Case Study

Running in Circles

Setting the foundations for investors to back the first UN Youth Champion of the Earth from MENA

Michelle Mouracade |
Fabricaid
© FabricAID

Mission 

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 accompanied the growth of FabricAID with grant funding, engaged management support and access to markets from 2018 up to their 2021 funding round of $1.6m USD. 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 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:

  • Grants from 2018 to 2021: $231,000 
  • Repayable grant in January 2021: $50,000 
  • Training and management support: $46,000
  • Equity investment in December 2021 = $100,000

Final beneficiaries targeted: People in poverty 

Sectors targeted:

  • Employment 
  • Environmental protection (forestry, land, waste, air, biodiversity & ecosystems, oceans & coastal zones)
  • Manufacturing/production 
  • Affordable clothing/fashion 

Country focus: Lebanon, Jordan 

SGDs targeted:

  • Goal 8: Decent Work and Economic Growth 
  • Goal 10: Reduced Inequality 
  • Goal 12: Responsible Consumption and Production

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 our grant funding and management support, they have 120 employees and 15 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 provided FabricAID with $231 000 in grants, $50 000 in repayable grants and the equivalent of $46 000 of training and management support. We helped them with their business plan, their organisational structure, their financial projections and valuation, and their access to networks and new markets. Our team in Jordan helped them launch their office there. Our lawyers provided them pro- bono support to register in the UAE. Our networks in Europe provided them with unsold clothes. We took them on a trip to Paris and to Egypt and introduced them to peers, potential business partners and clients. We provided advance grant disbursements when they needed to capitalise their bank account to register in Jordan. We helped them relocate to a new location when their vintage shop was completely destroyed by the August 4th explosion in Beirut and we 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 extremely 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: UN Environment Champion of the Earth Award (the highest award given to individuals under the age of 30 by the UN environment); Denis Pietton award (an award given by the french institute and the french ministry of foreign affairs for outstanding endeavors in helping fellow humans); Global Social Venture competition in 2018 (they ranked first amongst 550 startups from 60 countries).             

Alfanar’s impact 

In addition to the social and environmental impact that we were aiming to support FabricAID with (see below), supporting the investment-readiness of a social enterprise that has a business model which is counter-cyclical to the economic and geopolitical crises of the MENA region meant that we could demonstrate to impact investors that the social enterprise sector can offer interesting investment opportunities. Raising awareness on the potential of impact investing in the MENA region is crucial considering that only 2% from the $715b global impact investing market is in the MENA region (according to the GIIN 2020 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.

Our 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 our first equity investment which now serves as a proof-of-concept for the launch of our upcoming regional impact investment fund. 

Insights and learnings 

Alfanar's flexibility in terms of disbursements and reporting combined with our engaged management support made all the difference as FabricAID was "chewing more than they could swallow" and often found themselves running out of cash. 

Without our catalytic capital, FabricAID would've 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 for vulnerable communities. 

FabricAID's potential to grow their brands in Jordan, Lebanon and soon in Egypt (and across the MENA region) is huge as poverty rates are not bound to decrease anytime soon, leading to an increase in clients for both their second hand and barter shops. While on the supply side, big retail players like H&M and Lacoste are reaching out to FabricAID to give their unused stock and reduce their carbon footprint – a trend that will only increase in the coming years. Their success will lead others to replicate their model, not only in fashion but also toy, furniture and electronics. Their success will also lead to a systemic impact in encouraging impact investors to invest in SEs in MENA. 

Three pieces of advice we can share based on our experience:

  1. Catalytic capital is not enough and should be accompanied with management support, mentorship and access to markets in order to ensure that the organisation is not only getting funding but also the advice they need to use the funds in the most optimal way, to grow their business and to improve their operations and organisation in order to be strong enough to catalyse investment funding.
  2. It's not because we are providing patient catalytic capital that we shouldn't set ambitious targets and have high expectations from entrepreneurs. In fact, we should consider that we are training them to become investment-ready and we should act exactly like any other investor would in terms of setting high return expectations, with the added benefit that we also provide them with management support in helping them reach their targets.
  3. Don't provide entrepreneurs with grants that are too small to make a difference with their financials just to have a success story in your portfolio; it's unfair for others who need it more. 

Further resources                     

Alfanar's impact report, which presents our investment in FabricAID on page 13:

Press release on FabricAID's latest funding round

Alfanar's SES Fund Updates: FabricAID:

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