!sustainability!agenda,!several!interviewees!

expressed!concerns!that!corporations!will!not!actually!take!the!initiative!to!seek!out!these!partnerships.!

Despite!these!concerns,!global!trends!toward!sustainability!and!responsibility!create!a!growing!opportunity!for!partnerships!

with!Anchor!Agents.!!According!to!a!prominent!environmental!entrepreneur,!it!will!likely!be!large!companies!with!supply!

chain!interests^!not!end!consumers!^!who!will!promote!a!more!environmentally!sustainable!business!environment!in!Brazil’s!

territories.!!In!many!cases,!it!will!be!necessary!for!Funbio!to!seek!out!supply!chains!of!potential!Anchor!Partners,!since!many!

companies!are!not!yet!thinking!this!far!ahead,!and!are!just!doing!the!minimum!to!appease!governmental!requirements!and!

local!communities.!!However,!by!demonstrating!success!from!a!pilot!partnership,!Funbio!will!likely!be!able!to!attract!other!

valuable!partnerships!with!Anchor!Agents.!If!a!territory!is!identified!before!an!Anchor!Agent,!it!will!be!important!to!look!at!

the!local!natural!resources!present!and!then!determine!what!businesses!utilize!the!resources!of!that!area!in!their!supply!

chain.!!Funbio!must!be!mindful!that!some!sectors!with!supply!chain!demand!are!more!investment!ready!than!others!and!

must!prioritize!accordingly.!

Special!Purpose!Vehicle!

Definition!

The!Special!Purpose!Vehicle!is!defined!as!an!independent!entity,!such!as!a!Limited!Liability!Corporation,!into!which!the!

Donation!and!Anchor!Agent!Funding!are!pooled!to!be!distributed!throughout!the!life!of!a!territorial!project.!!Funbio,!along!

with!representatives!from!the!funding!source!entities,!must!structure!the!governance!of!the!SPV!and!designate!the!

members!who!will!act!as!administrators!of!the!territorial!project!fund.!!The!administrators!of!the!SPV!will!then!be!

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responsible!for!designing!and!implementing!the!core!components!of!the!financial!mechanism,!such!as!the!formation!of!the!

Investment!Committee!and!Community!Council!and!the!structure!of!the!Selection!Framework,!Advisory!and!Mentoring!

Services,!and!Territorial!Project!Timeline.!

Identity!

Initially,!the!SPV!and!associated!bank!account!will!remain!under!the!umbrella!of!Funbio’s!managed!assets.!!However,!the!

SPV!will!likely!be!transferred!to!new!owners!later!in!the!territorial!project!lifecycle.!!Whether!this!option!is!available,!or!

when!this!transition!would!occur!will!depend!on!the!size!and!scope!of!the!territorial!project,!as!well!as!the!capabilities!and!

needs!of!the!other!SPV!stakeholders.!!This!transition!will!also!depend!on!the!fund’s!ability!to!attract!new!donors,!partner!

with!other!NGO’s!in!the!territory,!or!transition!into!a!“revolving!fund.”!!The!execution!of!one!of!these!options!will!ensure!

the!longevity!and!sustainability!of!territorial!funds!begun!by!Funbio.!

Composition!

The!specific!composition!of!the!SPV!will!depend!heavily!on!the!territorial!project!and!the!identity!of!the!Donation!Funder,!

Anchor!Agent,!Second!Stage!Investors,!and!any!additional!funding!entities.!!It!is!strongly!recommended!that!this!concept!be!

tested!in!a!pilot!phase,!to!best!determine!the!optimal!relationship!between!Funbio!and!the!SPV,!and!whether!an!

independently!managed!SPV!is!feasible.!

Second!Stage!Investor!

One!of!the!most!novel!components!of!the!proposed!financial!mechanism!is!the!involvement!of!a!Second!Stage!investor!

prior!to!seed!funding!from!donations.!!In!order!to!address!Funbio’s!key!challenge!of!investing!in!financially!sustainable!

projects,!this!model!attempts!to!tackle!this!concern!directly!from!a!very!early!stage!in!the!investment!process.!!Historically,!

investments!have!been!made!based!on!selection!criteria!that!were!focused!on!the!mission!and!goals!of!the!organization!

providing!the!first!round!of!financial!support.!!In!Funbio’s!experience,!these!organizations!have!not!expected,!nor!did!they!

want,!a!return!on!their!investment.!!Unfortunately,!this!lack!of!focus!and!concern!with!financial!viability!has!led!to!a!

situation!in!which!many!businesses!are!not!financially!viable!once!the!initial!investment!has!been!exhausted.!

The!involvement!of!the!Second!Stage!investor!is!intended!to!help!set!the!stage!for!financial!success.!!In!the!model,!the!

impact!investor!will!be!involved!in!three!key!initiatives!and!ongoing!roles:!

1. Shaping!the!selection!framework!

2. Serving!on!the!investment!committee!

3. Providing!advising!and!mentoring!services!

These!three!functions!will!require!heavy!interaction!and!involvement!from!the!Second!Stage!investor.!!One!entrepreneur!

and!expert!in!the!environmental!finance!field!agreed!with!the!idea!of!involving!a!for^profit!investor!at!this!early!stage!in!the!

process!noting!that!“it!will!help!to!let!the!entrepreneurs!know!what!the!objective!is![financial!viability]!from!the!word!‘go’.”!!

He!and!other!impact!investors!interviewed!in!Brazil!believed!that!the!input!and!influence!from!a!for^profit!investor!prior!to!

seed!stage!investments!would!help!guide!the!selection!criteria!and!shape!the!motivations!and!mindsets!of!the!

entrepreneurs!in!a!way!that!will!drive!financial!success.!!This!model!intends!to!attract!a!Second!Stage!investor!that!has!a!

common!or!overlapping!mission!with!the!donation!funder!and!anchor!agent,!and!utilize!their!expertise!and!ambitions!to!

invest!in!successful!for^profit!entities.!!If!successful,!this!approach!will!ensure!that!the!projects!Funbio!oversees!are!

sustainable!well!into!the!future.!

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It!is!important!to!note!that!although!there!was!broad!support!for!utilizing!a!Second!Stage!investor!from!the!time!the!fund!is!

established,!there!were!also!some!concerns!with!the!original!hypothesis.!!The!most!significant!piece!of!critical!feedback!was!

that!it!could!be!very!difficult!to!gain!a!firm!commitment!from!a!for^profit!investor!to!provide!Second!Stage!funding!in!

projects!according!to!pre^specified!criteria.!!For!example,!an!experienced!investor!from!a!global!economic!development!

institution!explained!that!because!much!of!the!investment!decision!is!based!on!subjective!criteria,!firms!would!not!be!

willing!to!risk!their!reputation!if!they!had!to!change!their!mind.!

