Running in Circles
Setting the foundations for investors to back a UNEP Youth Champion of the Earth from MENA
Alfanar (meaning “beacon” in Arabic) is the first venture philanthropy organisation that launched in the Arab world in 2004 to provide social enterprises with funding, management support, training and access to networks.
Alfanar has accompanied the growth of FabricAID with patient funding, engaged management support and access to markets from 2018 through their 2021 funding round of $1.6m USD to the present. FabricAID is working to scale-up a socially and environmentally conscious value chain for the apparel industry by optimizing the collection, sorting, upcycling and resale of second-hand clothes through a series of socially conscious and sustainable brands targeting diverse socio-economic groups.
Why was this investment catalytic?
The management support and catalytic capital that Alfanar has provided FabricAID for three years allowed them to scale their business and impact in Lebanon, launch in Jordan, register in the UAE, build collaborations with European retailers, win multiple awards and multiply their sales by a factor of five, allowing them to approach investors with a strong business plan and confidence on their financial projections. Catalytic capital accelerated FabricAID's investment-readiness, comforted investors and continues to do so.
Organisation type: Venture Philanthropy
Financial instruments used:
- Risk capital (grants, 0-interest repayable grant, equity investment) from 2018 to 2021: $381,000
- Training and management support: $46,000
Final beneficiaries targeted: Low-income communities
- Environmental protection (forestry, land, waste, air, biodiversity & ecosystems, oceans & coastal zones)
- Affordable clothing/fashion
Country focus: Lebanon, Jordan
- Goal 8: Decent Work and Economic Growth
- Goal 10: Reduced Inequality
- Goal 12: Responsible Consumption and Production
Funding Partners (2018-2021): Private donors, The Asfari Foundation, 961 Collective, Temasek, Global Affairs Canada, the Humanitarian Coalition and Impact Lebanon
Challenge and solution
Clothing consumption is 400% higher today than it was just two decades ago. More than half of discarded clothing ends up in landfills. In parallel, over 77 million people across the Arab world cannot afford to buy new clothing. As the largest second-hand clothing collector in the MENA region, FabricAID is working to scale-up a socially and environmentally conscious value chain for the apparel industry by optimising the collection, sorting, upcycling, and resale of second-hand clothes. It does this through a series of socially conscious and sustainable brands targeting diverse socio-economic groups, including the vulnerable. Their circular model gives a new purpose to unwanted products and limits the socio-economic and environmental damage of fashion, predominantly by offering decent clothing at extremely affordable prices to marginalised communities through a dignified shopping experience. FabricAID also runs a vintage clothing brand, a retail brand for the middle class where clients can buy and/or sell second-hand clothes and three upcycling brands, including corporate merchandising.
When Alfanar started supporting FabricAID in 2018, they had 9 employees and 1 store. After three years of Alfanar’s grant funding and management support, they have 120 employees and 16 stores between Lebanon and Jordan.
When FabricAID was in desperate need of funding, they got a proposal from a VC firm whose partners told them that they will have to increase the retail prices of their second-hand stores to break even. Despite FabricAID's poor cashflow situation, the founder turned down the offer because he preferred to reach break-even by launching new brands for the middle class and corporates without having to reduce their social impact on the most vulnerable. This demonstrated he was a real social entrepreneur and that catalytic capital was the only way to help FabricAID become investment-ready while protecting and scaling their social impact.
Alfanar’s catalytic role
Alfanar has provided FabricAID $500,000 in risk capital, including grants, 0-interest repayable grants and equity investment. Alfanar has supplemented direct funding with $46,000 of training management support. They helped them with their business plan, their organisational structure, their financial projections and valuation, and their access to networks and new markets. They have also taken a seat on their Board of Directors to continue providing strategic oversight and support as the social enterprise grows. Alfanar’s team in Jordan helped them launch their office there. Their lawyers provided them pro-bono support to register in the UAE. Their networks in Europe provided them with unsold clothes. They took them on a trip to Paris and to Egypt and introduced them to peers, potential business partners and clients. They provided advance grant disbursements when FabricAID needed to capitalise their bank account to register in Jordan. Alfanar helped them relocate to a new location when their vintage shop was completely destroyed by the August 4th explosion in Beirut and they offered psychosocial support to their team.
This level of funding and support was crucial to help them grow their sales sufficiently to become attractive enough to investors who are reluctant to invest in social enterprises in the MENA region.
As the founder, Omar Itani, said in this video,"As a social enterprise, you feel empowered when you have such a strong and capable backbone."
