06 Aug NESsT Enterprise Fund
Interview with Loic Comolli, Co-CEO for the NESsT Fund
At the Swift Foundation, Loic Comolli sought our support to launch their first NESsT Fund to complement their grant-based acceleration work with a loan fund for enterprises. NESsT impressed me as an enterprise program that focused on creating dignified jobs and work for those with few such opportunities such as the disabled, returning citizens, and Indigenous women. Their approach to supporting businesses with local peer mentorship, and fostering mission-based business models caught the foundation’s attention. They’ve grown slowly and consistently over many years, learning from their partners. It’s exciting to see that their pivot to adding a fund to their programs has been successful after four years of work.
Jen: How was the NESsT Fund created?
Loic: We run an Incubator for social enterprises and experienced first-hand the difficulty that the 200+ enterprises that went through our program faced in raising financing. Many had viable, cash-flow positive businesses but were not “high-growth” enough to attract commercial impact investing and were working in underserved areas where banks didn’t want to lend (or where banks lent on unreasonable terms). Our fund set out to change this paradigm and provide financial solutions to enterprises whose primary goal is to empower communities with quality jobs.
Jen: How are your investment funds catalytic in a way that is different from other funds?
Loic: We invest in companies that are at the cusp of achieving sustainable growth but are unable to reach that stage because of a lack of financing. We focus on the “missing middle” of companies that are too big for microfinance and grants, too small for commercial impact investing, and too risky for traditional lenders. We analyze the additionality of our capital and business services in helping companies to achieve their long-term goals and generating significant impact in terms of local jobs.
Jen: How do you describe the kind of non-financial returns the fund offers?
Loic: We offer investors several non-financial returns: 1) access to a proprietary deal flow of grassroots enterprises from which investors can learn about new and unique business models; 2) high-impact investment strategy focusing on companies employing marginalized individuals including smallholder farmers, artisans, at-risk youth, and vulnerable women; 3) a rigorous impact management approach through which we share learnings with investors about the social and environmental impact of our portfolio.
Jen: Can you describe how you use integrated capital to do your work?
Loic: We use the full spectrum of integrated capital, including three main elements: 1) debt capital that is flexible in terms of terms and collateral, more affordable than commercial alternatives, and long-term to help companies to grow; 2) grant capital through our Incubator to build the capacity of enterprises to become investment-ready and pilot their business models; 3) a Business Assistance Facility (BAF) to prepare enterprises for loans and to ensure that they meet their goals and repay their loans. The BAF focuses on strengthening enterprises in the areas of financial management and impact management. Examples of ways we have provided business assistance include: training businesses on loan covenants; advising businesses on financial ratio calculation; reviewing board packets for feedback; improving systems for cash flow management; and developing financial reports.
Jen: What is transformational about the businesses that you invest in?
Loic: Our entrepreneurs have deep connections to social issues in their country, and are very knowledgeable about local communities. They create employment in communities where the informal economy is high and few quality jobs exist. They run social enterprises that almost exclusively focus on sustainable agriculture and livelihoods. A strong component of their operations consists of developing healthy food products that contribute to improved food systems, including the responsible use of environmental resources (water, waste, etc.), land restoration, and deforestation-free products.
Jen: How do you address racial justice, income inequality, and/or gender justice through your products and services?
Loic: We place a strong emphasis on integrating DEI (diversity, equity and inclusion) in our investment process. The first building block in this area consists of gender. At due diligence, we perform a gender analysis of our investments with regards to the enterprise’s governance, management, and employees. When an investment is approved, we require enterprises to report gender-disaggregated data on employees and employee earnings, and to also report on their workplace practices (e.g., sexual harassment reporting and policies). We also survey employees and suppliers of our enterprises to understand how they perceive the DEI practices of our enterprises. We are using learnings from our gender work to integrate other DEI areas such as racial justice.
Jen: What does a foundation or investor need to understand in order to invest in transformational businesses?
Loic: Transformational change takes time and investors need to be patient to see results. In addition to being commercially successful, a transformational business needs to be socially and environmentally successful. This means that it takes a transformational business more time than a commercial one to build its supply chain and recruit its employees, since there is a strong training component to each. For example, one of our investments, Inka Moss, works with remote communities in the Andes to collect sphagnum moss, which is exported to Asia and Europe. Preparing communities to become sphagnum moss collectors is a year long process, which consists of helping communities to secure land rights, develop environmental management plans, and train them in moss collection and processing. Most commercial businesses would find the costs too high and adjust their supply chains to have less social and environmental impact in order to “gain efficiency.”
Jen: What do you tell people who think your fund is risky?
Loic: COVID-19 has demonstrated the awesome resiliency of transformational businesses. Across our programs, transformational businesses have managed reasonably well. Those in sustainable agriculture and food have thrived because those sectors have grown during the pandemic; others in more affected sectors have pivoted their business models to take advantage of new opportunities, including digital platforms and e-commerce. Very few have completely shut down. This demonstrates the grit that social entrepreneurs have: they stick to their businesses because they feel a responsibility to the communities they serve.
Investment Thesis/What is your rationale for your approach to investing? We invest debt capital and business assistance in high-impact enterprises supporting livelihoods in marginalized communities. We focus on enterprises creating social and environmental impact that lack access to traditional sources of financing.
Geography: Peru, Columbia, Brazil Chile
Year Founded: 2018
# of Investments: 4
# of Investors: 10
What’s on Loic’s Minds?
Book: Just finished reading Becoming by Michelle Obama. I was impressed by her story growing up in the South Side of Chicago and creating a successful professional career for herself while raising her two kids by herself.
Song: Whatever my young kids are listening on Alexa.
Podcast: Freakonomics: I recommend Is the Future of Farming in the Ocean?