Despite!this!initial!concern,!he!admitted!that!the!model!makes!sense!from!an!investment!perspective.!!He!stated!that!it!

would!be!attractive!for!a!Second!Stage!investor!to!assist!and!monitor!a!large!volume!of!projects!using!third!party!funding!

for!the!Seed!Stage!investment,!and!then!‘cherry!pick’!the!best!opportunities!in!which!to!invest!with!its!own!capital.!!Due!to!

the!discrepancy!of!feedback!received!on!this!topic!and!other!lingering!uncertainties,!the!final!model!allows!for!flexibility!in!

the!level!of!commitment!from!the!Second!Stage!investor.!!The!important!component!is!that!the!for^profit!interests!are!

represented!up!front,!and!help!guide!the!selection!and!advising!of!projects.!

Another!concern!raised!during!interviews!in!Brazil!was!that!the!expected!rates!of!return!for!impact!investors!and!other!

potential!Second!Stage!funding!sources!were!higher!than!previously!thought.!!Phase!2!findings!suggested!that!impact!

investors!would!be!willing!to!accept!a!4^6%!rate!of!return,!but!multiple!sources!speculated!that!that!rate!might!not!be!

realistic!in!Brazil.!!As!discussed!in!Chapter!4,!the!risk!free!rate!is!Brazil!is!approximately!8%,!and!many!impact!investing!and!

venture!capital!firms!in!this!nascent!industry!are!still!very!risk!averse.!!One!interviewee!speculated!that!“Even!though!many!

impact!investment!firms!claim!they!have!a!focus!on!philanthropic!objectives,!when!it!comes!to!putting!money!on!the!table,!

it!could!be!tough.”!!However,!additional!discussions!with!impact!investors!proved!that!there!was!an!interest!for!this!model,!

and!as!long!as!there!was!a!clear!demand!or!exit!strategy!for!the!projects,!securing!the!support!from!a!Second!Stage!investor!

would!be!realistic.!

A!final!lesson!gleaned!during!Phase!4!was!the!range!of!potential!Second!Stage!investors.!!The!original!hypothesis!assumed!

that!only!impact!investors!would!serve!as!a!Second!Stage!investor.!!However,!feedback!from!industry!experts!indicated!that!

this!role!could!be!filled!by!a!variety!of!organizations.!!!Drawing!on!this!feedback,!four!possibilities!for!Second!Stage!investors!

were!identified:!

1. Impact!Investor!

Consistent!with!the!hypothesis,!an!impact!investor!could!serve!as!the!Second!Stage!investor.!!The!mission!and!

objectives!of!the!firm!must!align!with!the!goals!of!the!donation!funder!and!anchor!agent,!and!the!impact!investor!

must!be!willing!to!satisfy!the!three!key!roles!mentioned!above.!

2. Anchor!Agent!

The!Anchor!Agent!would!also!be!a!good!fit!for!this!role.!!They!have!a!vested!interest!in!the!financial!viability!of!the!

projects!that!are!funded!in!the!first!round,!and!this!type!of!firm!would!be!able!to!help!guide!the!projects!to!meet!

their!demand!or!supply!chain!needs,!providing!profits!and/or!a!successful!exit!strategy.!

3. Anchor!Agent!Funded!Entity!

If!it!is!not!in!the!core!competency!of!the!Anchor!Agent!to!manage!an!investment!fund,!an!Anchor!Agent!can!

establish!or!invest!in!a!private!equity!fund!that!invests!in!potential!projects!or!businesses!that!may!meet!the!

objectives!of!the!anchor!agent.!

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4. Combination!

Numerous!sources!indicated!that!a!variety!of!options,!or!pooling!multiple!sources,!would!be!valuable!to!the!

financial!mechanism.!!If!the!model!is!successful,!and!financially!valuable!projects!are!developed,!then!additional!

sources!of!funding!could!be!attracted!to!invest!in!the!Second!Stage.!!All!parties!that!were!interviewed!agreed!that!

multiple!options!for!funding!would!be!valuable,!but!to!ensure!success,!at!least!one!of!the!for^profit!investors!will!

have!to!be!involved!in!the!establishment!of!the!fund!and!the!three!crucial!roles!of!the!Second!Stage!investor!

discussed!above.!

Investment!Committee!

The!proposed!financial!mechanism!includes!an!Investment!Committee,!which!will!be!distinct!for!each!territorial!project.!!

Following!the!initial!Call!for!Proposals!(CFP),!the!Investment!Committee!will!review!the!proposals!from!entrepreneurs!and!

select!the!most!qualified!projects!for!seed!funding.!!Many!impact!investors!interviewed!in!Phase!3!agreed!that!the!nature!of!

this!role!requires!each!member!of!the!committee!to!be!active!engaged,!and!able!to!commit!the!necessary!time!and!energy.!

The!table!below!includes!a!proposed!list!of!members!that!will!make!up!the!Investment!Committee.!!This!list!includes!the!

most!important!members!of!the!committee,!with!the!strongest!interests!and!most!valuable!input!in!the!selection!process,!

but!is!not!intended!to!be!exhaustive.!!This!committee!can!be!modified!to!incorporate!relevant!financial,!environmental,!

technical,!social,!economic,!and/or!legal!stakeholders!who!have!a!substantial!stake!in!the!investments!or!influence!in!the!

region!in!which!the!model!is!deployed.!!Although!it!will!be!composed!of!a!diverse!group!of!stakeholders,!the!Investment!

Committee!will!maintain!a!collective!mission:!funding!sustainable,!profitable,!and!environmentally!sound!businesses!suited!

for!Second!Stage!investments.!

Table'5.1:'Investment'Committee'Members'

Voting'Members Advisory'Capacity

1.!Donor!Representative 1.!Community!Council!Representative*

2.!Anchor!Agent!Representative 2.!Government!Representative

3.!Second!Stage!Investor(s)!Representative(s) 3.!Environmental/Technical!Advisor

*!may!become!voting!member!based!on!region!and!pilot!phase!results!

Voting!Members!