FabricAID was privileged to get the support of a few small angel investors as well as other donors who complimented Alfanar's venture philanthropy support. They also won around 20 awards, most notably: UNEP Young Champion of the Earth Award (the highest award given to individuals under the age of 30 by UNEP); Denis Pietton award (an award given by the French Institute and the French Ministry of Foreign Affairs for outstanding endeavours in helping fellow humans); Global Social Venture competition in 2018 (they ranked first amongst 550 startups from 60 countries); and the Takreem young entrepreneur award in 2021.
In addition to driving the growth of their social and environmental impact (see below), Alfanar also focused on building up FabricAID's investment-readiness. Given the counter-cyclical business model of the social enterprise, it has the ability to sustainably grow its business while supporting a growing number of poor communities to withstand the economic crises hitting many countries in the Arab region. Thus, it had the ability to demonstrate to impact investors that the social enterprise sector in the MENA region can offer meaningful investment opportunities.
In Alfanar’s opinion, raising awareness about the potential of impact investing in the MENA region is crucial considering that only 1% from the $1.164 trillion global impact investing market is in the MENA region (according to the GIIN 2022 Annual Impact Investor Survey) despite it being the only region in the world where poverty rates are increasing since 2014.
Impact: created 120 jobs for youth (including refugees), supported more than 152.000 vulnerable individuals in accessing affordable clothing, diverted 332.000 kg of textile from landfills, reduced carbon emissions by 1.200 tons, and reduced water consumption by around 2 billion litres.
Alfanar’s capital allowed them to grow their business, reaching a point where their sales were multiplied by a factor of five which helped them catalyse investment capital and raise $1.6m USD in funding.
There was also a wider benefit in that they are the first social enterprise of the Arab region to have raised this much investor funding and, for Alfanar, it was their first equity investment which now serves as a proof-of-concept for the launch of their upcoming regional impact investment fund.
Insights and learnings
Alfanar's flexibility in terms of disbursements and reporting combined with their engaged management support made all the difference as FabricAID was "biting off more than it could chew" and often found itself running out of cash.
Without Alfanar's catalytic capital, FabricAID would have had to either grow at a much slower pace, creating less jobs and not affording shipments of stock from Europe or had to accept the conditions of VCs who wanted them to increase their retail prices in second-hand stores to be profitable more quickly at the expense of being affordable to vulnerable communities.
FabricAID's potential to grow their brands in Jordan, Lebanon, soon in Egypt and eventually across the MENA region would represent a major impact contribution given that poverty rates are not bound to decrease anytime soon, leading to an increase in need among low-income clients for both their second hand and barter shops. Additionally, on the supply side, connecting FabricAID to major retail players who can, in turn, donate their unused stock will not only support the needs of low-income communities, but enable large retailers to reduce their carbon footprint. Their success will hopefully lead others to replicate their model, not only in fashion but also in toys, furniture and electronics.
Three pieces of advice Alfanar can share based on their experience:
- Catalytic capital is necessary but not sufficient for growth. The glue to the venture philanthropy process is high-engagement management support, impact management, mentorship and access to markets to both strengthen the ability of the social enterprise to sustainably scale its impact on poor communities and help the organisation use it in the most optimal way to grow business and improve its operations.
- Providing patient catalytic capital does not mean that targets are not ambitious or expectations from entrepreneurs are not high. Supporting social enterprises to become investment-ready requires that social investors hold social entrepreneurs accountable to impact and revenue targets, prioritise data and evidence-based decision-making, support with iteration and trouble-shooting, monitor progress and demand reforecasts and clear thinking on new strategies proposed. By providing such rigorous support, the social entrepreneur becomes stronger and more adept at seeking out and responding to impact investor requests in the future.
- It is important to provide growing social enterprises with the suitable size, duration and type of financial instrument needed to encourage impact growth, strategic discipline and long-term independence. Providing overly small, short-term, restricted or conditional grants can deter growth or distract social entrepreneurs from growing their offering to target communities. Similarly, it is important to offer debt or equity when the entrepreneur is truly ready to take on this next step. By accompanying entrepreneurs through a patient, long-term support journey, it becomes increasingly possible to understand their data and performance and to tailor financial instruments effectively.
Alfanar's impact report, which presents our investment in FabricAID on page 13:
Press release on FabricAID's latest funding round
Alfanar’s Social Enterprise Support Fund that was implemented in collaboration with Oxfam Canada & Oxfam-Quebec and with the support of Global Affairs Canada, the Humanitarian Coalition and Impact Lebanon: