January 8, 2025

Unlocking Potential: How Social Enterprises in South and Southeast Asia are Tackling Water-Energy-Food Challenges Amid Population Growth and Climate Change

Introduction

The World Bank reports that South and Southeast Asia together account for approximately 33% of the global population, positioning them amongst the most densely populated regions worldwide. As population growth accelerates and climate change exacerbates resource scarcity, the significance of social enterprises in the water-energy-food nexus becomes increasingly critical. These enterprises offer innovative solutions that deliver not only economic returns but also substantial social and environmental benefits. 

However, the regions face distinct challenges in scaling these businesses, such as a dynamic entrepreneurial ecosystem, market fragmentation, and the necessity for sustainable business models, all of which complicate efforts to drive sustainable growth.

The Water and Energy for Food South and Southeast Asia Regional Innovation Hub (WE4F S/SEA RIH) Brokering Unit has worked to address these challenges since 2020. By supporting over 20 social enterprises with investment facilitation services, the Brokering Unit has helped innovators raise more than $140 million in risk capital. This blog highlights key lessons from these experiences, with practical recommendations and real-world examples to guide social enterprises in attracting investments.

Scalability: a Critical Factor for Investors

Investors prioritize scalability as it ensures rapid growth and higher returns. However, social enterprises often face:

  • High costs of scaling capital-intensive models like mini-grid solar and solar pumps.
  • Logistical and operational challenges, especially in serving high-risk beneficiaries like smallholder farmers.
  • Regulatory barriers and fragmented markets complicate expansion.

For instance, aQysta, a WE4F-supported enterprise, tackled these challenges by combining a $50,000 WE4F capital match grant with $600,000 in additional funding from commercial investors. These funds allowed aQysta to expand its Grown Farm Incubator model across 50 clusters, benefiting over 35,000 farmers.

Recommendations for scalability:

  1. Align with impact investors
    • Target investors who prioritize sustainability, resilience, and innovation in agriculture and food systems.
    • Build partnerships with Development Finance Institutions (DFIs) to align with global initiatives
  2. Educate investors on unit economics
    • Provide clear metrics such as costs, margins, and profitability per unit.
    • For example, Husk Power Systems utilized in-depth capital structure analysis, including financial ratios and scenario planning, to demonstrate scalability and enhance its investment appeal.
  3. Maintain strong investor relations
    • Regular updates on progress and challenges keep investors engaged.
    • Establish robust governance structures and impact measurement frameworks to ensure transparency.

Navigating Diverse Deals and Transactions

Investor preferences vary based on the development stage of the enterprise:

  • Seed and early-stage deals: Attract angel investors and venture capitalists seeking high-growth potential.
  • Growth and expansion stage deals: Require larger institutional investments, such as equity, debt, or blended finance. 

ATEC, for example, raised $1.3M in convertible debt with support from the WE4F Brokering Unit. This involved pre-launch preparation like creating financial models and refining pitch materials, as well as post-launch activities like investor engagement and deal closures.

Recommendations for Navigating Deals

  1. Target the right investors
    • Align funding proposals with the strategic goals of development finance institutions (DFIs), venture capital firms, and impact investors.
    • DFIs prioritize long-term development impact, while venture capital firms focus on scalability, and impact investors seek a balance of financial and social returns.
  2. Communicate impacts clearly
    • Showcase dual impacts such as energy access and reduced carbon footprints.
    • Use case studies and testimonials to build compelling narratives.
    • Example: Enterprises operating in mini-grid solar can attract climate-conscious investors by demonstrating their social and environmental benefits.

Overcoming Market Fragmentation

Regulatory environments in S/SEA vary widely. For instance:

  • India: A mature carbon credit market supported by compliance mechanisms.
  • Cambodia: A nascent carbon credit market with limited international integration.

This fragmented landscape limits scalability and deters investment. Social enterprises like Promethean Power Systems addressed such challenges by obtaining international certifications to enhance credibility and attract investors.

Recommendations for Overcoming Fragmentation:

  1. Leverage local knowledge and adaptability
    • Develop a deep understanding of local markets and adapt business models accordingly.
    • Collaborate with local stakeholders, including regulators and suppliers, to navigate challenges effectively.  
  2. Forge strategic partnerships
    • Collaborate with accelerators like Acumen to de-risk ventures and access mentorship, funding, and market connections. 
  3. Comprehensive Financial Planning
    • For example, the WE4F Brokering Unit helped Husk Power Systems prepare for investment by conducting detailed capital structure analysis and scenario planning.

General Checklist for Entrepreneurs to Meet Investor Expectations

Business model and financials 
  • Revenue model: Show a clear revenue strategy (e.g., B2B, subscription, direct-to-consumer). 
  • Break down unit economics: Present costs, margins, and profitability per unit sold, per customer acquired, etc. 
  • Prepare financial projections: Create realistic 3–5 year projections, including revenue growth, expenses, and profitability targets. 
  • Plan for Scalability: Demonstrate how your model will scale, especially as it pertains to both revenue and impact. 
Highlight a strong, aligned team. 
  • Showcase experience and skills: Highlight team members’ relevant expertise and experience in the sector and mission. 
  • Demonstrate values alignment: Emphasize how your team shares a commitment to the impact goals. 
  • Highlight advisors and partnerships: List any advisors or strategic partnerships that strengthen your team’s ability to achieve both business and impact goals. 
Identify potential risks and mitigation strategies. 
  • List key risks: Identify primary risks, including market, regulatory, operational, or social risks. 
  • Prepare mitigation plans: Describe your approach to reducing or managing these risks effectively. 
  • Highlight sector-specific challenges: If applicable, explain how you’ll address challenges unique to your sector (e.g., partnering with local communities, and access in remote areas). 
Detail funding needs and usage 
  • Specify funding amount and use of proceeds: Clearly state how much funding you need and the uses of funds (e.g., product development, scaling, impact measurement). 
  • Outline milestones and timeline: Share specific milestones you aim to achieve with the investment, including growth and impact benchmarks. 
  • Plan for future rounds: Briefly describe any anticipated future funding needs, making it clear how each round aligns with impact and growth goals. 

Knowledge Resources on Climate and Impact Investing in the Water-Energy-Food Sectors in South and Southeast Asia

Social enterprises can benefit from publicly available knowledge products to enhance their investment readiness:

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