The!Voting!Members!of!the!Investment!Committee!include!the!key!financial!stakeholders!in!the!SPV!and!will!be!the!

ultimate!decision!makers!of!which!projects!are!selected!for!investment.!!If!additional!funding!is!raised!in!later!stages!of!the!

projects,!representatives!from!the!new!firms!with!a!significant!financial!stake!should!be!included!as!voting!members.!!

4. Donor!Representative:!This!member!will!represent!the!organization!that!provided!the!principal!donation,!and!

his/her!active!involvement!will!ensure!that!the!projects!selected!align!with!the!organization’s!core!mission!and!

goals.!

5. Anchor!Agent:!Participation!of!an!Anchor!Agent!representative!is!critical!because!funded!projects!will!be!selected!

with!the!end!demand!or!need!of!the!Anchor!Agent’s!value!chain!in!mind.!!The!Anchor!Agent’s!inclusion!is!also!

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important!because!they!are!providing!a!portion!of!the!initial!funding!and!have!a!vested!interest!in!the!long^term!

success!of!the!projects.!

6. Second!State!Investor:!This!key!participant!in!the!Financial!Mechanism!should!also!have!a!representative!

participate!in!the!Investment!Committee.!!Although!the!Second!Stage!Investor!does!not!contribute!to!the!Phase!1!

capital,!they!have!a!vested!interest!in!the!success!of!the!projects.!!Furthermore,!interviews!conducted!with!impact!

investors!and!venture!capitalists!suggested!that!Second!Stage!investors!would!be!willing!to!offer!their!expertise!in!

order!to!obtain!a!first!right!of!refusal!to!invest!in!promising!projects.!!The!input!from!this!member!will!be!crucial!for!

three!main!purposes:!

a. Utilize!their!experience!and!expertise!in!selecting!projects!with!potential!for!scalability!and!growth!

b. Give!them!an!opportunity!to!lobby!for!internally!fit!projects!that!align!with!their!agenda,!since!they!will!be!

given!the!first!right!of!refusal!for!projects!ready!for!Second!Stage!funding!

c. Ensure!that!funded!entrepreneurs!know!that!the!shared!objective!is!financial!viability!

Advisory!Members!

In!addition!to!the!Voting!Members!listed!above!that!have!a!vested!interest!in!the!financial!outcome!of!the!selected!

projects,!the!following!territorial!stakeholders!will!also!be!included!in!order!to!foster!a!healthy,!entrepreneurial!ecosystem,!

and!maximize!the!positive!impact!on!environmental!and!social!factors:!

1. Community!Council!Representative:!A!member!of!the!Community!Council!has!been!included!in!order!to!empower!

the!communities!and!encourage!their!participation.!!The!communities!and!entrepreneurs!will!support!and!trust!

the!initiatives!of!the!donor!and!anchor!agent!more!if!they!are!included!in!the!decision!making!process.!!The!

inclusion!of!this!member!is!highly!recommended,!but!this!member’s!right!to!vote!can!be!determined!on!a!case^by^

case!basis.!!(A!more!detailed!discussion!on!this!topic!is!provided!in!the!following!section.)!

2. Government!Representative:!An!individual!from!the!local!government!has!been!included!to!encourage!

participation!from!the!public!sector!and!maximize!support!for!the!initiatives!through!supportive!local!laws!and!

policies.!!This!stakeholder!should!also!be!included!to!help!address!any!regulatory!questions!and!serve!as!an!expert!

on!legal!topics!when!analyzing!proposed!businesses.!

3. Environmental!or!Technical!Representative:!A!technical!expert!should!be!available!to!evaluate!the!environmental!

impact!of!the!proposals!to!ensure!the!underlying!mission!is!met.!!This!member’s!expertise!will!also!be!valuable!to!

assess!the!technical!feasibility!of!the!proposals.!

The!proposed!dual!Voting!and!Advisory!model!described!above!is!similar!to!a!practice!utilized!by!Vox!Capital,!a!prominent!

impact!investment!firm!in!Brazil.!!A!member!of!Vox!Capital’s!staff!explained!that!this!structure!helps!incorporate!important!

feedback!from!the!advisors!and!financial!expertise!from!voting!members!to!select!optimal!projects.!

Community!Council!

Funbio!recently!implemented!a!major!project!in!the!Amazon!region!that!incorporated!the!development!of!a!council!of!

community!members.!!There!were!two!prominent!rationales!for!forming!this!council:!1.!understand!the!needs!of!the!

community,!and!2.!provide!ownership!and!empowerment!to!the!community.!!This!tactic!proved!to!be!successful!at!

accomplishing!these!goals,!but!unfortunately,!it!is!not!clear!whether!the!involvement!of!a!representative!in!the!Community!

Council!had!been!valuable!in!the!investment!committee!selection!process.!

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When!the!incorporation!of!this!component!to!the!financial!mechanism!was!presented!during!Phase!3!interviews,!many!

impact!investors!and!economic!development!professionals!who!have!worked!in!rural!regions!of!Brazil!agreed!that!creating!a!

forum!for!the!community!within!a!territory!where!a!fund!will!be!established!to!voice!its!concerns!would!be!extremely!

valuable.!!They!explained!that!in!some!cases,!the!needs!of!the!community!from!an!outsider’s!perspective!may!be!different!

than!the!actual!needs,!and!that!this!forum!could!help!clarify!where!the!investments!could!have!the!largest!impact.!!Also,!by!

providing!this!forum,!the!primary!donor!and!anchor!agent!involved!in!this!model!can!secure!the!support!of!the!community.!!

Although!this!financial!mechanism!is!aimed!at!creating!financially!sustainable!businesses,!it!is!equally!important!to!ensure!

that!the!broader!community!is!actively!involved!and!that!the!funds!are!optimally!used!to!improve!these!communities.!

Although!there!was!unanimous!support!for!the!formation!of!a!Community!Council,!Phase!3!interviews!exposed!

discrepancies!in!opinion!over!the!voting!rights!of!this!council!in!the!Investment!Committee.!!One!impact!investor!cautioned,!

“the!Investment!Committee!should!not!have!too!many!cooks!in!the!kitchen.”!!However,!another!industry!expert!with!

experience!working!in!the!Amazon!thought!that!the!input!from!the!council!would!be!very!valuable.!!He!believed!that!giving!

the!council!a!right!to!vote!would!maximize!the!engagement!and!sense!of!empowerment!in!the!projects,!and!as!long!as!the!

influence!was!limited!to!one!individual,!it!would!have!a!net!positive!effect!on!the!Investment!Committee!decisions.!!The!

