The investee who changed me: ‘We took a punt on Alterna – then they shaped our strategy’
Meeting a social investor can be game-changing for an entrepreneur – but sometimes the lightbulb moment is even more dazzling for the one controlling the cash. Nicholas Colloff, executive director at Argidius, a Switzerland-based foundation that supports SME growth in Central America and East Africa, recalls his own foray into entrepreneurship in 1990s North Macedonia, talking strategy in awful hotel rooms, and the conversations with Alterna’s founder that have shaped his own organisation's direction.
About six years ago, we were in the process of developing our own strategy at Argidius. We had been working in Central America for a number of years and had narrowed this down to supporting organisations that help small and growing businesses to develop.
We needed a number of organisations in our portfolio against which we could measure our impact – so that we could begin to tease out whether any of this business capacity-building stuff actually worked. Alterna was a small organisation of 11 people, in Xela, which is Guatemala’s second largest city and which has a very strong indigenous population. It saw itself as a ‘cultivator’ for businesses with social and environmental outcomes.
Daniel Buchbinder, who is originally Mexican and had stepped out of a corporate career, founded Alterna on the back of having founded two social enterprises in Guatemala. So our initial connection gave me the sense of somebody ‘walking their talk’ by actually being an entrepreneur.
Here is somebody walking their talk by actually being an entrepreneur.
Taking a punt
It made me think about my own story. In the 1990s, post-Soviet collapse, I was working for an organisation called Opportunity International, a microfinance network. I'd helped start Opportunity in the UK and asked to do this ‘in the field’. The next opportunity that came up was in what was known as the former Yugoslav Republic of Macedonia (now North Macedonia). I had spent four years helping fund financial institutions, but I’d never set one up. And so I found myself in a foreign country with $3m and no idea what I was doing. Daniel’s story instinctively felt just like mine 20 years ago, figuring it out.
So, we took a punt on them. We were Alterna’s first multi-year funder and made our first grant without having met them in person. They had a strong sense of what was different about their own intervention, as distinct from more traditional accelerators – they wanted to serve people who might not traditionally turn up in other programmes.
Daniel and I had this conversation regularly: the pathways to helping enterprises grow and develop can be much more diverse than simply this traditional accelerator model. It's a journey, from ideation right the way through scale, which has different iterations at different times. If you're going to be the companion on the journey, you need to be able to tailor your response to that particular situation. This is why Alterna wanted to call themselves a business ‘cultivator’ rather than an accelerator.
I found myself in a foreign country with $3m and no idea what I was doing. Daniel’s story felt just like mine.
Deciphering the social enterprise ‘blob’
Often people think about SMEs or social enterprises as a kind of ‘blob’. Alterna recognised that, actually, there are three principal buckets: people who start at micro level and formalise, driven by entrepreneurship rather than necessity; people who are building a dynamic, family-owned business; and people who have started a venture seeking faster growth and development. They helped us think through that discrimination and ultimately develop a segmentation of this market space.
That segmentation has taken on a life of its own, because it then got tested and used in other parts of the world, and incorporated into quite an influential report from the Collaborative for Frontier Finance.
About three years later, we gave Alterna a second grant. It coincided with their investment from the Inter-American Development Bank. This boosted their credibility because IDB is probably the most significant multilateral funder in Latin America, and actually has a grasp and understanding of social enterprise, which is quite rare.
At the same time, we had helped them to make some critical choices. I went to Guatemala and sat in a truly horrible hotel room for two and a half days – no windows, over-aggressive air conditioning – solely to talk to them about their strategy. I think organisations often develop best when they're really clear about what they don't do, as well as what they do – we were building a clear narrative together and also asking critical questions like: what is your product offering? How, and from where, are you going to effectively fundraise? What are you going to stop doing? I think that helped them set off in the direction they've taken.
The relationship gave us a confidence to not simply go with the large, established providers of capacity-building.
Alterna is now running programmes and supporting social enterprises in six countries in Central America. They’re coordinating the FLII, the principal impact investing conference for Latin America. They've been helping develop the ecosystem for support for social enterprise and for impact investing. And we’ve now made them one of our strategic partners – so our investment has gone from [an initial investment of] €180,000 to €3m over the next four years. So it's been quite rapid and they've been able to carry that as a team.
The relationship gave us a great deal of confidence to not simply go with the few, large, established providers of capacity-building. It definitely helped us shape who we were going to work with over the next years, and helped us more confidently take risks with younger startup teams.
Article originally published by Pioneers Post (link)