Platform to support Peace Positive Investments
THE QUESTION
Can a Digital Investment Platform be used to incentivize global investment in small businesses across fragile contexts while also improving peace building?
LOCATION: n/a
SECTOR: Finance
TECH: FinTech
TIMELINE: September 2022 - March 2023
PIONEER: Cedrik Schurich
PARTNER: Peace Dividend Initiative
IDEA STAGE: Discovery
The Challenge
War and conflict trap many countries in a violent downward spiral of economic, social and political factors that can take many decades to escape. A productive economy, supported by local and international investors, is vital to stop the resurgence of violence and secure lasting peace. However, stimulating economic development in countries emerging from conflict can be challenging due to fragile contexts, weak local institutions and illicit networks. Reputable investors and donors often move in cautiously, finding it difficult to allocate capital effectively in conflict regions. As a result, the peace dividends stall and a return to violence remains a high risk.
The Idea
The proposed solution is the creation of a unique “Peace Dividend Initiative Digital Platform” that incorporates the full investment life cycle, from preliminary deal flow/due diligence, to onboarding, to M&E, and finally reporting in addition to supporting entrepreneurs and deal flows from low bandwidth contexts. The platform aims to utilise geological exploration capture and management data software, which was developed by the global mining industry, to capture, store and interpret peace data in real-time. The Peace Venture Fund (PVF) team has developed a data framework, titled +P, which includes the quantitative and qualitative data that needs to be collected and interpreted to ensure investments are peace positive. This pilot will map the +P framework onto existing geological data software tools and will trial this in the field. By adapting this existing technology, it will be easier for investors and donors to transparently track financial and peace returns on investments, for mediators to adapt their strategies, and entrepreneurs to ensure peace impact. If successful, the +P tool will allow marginalised entrepreneurs to prove that they are having a positive impact and are therefore much more likely to receive investor support.
Four stakeholders are involved: companies with investment potential and peace impact who will be able to upload their business plans and proposals via the platform for review, investors who can review this information can invest and then monitor all M&E data at scale for the portfolios, peace mediators who will use the platform to assess deals, engage with portfolio companies and participate in peace impact M&E and donors who will have specialized access to the platform in order to engage with portfolio companies, make direct investments/donations in these companies, and stay up to date on their latest developments.
What was done during the Discovery Fund phase?
In the Discovery Fund phase the PDI team designed and delivered surveys for both entrepreneurs and investors. They collected information from 6 entrepreneurs in Colombia, Ukraine and Liberia and consulted with 4 investors to gain further insights on the need and the features required by the investment platform to enable the development of a scope of work. The team also developed due diligence mechanisms and implemented them on the survey results received from entrepreneurs. With this information, they mapped their investment model and defined user experiences, front and back end functionalities to complete the scope of work, and surveyed 8 developers to obtain benchmarks and proposals for the development of the platform. For the solution developers they consulted three main profiles: impact investment platforms, end-to-end investment platforms and individual developers.
What have we learned?
Through the Discovery Fund, PDI gained a number of key learnings through the surveys conducted with entrepreneurs, investors, and service providers:
Based on the 6 entrepreneurs that were surveyed (2 from Ukraine, 1 from Colombia, and 1 from Liberia), they found that companies that were early stage required much more guidance to answer due diligence questions on financial and peace impact included in the survey. This suggests that the proposed digital platform could have a capacity building effect on PDI entrepreneurs, encouraging them to be more data-driven and increasing their financial and governance literacy. It also indicates that separate M&E standards should be developed for incubatees and Investees on the digital platform, as the latter would have a preponderance of data over the former.
Based on the 4 investors that were surveyed (in aggregate, the investors were active in UK, Switzerland, Netherlands, Singapore, and Ethiopia), the majority of investors expressed strong interest in a platform that would give them access to peace positive investments. The majority also expressed interest in the value-add of making direct investments into the platform and its design.
Results of the investor survey also included investor expectations on the data they would want to see on the platform which proved crucial in refining the scope of work. They expected to see financial, operational, impact, day-to-day business activities, and founder-related information on the digital platform.
Learning from both surveys highlighted the need for further work on the +P framework- the investment mechanism developed by PDI’s funds: both in terms of its conceptualization as well as its mapping to current ESG impact metrics already in use by investors.
Through the consultations with service providers the PDI team found that most solutions that are subscription-based SaaS are designed for traditional VC and PE investments that do not offer impact measurement features. However, a few platforms that are salesforce-based and operate in both traditional and impact investing ecosystems show high customization potential and are being considered as strong candidates for the development of the MVP.
What happened next?
The PDI platform is currently being supported with core funding outside of FCDO for the next four years. Work is ongoing to attract further funding.
The Peace Venture Fund is anticipated to cover 6-8 countries, most likely probably Colombia, Moldova, Mozambique, South Sudan, Liberia, Yemen, CAR. PDI aims to raise $100m in 2023/24 to invest in these countries from private investors with some de-risking capital from DFIs. Ukraine is also considered a country with which to engage private capital in the future.