Berkeley^Haas!team!believes!that!both!of!these!opinions!have!merit!and!that!this!is!one!component!of!the!model!that!must!

be!tested!in!the!Pilot!Phase!and!refined!in!the!future.!

Selection!Framework!

Another!key!element!of!the!proposed!financial!mechanism!is!a!refined!selection!framework,!which!will!be!used!to!identify!

businesses!given!a!long^term!objective!of!financial!sustainability.!!It!should!be!noted!that!this!framework!will!vary!among!

territories,!given!the!unique!attributes!of!the!region.!!In!light!of!best!practices!from!impact!investing!firms!and!in^country!

interviews,!the!following!components!at!a!minimum!should!be!included!in!the!selection!framework:!

! Territory^specific!Call!for!Proposal!(CFP)!process!

! Business!plan!questionnaire!

! Pre^defined!financial!and!environmental!selection!criteria!

! Clear!exit!strategy!evaluation!tool!

Territory^specific!CFP!Process!

Before!conducting!a!CFP!under!the!proposed!financial!mechanism,!it!will!be!important!to!develop!an!understanding!of!the!

community’s!needs,!dominant!sectors!and!potential!supply!chains.!!With!this!understanding,!the!CFP!can!be!used!to!

influence!the!types!of!proposals!received!to!develop!an!“entrepreneurial!ecosystem”!that!optimizes!relationships!among!

various!stakeholders!in!a!given!region,!including!entrepreneurs,!suppliers,!government!organizations!and!existing!industries.!

Business!Plan!Questionnaire!

One!best!practice!identified!during!interviews!was!the!use!of!a!questionnaire!that!potential!entrepreneurs!would!fill!out!to!

apply!for!funding,!serving!two!purposes.!!!

1. Guiding!the!entrepreneur!to!focus!his!or!her!idea!into!a!profit^oriented!business!plan.!!

2. Offering!a!key!criterion!upon!which!the!investment!committee!can!consistently!filter!and!select!diverse!business!

proposals!

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Financial!and!Social/Environmental!Selection!Criteria!

Financial!Viability!

Assessment!of!the!size!of!the!market,!projected!revenue!and!profitability,!estimated!breakeven!point,!and!long^

term!potential.!!In!addition,!as!noted!by!several!interviewees,!the!success!of!a!business!is!heavily!contingent!on!the!

quality!of!the!team.!!While!team!evaluation!will!inherently!be!more!subjective,!it!is!also!important!to!assess!the!

capabilities!and!motivations!of!its!members.!

Social/Environmental!Impact!

A!criterion!will!be!included!in!the!Selection!Framework!that!ensures!that!funded!projects!coincide!with!a!

sustainability!or!biodiversity!conservation!agenda.!!Additionally,!an!environmental!advisor!with!a!seat!on!the!

investment!committee!will!act!as!a!technical!expert!in!this!capacity.!

Clear!Exit!Strategy!

As!noted!by!a!prominent!entrepreneur!and!impact!investor,!when!attempting!to!create!financially!sustainable!businesses,!it!

is!important!to!determine!potential!exit!strategies!when!initially!selecting!projects.!!The!term!“exit!strategy,”!as!used!in!this!

report,!occurs!at!the!end!of!the!investment!horizon!and!could!be!in!the!form!of!debt!repayment,!the!purchase!of!the!

business!by!an!investor,!or!sustained!profitability.!!Formulating!an!exit!strategy!increases!the!likelihood!that!the!investment!

committee!selects!appropriate!projects!that!align!with!the!anchor!agent!and!potential!Second!Stage!investor’s!

expectations.!

Advisory!Services!

A!key!element!of!the!proposed!financial!mechanism!is!the!introduction!of!advisory!services!for!selected!projects.!!Nearly!all!

sources!in!the!interview!process!emphasized!the!importance!of!advisory!services!and!mentoring!in!tackling!common!

barriers!for!growth!among!entrepreneurs,!such!as!limited!management!expertise!and!limited!access!to!networks.!!

Therefore,!the!addition!of!some!form!of!advisory!services!for!projects!in!each!stage!of!the!funding!model!will!be!crucial.!

Advisory!services!must!be!customized!for!each!unique!territory!and!may!be!very!different!depending!on!the!region,!the!

needs!of!the!community,!and!the!sectors!in!which!businesses!are!operating.!!However,!in!all!cases!they!would!support!the!

overarching!goal!of!preparing!businesses!to!be!profitable,!scalable!and!have!the!best!chance!of!meeting!the!criteria!of!

associated!Second!Stage!investors.!!Advisory!services!would!consist!of!two!basic!stages:!

Phase!1!Advisory!Services! !

Advisory!services!should!be!provided!for!the!initial!round!of!selected!projects!and!would!consist!of!basic!business!training,!

such!as!basic!business!structure,!accounting!and!financial!management,!and!administrative!guidance!around!registering!as!a!

business!and!employee!documentation.!!Other!services!may!include!project^specific!technical!training!such!as!best!practices!

around!natural!resource!management.!

Phase!2!Advisory!Services! !

Second!Stage!advisory!services!would!be!reserved!only!for!those!projects!selected!in!Phase!2,!and!would!focus!on!preparing!

the!most!viable!projects!for!scaling.!!This!stage!may!include!expert!guidance!and!mentoring!in!areas!such!as!strategy,!

operations,!sales!and!marketing,!as!well!as!legal!and!personnel!management!support.!

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Advisory!Service!Funding!

The!proposed!Financial!Mechanism!suggests!that!Phase!1!technical!training!and!assistance!from!third!party!services!be!

funded!by!the!initial!donation!from!Funbio!and!the!Anchor!agent.!!According!to!some!impact!investors!interviewed!in!Brazil,!

Seed!Stage!advisory!services!may!be!more!difficult!to!consistently!secure!and!source!in!each!territory,!especially!given!the!

range!of!potential!second^stage!investors!and!their!capacity!to!commit!sufficient!resources.!!For!example,!one!Brazilian!

impact!investing!firm!said!that!while!they!might!be!willing!to!dedicate!a!member!to!the!Investment!Committee,!they!would!

not!be!able!to!provide!more!than!monthly!meetings!and!light!additional!input.!As!a!result,!the!proposed!financial!

mechanism!allows!for!three!options!to!provide!these!services:!

1. A!second^stage!investor,!such!as!an!impact!investor,!who!would!use!their!own!resources!and!expertise!to!prepare!

businesses!to!meet!the!criteria!that!they!would!typically!use!to!select!and!invest!in!companies.!

2. A!private!partner!with!a!supply!chain!interest!^!whether!through!an!in^house!private!equity!or!VC!arm,!or!through!

committing!funds!for!external!services!^!that!would!guide!businesses!toward!optimal!operations!that!would!meet!

their!supply!chain!or!demand!needs.!

3. Donation!funding!from!Funbio!and!the!Anchor!Agent,!which!would!be!used!to!hire!organizations!who!are!experts!

in!early!stage!advising.!!These!organizations,!such!as!accelerators,!would!have!an!interest!in!selecting!projects!from!

the!Phase!1!pipeline!for!Growth!Stage!investments!in!Phase!2,!and!would!be!willing!to!provide!specialized!advising!

and!mentoring!in!exchange!for!the!right!to!invest!in!the!most!promising!companies.!

One!expert!interviewed!recommended!that!businesses!pay!a!nominal!fee!for!Second!Stage!advisory!services.!!According!to!

this!source,!if!the!companies!don’t!pay!something!for!these!services,!they!won’t!value!and!take!full!advantage!of!the!

offerings.!!One!successful!accelerator!that!was!interviewed!in!Brazil!uses!a!similar!model,!in!which!their!entrepreneurs!pay!a!

certain!percentage!of!their!profits!per!month!in!order!to!be!part!of!a!network!and!receive!advising!and!mentoring!services.!!

While!this!model!has!proven!effective!in!this!case,!it!will!be!difficult!to!know!its!effects!on!the!proposed!Financial!

Mechanism!in!new!territorial!projects!in!rural!regions!of!Brazil,!and!will!be!important!to!test!in!the!pilot!phase.!

Monitoring!and!Evaluation!

One!best!practice!extracted!during!Phase!2!research!was!the!use!of!formal!rating!tools.!!Representatives!from!the!SPV!must!

actively!monitor!investments!to!ensure!they!are!progressing!towards!readiness!for!Second!Stage!funding,!from!both!a!

financial!and!an!environmental!impact!standpoint.!!Investments!should!be!monitored!on!at!least!an!annual!basis,!and!both!

formal!and!proprietary!evaluation!tools!may!be!utilized.!!Documentation!and!measurement!will!be!crucial!to!monitoring!

performance!trends!and!will!better!prepare!projects!for!Second!Stage!investors,!simplifying!the!due!diligence!process.!

Using!IRIS,!for!example,!detailed!in!Chapter!2,!is!an!excellent!starting!point!for!establishing!ongoing!monitoring!practices.!!

However,!because!IRIS!is!a!broad!rating!tool!which!spans!multiple!geographic!regions!and!economic!sectors,!it!may!be!

necessary!to!modify!relevant!aspects!to!create!a!more!applicable!framework.!!One!industry!expert!recommended!using!a!

formal!template,!such!as!IRIS,!and!narrowing!the!data!fields!to!be!relevant!to!Funbio’s!territorial!projects.!

Additionally,!proprietary!rating!tools!may!be!developed!for!internal!use.!!One!concept!would!be!to!develop!a!set!of!metrics!

(6!to!10),!specific!to!the!Brazilian!context!that!measure!how!businesses!are!performing!according!to!Funbio’s!mission.!!One!

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example,!designed!to!measure!Social!Return!on!Investment,!is!used!by!Grassroots!Business!Fund,!and!is!highlighted!below6.!!

A!similar!model!could!be!developed!for!Environmental!Return!on!Investment,!a!more!applicable!metric!to!Funbio.!

Figure'5.2:'Sample'Rating'Metric'

!!

Implementing!a!monitoring!framework!and!establishing!rating!metrics!will!assist!in!the!transition!to!Second!Stage!investors,!

and!build!a!track!record!and!reputation!for!Funbio.!!Considering!one!of!the!goals!of!this!project!is!to!make!Funbio’s!projects!

more!sustainable!in!the!long^term,!instituting!a!strict!monitoring!and!evaluation!regime!is!a!necessary!next!step.!

Territorial!Project!Timeline!

A!final!important!aspect!of!the!Financial!Mechanism!that!must!be!defined!during!the!establishment!of!the!fund!is!a!

proposed!timeline!for!the!territorial!project.!!Establishing!a!timeline!ensures!that!all!relevant!stakeholder!are!aligned!in!

their!expectations!about!the!duration!of!a!project.!!This!timeline!will!depend!largely!on!the!characteristics!and!goals!of!the!

Anchor!Agent,!the!economic!maturity!and!business!skills!of!the!entrepreneurs,!and!the!nature!of!the!value!chain!or!demand!

in!the!region.!!While!these!factors!may!cause!the!timeline!to!vary!in!each!new!fund,!the!Berkeley^Haas!team!believes!the!

entire!process,!from!the!identification!of!a!territory!to!the!successful!exit!of!the!Second!Stage!Investor,!should!take!

approximately!10!years.!!An!overview!of!the!projected!timeline!for!each!phase!and!a!description!for!why!this!may!vary!

between!territories!is!provided!in!the!table!below:!

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Table'5.1:'Territorial'Project'Timeline'

Timeline'Phase' Anticipated'Duration' Description'Phase!0' 1^2!years' Funbio!staff!members!believe!the!identification!of!a!region,!selection!of!the!

appropriate!parties!and!establishment!of!the!fund!in!Phase!0!should!range!from!1^2!years;!however,!when!this!model!is!tested!for!the!first!time,!it!may!take!longer!to!secure!a!dependable!Second!Stage!Investor.'

Phase!1' 1.5^3+!years' Seed!Stage!funding!in!the!proposed!Financial!Mechanism!has!the!highest!level!of!uncertainty!with!regard!to!the!time!frame.!!This!stage!will!depend!heavily!on!the!entrepreneurs!in!the!region!and!the!types!of!businesses!they!are!proposing!to!launch.!!In!sophisticated!urban!regions,!this!stage!may!only!take!a!year!or!two!to!prepare!ventures!for!Growth!Stage,!for^profit!funding,!but!in!rural!regions!of!Brazil,!Phase!1!maybe!take!over!3!years!to!prepare!projects!to!meet!the!needs!of!a!Second!Stage!Investor.'

Phase!2' 5^7!years' Preliminary!research!conducted!in!Phase!2,!along!with!verification!through!interviews!in!Brazil,!indicated!that!the!majority!of!impact!investment!and!venture!capital!firms!plan!on!a!5^7!year!timeline!to!recoup!their!investments.'

Phase!3' 1^3!years' Assuming!most!Phase!2!investments!happen!around!the!same!time!period!and!require!5^7!years!to!repay!the!capital,!the!exits!should!happen!within!a!1^3!years;!however,!the!length!of!Phase!3!may!also!vary!substantially!depending!on!the!nature!of!the!businesses!and!the!characteristics!of!the!Second!Stage!Investor.!!'

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Chapter!6:!Optimal!Implementation!Conditions!&!Decision!Tree!

Introduction!

The!funding!model!described!in!Chapter!5!was!designed!to!address!the!specific!challenge!identified!by!the!Funbio!team.!!

The!goal!was!to!outline!a!financial!mechanism!that!could!be!used!to!more!effectively!invest!seed!stage!donations!in!a!way!

that!led!to!the!development!of!long^term,!financially!viable!projects.!!The!model!was!not!intended!to!address!all!scenarios!

in!the!biodiversity!conservation!arena!in!Brazil!and!will!not!be!applicable!in!all!regions.!!With!this!fact!in!mind,!it!is!

important!to!outline!the!key!optimal!conditions!and!decision!making!process!that!will!result!in!the!effective!use!of!this!

model.!

Optimal!Implementation!Conditions!

The!following!conditions!will!aid!in!the!efficient!and!successful!implementation!of!the!proposed!financial!mechanism:!

1. High!biodiversity!conservation!need!

2. Common!conservation!and!investment!agenda!

3. Clear!demand!

4. Adequate!economic!maturity!and!potential!of!entrepreneurs!

Description!of!Optimal!Implementation!Conditions!

1. High!biodiversity!conservation!need!

The!proposed!model!assumes!that!Funbio!is!conducting!due!diligence!and!strategically!selecting!territories!with!a!need!

for!biodiversity!conservation.!!If!a!territory!is!identified!through!another!channel!and!appears!to!be!an!attractive!place!

to!invest,!but!does!not!fulfill!a!conservation!and!sustainability!agenda,!the!project!would!be!outside!Funbio’s!mission!

and!core!competency!and!the!model!would!not!be!applicable.!

2. Common!conservation!and!investment!agenda!

The!model!allows!for!funding!from!a!variety!of!sources!and!can!accommodate!a!range!of!private!partners!that!act!as!

the!Anchor!Agents.!!It!will!be!crucial!to!maintain!a!focus!on!Funbio’s!core!mission,!ensuring!that!all!parties!have!a!

shared!objective!of!biodiversity!conservation.!!If!an!Anchor!Agent!is!solely!interested!in!developing!a!region!for!their!

benefit,!and!is!not!committed!to!doing!it!in!a!sustainable!way,!then!many!negative!issues!could!arise!in!the!

development!of!the!SPV.!!The!partner!would!likely!create!conflicts!on!the!Investment!Committee,!and!their!biased!

interests!would!make!it!difficult!to!design!the!Selection!Framework!that!would!satisfy!the!objectives!of!all!parties.!!A!

successful!entrepreneur!from!the!Amazon!region!agreed!that!this!model!will!work!best!“when!the!objectives!of!the!

business!fit!with!the!goals!of!conservation.”!

3. Clear!demand!

Critical!to!the!success!of!the!model!will!be!the!demand!from!an!Anchor!Agent!for!goods!or!services!supplied!by!

entrepreneurs!in!the!region.!!This!demand!would!likely!come!from!a!private!entity’s!supply!chain!needs,!but!the!model!

is!flexible!enough!to!accommodate!any!situation!that!involves!a!clear!demand!that!will!result!in!a!path!to!profitability!

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for!new!businesses!in!the!region.!!This!opinion!was!echoed!by!numerous!impact!investors!and!economists!in!Brazil!

during!Phase!3!research!who!believed!that!Brazil’s!growing!economy!would!offer!many!opportunities!for!Funbio!to!

pursue.!

4. Adequate!economic!maturity!and!potential!of!entrepreneurs!

Another!important!factor!when!assessing!the!viability!of!a!region!is!the!economic!maturity!and!business!skill^set!of!the!

entrepreneurs.!!Interviews!with!Brazilian!impact!investors!who!have!worked!in!rural!parts!of!the!country!revealed!that!

it!can!be!challenging!to!find!entrepreneurs!who!can!read!and!write!in!some!regions.!!This!reality!could!pose!a!challenge!

to!working!with!the!local!community!to!request!formal!proposals!and!answer!questionnaires!with!complex!information!

that!is!traditionally!found!in!business!plans.!!If!Funbio!determines!that!the!economy!is!not!mature!enough,!or!the!

citizens!of!the!territory!do!not!have!the!business!skills!necessary!to!launch!new!for^profit!ventures,!then!Funbio!should!

not!expect!to!attract!a!Second!Stage!Investor!and!implement!this!proposed!model.!!Instead,!Funbio!should!continue!to!

focus!on!their!core!competency!of!managing!funds!to!maximize!environmental!impact,!and!not!expect!the!territorial!

fund!to!produce!investment^grade!businesses.!

Decision!Tree!

The!decision!tree!below!guides!the!process!and!timeline!for!analyzing!the!implementation!conditions!above!and!provides!a!

guide!for!when!to!use!this!model,!as!well!as!what!should!be!done!if!these!conditions!are!not!met.!!It!is!important!to!

understand!that!even!if!one!or!more!optimal!conditions!are!not!met,!many!aspects!of!the!financial!mechanism!can!still!be!

used!to!maximize!the!impact!of!donation!funding!and!increase!the!probability!of!generating!financially!successful!

businesses.!!For!example,!if!an!Anchor!Agent!with!an!aligned!objective!is!not!present,!but!Funbio!believes!there!is!an!

alternative!clear!exit!strategy!or!path!to!profitability!for!projects!in!the!region,!they!could!still!attract!a!Second!Stage!

investor!and!proceed!with!the!model.!!Similarly,!if!the!level!of!economic!maturity!or!business!skills!of!the!entrepreneurs!in!

the!territory!are!not!sufficient!for!impact!investors,!the!core!components!of!the!model!could!still!be!used!as!long!as!Funbio!

is!able!to!find!a!for^profit!investor!with!a!longer!investment!horizon!or!a!strong!core!competency!of!implementing!advisory!

and!consulting!services.!!With!this!disclaimer!in!mind,!the!following!decision!tree!will!guide!Funbio!to!the!most!optimal!

situations!and!territories!in!which!this!proposal!can!be!implemented.!

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Figure'6.1:'Financial'Model'Decision'Tree!

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Donation'Funding'

Identify'Territory'with'high'bio5diversity'conservation'need'

Anchor'Agent’s'Funding'

Capacity'Scale'Potential'&'Adequate'Economic'Maturity?'

Value'Chain'Identified?'

No'

Yes'

No'

No'

Yes'

No'

Yes'

Yes' No'

Not'in'Funbio’s'core'competency.'Threat'to'

image/trust?'

Establish'SPV'

Networking.''Search'for'end'demand'value'chains.'

Search'for'end'demand'value'chains'successful?'

Further'research'necessary.'Is'for5profit'mechanism'possible?'

Set'up'components'of'Financial'Mechanism'

Expect'a'significant'investment'horizon'before'territory'is'ready'for'For5

Profit'model.'''

Initiate'For5Profit'model'funding'

Second'Stage'Investors'Identified?'

Utilize'applicable'elements'from'mechanism'to'prepare'

territory'for'future'implementation'of'For5

profit'model'''

Yes' No'

Initiate'Funding'in'status'quo'scenario.'Network'for'Second'Stage'Investors.'Leverage'past'success'

and'reputation.'

Common'Conservation'&'Investment'Agenda?'

Yes'

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Chapter!7!^!Recommendations!and!Conclusions!

Introduction!

As!described!in!Chapter!5,!the!proposed!model!hypothesis!evolved!throughout!Phase!3!of!this!research!project!and!was!

refined!to!incorporate!the!feedback!received!during!interviews!and!research!in!Brazil.!!Based!on!this!new!information!and!

the!Haas!team’s!analysis!of!Funbio’s!position!in!the!Brazilian!context,!the!team!proposes!the!following!recommendations:!

Recommendations!

1. Use!a!pilot!project!

The!most!overwhelming!feedback!from!interviews!conducted!with!impact!investors,!NGOs,!development!institutions,!

academics,!and!nonprofit!investors!was!that!Funbio!should!attempt!to!validate!this!model!with!a!pilot!phase.!!Testing!

this!concept!will!help!clarify!the!best!approach!for!many!components!of!the!financial!mechanism,!such!as!the!level!of!

involvement!and!financial!commitment!from!the!Second!Stage!investor,!the!inclusion!and!voting!rights!of!the!

community!council,!which!stakeholder!provides!and!pays!for!the!advisory!services,!and!whether!or!not!the!funded!

projects!should!be!required!to!pay!a!nominal!fee!to!use!these!services.!!In!addition!to!refining!certain!characteristics!of!

the!model,!the!use!of!a!pilot!project!will!also!help!generate!a!positive!reputation!for!the!proposed!approach!of!

combining!donation!funding!with!investments!from!a!for^profit!firm.!!If!successful,!many!impact!investors!and!private!

companies!working!in!Brazil!will!learn!about!the!model!and!be!attracted!to!participate!in!implementing!this!model!in!

the!future.!

Two!main!themes!were!revealed!throughout!the!interview!process!in!Phase!3!of!this!project!that!are!relevant!to!the!

implementation!of!the!Pilot!Project.!!First,!reputation!and!proof!of!concept!will!be!key!to!the!success!of!the!model.!!

One!representative!from!the!Brazilian!office!of!a!large!international!finance!institution!recommended!establishing!an!

identifiable!vehicle!to!manage!the!financial!mechanism.!!He!believed!that!this!approach!would!ensure!that!all!potential!

future!stakeholders!were!aware!of!who!was!responsible!for!the!results,!and!that!this!would!help!drive!more!investment!

in!the!future.!!The!second!theme!was!that!this!model!will!improve!over!time!with!more!experience.!!Important!lessons!

will!be!learned!when!the!components!of!the!model!are!tested!in!the!real!world,!and!some!factors!can!be!adjusted!to!

alleviate!problems.!

In!order!to!ensure!the!success!of!the!pilot!project,!the!Berkeley^Haas!team!recommends!the!following:!

a. Allocate!Funbio!funding!for!the!pilot!

Funbio!currently!has!a!major!advantage!that!will!facilitate!the!execution!of!a!pilot!project.!!Through!Probio!II!and!

the!associated!private!matching!funds,!Funbio!currently!has!$18!M!allocated!to!use!in!designated!territorial!

projects!around!Brazil.!!Funbio!also!has!several!private!and!nonprofit!partners!that!will!be!willing!to!provide!

matching!funds!for!Phase!1!investment.!!Funbio!should!attempt!to!leverage!the!investment!capital!that!is!ready!to!

be!distributed!to!attract!a!Second!Stage!investor!to!one!of!these!regions.!!however,!since!the!pilot!project!will!be!

the!first!time!this!model!will!be!tested,!the!Berkeley^Haas!team!anticipates!that!it!will!be!difficult!to!secure!a!firm!

commitment!from!a!Second!Stage!investor!who!could!provide!both!advisory!services!and!a!guarantee!to!provide!

money!to!investments!that!grow!during!Phase!1!of!the!project!and!meet!their!selection!criteria.!!Given!this!

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concern,!the!Berkeley^Haas!team!recommends!allocating!a!portion!of!Funbio’s!pre^committed!donation!support!

from!Probio!II!to!allocate!to!promising!businesses!that!qualify!for!Second!Stage!investment,!and!to!pay!for!third^

party!advisory!services.!!This!guarantee!of!funding!for!Phase!2!investments!will!ensure!that!projects!that!meet!the!

selection!criteria!are!able!to!secure!necessary!capital!to!achieve!financial!sustainability,!regardless!of!whether!

Funbio!is!able!to!attract!a!reliable!Second!Stage!investor.!

b. Choose!an!optimal!region!for!the!pilot!project!

The!impact!of!a!pilot!program!will!depend!on!Funbio’s!ability!to!identify!a!region!that!will!be!most!likely!to!result!in!

successful!projects.!!This!process!may!involve!mapping!and!identifying!priority!areas,!targeted!protected!areas,!and!

regions!with!productive!sectors!that!represent!the!greatest!economic!potential.!!Most!importantly,!choosing!a!

region!that!would!be!the!most!feasible!and!achievable!for!this!model!–!and!one!that!best!fits!the!decision!criteria!^!

will!result!in!a!positive!outcome,!and!great!latitude!to!fund!more!challenging!regions!going!forward.!!If!the!model!is!

proven!early,!it!will!help!establish!trust!among!donors,!anchor!agents,!and!Second!Stage!for^profit!investors!so!that!

it!can!be!replicated!in!more!territories!in!the!future.!!Additionally,!an!ideal!environment!for!the!model!will!allow!

room!for!error!so!that!if!one!of!the!components!of!the!model!doesn’t!work!exactly!as!anticipated,!the!chances!that!

it!results!in!a!failed!project!will!be!reduced.!

2. Development!of!Advising!and!Mentoring!Partnerships!

As!discussed!in!Chapter!5,!the!proposed!financial!mechanism!is!designed!to!allow!for!several!options!in!the!realm!of!

advisory!services,!including!resources!and!expertise!from!a!Second!Stage!investor,!a!private!partner!with!a!commitment!

to!developing!projects!within!its!value!chain,!or!Funbio^controlled!donation!funding!to!pay!for!third!party!services.!!

However,!given!the!emphasis!from!experts!in!the!field!of!entrepreneurship!on!the!importance!of!mentoring!for!early!

stage!ventures,!and!the!potential!variability!in!the!sources!and!content!of!advisory!resources,!the!Berkeley^Haas!team!

recommends!that!looking!ahead,!Funbio!explore!tapping!into!its!own!robust!network!as!a!resource!in!the!advising!and!

mentoring!process.!

Funbio!already!has!access!to!a!broad!set!of!consultants,!entrepreneurs,!business!leaders,!and!other!well^connected!and!

engaged!individuals!in!the!conservation!and!sustainability!sector.!!Going!forward,!Funbio!could!develop!a!formal!

network!of!pro!bono!mentors!and!consultants!who!would!be!selected!and!assigned!to!projects!based!on!specific!

expertise!and!interest!areas.!!Endeavor!has!proven!that!its!reputation!and!model!easily!attract!successful!business!

people!willing!to!volunteer!their!time!to!help!entrepreneurs!^!for!example,!in!Brazil!alone,!Endeavor!has!a!network!of!

400!mentors!in!various!sectors!whom!they!can!call!upon!for!advising!services!and!assign!to!specific!projects.!!While!this!

process!will!take!time!and!resources!(such!as!an!expanded!internal!Networks!team,!and!an!effective!CRM!tool!like!

Salesforce),!developing!a!mentoring!network!will!not!only!help!ensure!that!Funbio!projects!will!achieve!growth!and!

sustainability,!but!will!also!position!Funbio!as!a!leader!in!the!Brazilian!social!entrepreneurship!space.!!

3. Proactively!seek!out!anchor!agents!with!supply!chain!needs!

As!discussed!in!the!Anchor!Agent!section!of!the!model!in!Chapter!5,!one!overwhelmingly!popular!suggestion!for!Funbio!

was!to!utilize!a!strong!anchor!agent!with!a!supply!chain!demand.!!Individuals!interviewed!in!Phase!3!believed!that!there!

is!a!growing!number!of!private!entities!with!supply!chain!needs!in!Brazil,!and!they!are!not!well^positioned!to!improve!

the!business!environment!in!the!regions!in!which!they!operate.!!The!interviewees!believed!that!Funbio!could!provide!a!

great!deal!of!value!to!these!large!private!corporations!and,!in!exchange,!the!anchor!agents!could!provide!the!capital!

necessary!to!fund!Phase!1!and!perhaps!Phase!2!investments!in!new!business!ventures!in!their!region.!

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The!Berkeley^Haas!team!understands!that!Funbio!currently!receives!a!large!number!of!grants,!donations,!and!funding!

from!Obligation!funds!that!must!be!managed!and!allocated!with!limited!staff.!!Therefore,!it!is!not!realistic!to!implement!

this!recommendation!in!the!short^term.!!However,!based!on!Funbio’s!desire!to!fund!financially!sustainable!ventures,!

the!extremely!high!potential!level!of!biodiversity!conservation!and!sustainability,!and!the!need!for!Brazil!to!sustainably!

manage!the!growth!of!industries!that!pose!threats!to!the!environment!throughout!the!country,!the!Berkeley^Haas!

team!strongly!recommends!that!Funbio!take!a!proactive!approach!to!seeking!out!supply!chain!anchor!agents.!

One!strategy!to!begin!this!process!would!be!to!identify!the!largest!companies!operating!in!the!rich!biodiversity!regions!

in!Brazil.!!Funbio!can!identify!the!corporations!that!have!large!environmental!impacts!and!that!have!a!need!to!

sustainably!source!products!and!services!for!their!business.!!Once!identified,!Funbio!could!approach!these!companies!

and!explain!how!the!proposed!model!would!assist!them!in!reducing!their!environmental!impact,!while!simultaneously!

increasing!their!revenues!and!the!long^term!viability!of!their!suppliers.!!Additionally,!these!firms!would!benefit!from!

being!viewed!by!the!communities!in!which!they!operate!as!good!corporate!citizens!that!stimulate!sustainable!

economic!development.!!While!this!strategy!is!more!appropriate!for!Funbio!to!pursue!after!a!pilot!project!has!been!

tested!and!the!organization!has!the!allocated!capacity!to!dedicate!the!necessary!resources,!Funbio!can!begin!laying!the!

groundwork!for!this!model!by!researching!private!companies!in!Brazil!and!beginning!the!networking!process.!!Many!

professionals!involved!in!the!environmental!arena!in!Brazil!agree!that!this!strategy!has!the!potential!to!have!a!

substantial!impact!on!the!sustainable!development!of!the!country,!and!Funbio!is!well!positioned!to!drive!the!effort.!

4. Opportunities!for!further!research!and!networking!

Throughout!the!research!process,!the!Berkeley^Haas!team!and!Funbio!staff!identified!and!connected!with!many!

relevant!sources,!potential!partners!and!stakeholders.!!However,!the!work!done!in^country!represents!only!the!first!

stage!of!the!process!of!building!expertise!and!interest!around!a!new!nonprofit!/!for^profit!hybrid!model!for!Funbio,!and!

yielded!a!number!of!other!opportunities!for!further!networking!and!knowledge^sharing.!!Appendix!A!summarizes!

several!key!companies!and!contacts!that!the!Berkeley^Haas!team!identified!while!in!Brazil!and!with!whom!future!

communication!would!be!valuable!to!Funbio.!

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An Innovative Financial Mechanism · Haas!School!of!Business,!UC!Berkeley!!!! !...

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