1. Growing away from Grants –
African Livestock Catalytic Fund
Kick-starting a virtuous investment
cycle into Africa’s livestock sector

2. Nutrition. Income. Jobs.

3. Livestock sector growth is hard
to finance
• Often long time periods - eg from calf to first
calving is long
• Valuing livestock as an asset is difficult because of
risks of asset dying
• Input sector riddled with credit/debt problems,
long chains and often poor rural infrastructure
(eg electrification/cold chain, roads, abattoirs)
• Resulting shortage of investment often leads
development sector to use grants to try and
catalyse the market instead

4. Types of Finance
Grants Debt Equity
Donations Subsidized Debt Patient Capital
Grants with
requirements
Guaranteed Debt Catalytic Equity
Performance-based
awards
Commercial Debt Private Equity

5. Are grants free and easy?
• Unsustainable
– Must constantly re-apply
• Management distraction
– Intensive application-process, relationships and reporting
• Mission drift
– Push agendas outside of core business onto grant makers long list of broad priorities
• Hidden costs
– Time, personnel, reporting
• Easy to misuse
– Spend on OpEx  unsustainability
• Not customized to financial need
– Inappropriate timing and amounts
• Do not incentivise companies to build robust financial mgmt
systems and commercial discipline
– Consequently can remain “uninvestible”

6. How grants and subsidies can
impede markets
• Distort pricing within sectors
• Disincentive to invest in businesses in sector
Treatment/inputs
at full cost from
ABC AgroVet
Subsidized or free
inputs

7. How grants can impede
markets
• Farmers addicted to subsidized prices
• Long term suffer from lack of supply
Stunted market with no incentive for new entrants = no
growth
ABC AgroVet
leaves market
Subsidized
inputs
Reliance on
subsidized
supply
Only
subsidized
players
survive
Unstable
supply

8. Myths about Finance
• “Paying for something I can get for free makes no
sense”
 Servicing debt shows financial maturity
 Servicing debt proves your program is working
 Running commercially attracts more finance meaning your
business becomes scalable
 Forces management to focus on the fundamentals of cash
flow management – critical to sustainability of any
business

9. Myths about Finance
• “Equity investment means management loses
control”
Committed equity investors help management
Solid long-term financing stabilizes program
Equity investors are in it longer term and only benefit
if you do too
Management gets a smaller slice but of a much
bigger, more profitable and more sustainable pie!

10. Myths about Finance
• “Finance is inaccessible”
 Debt and Equity investors for many types of project…
Financing Term Rates Target Project
Patient Capital 10-20 years 5% return Developing Project
Catalytic Fund/
VC/PE
5-10+ years Variable and
tailored to biz
Start-up & Growth
Guaranteed Debt 7 years 5% interest Start-up & Social
Commercial Debt 7 years 10-15%
interest
Mature Project

11. Unique issues with livestock
• High Front End Costs and Risks
• Time, time, time…
• Coordination Failures
• Economies of Scale (production and
distribution)
• Economies of Scale (inputs and services)

12. A catalytic fund’s distinctive approach involves a
combination of investment and hands-on, in country
management support

13. Project development
(1 -3 years)
Start-up
(1-2 years)
Mature phase
(15 years plus)
Financial close
Private Equity
Market
returns
25% exit after 5 years
10% payback over
7 years
Average project return is 15% over 20 years
Therefore it doesn’t work
Commercial Debt

14. Project development
(1 -3 years)
Start-up
(1-2 years)
Mature phase
(15 years plus)
Financial close
Market
returns
25% exit after 5 years
Debt with Guarantee 5%
payback over 7 years
Commercial debt 15%
payback over 7 years
Average project return is 15% over 20 years
Therefore it doesn’t work
Commercial Debt
Catalytic Fund Private Equity
Debt with
Guarantee

15. Project development
(1 -3 years)
Start-up
(1-2 years)
Mature phase
(15 years plus)
Financial close
Market
returns
25% exit after 5 years
Debt with Guarantee 5%
payback over 7 years
Commercial debt 15%
payback over 7 years
Average project return is 15% over 20 years
Therefore it can work
Commercial Debt
Catalytic Fund Private Equity
Debt with
Guarantee
Patient Capital 5% long term finance

16. Cluster Approach
ECA
Grains, starch and animal feed
Pork and poultry
Phoenix Seeds
Improved seeds
Beer and non-alcoholic drinks
Nutrition
programmes
Major Private
sector
purchasers
Tsetsera & Guita Chicken
BAGC Catalytic Fund

17. Examples of livestock
investments for a catalytic fund
• Dairy cooperatives
• Input distributors
• Input Manufacturers & Breeders
• Cold chain service providers
• Rural Abattoirs
• Major outgrower schemes (eg poultry linked
to mill and hatchery)
• Processors

18. Leverage through partners
• Livestock Insurance Companies (eg Kilimo
Salama)
• MFI’s and Commercial Banks
• Donors and NGOs
• Livestock Research Organisations
• Technology companies (Mpesa, M2M,
livestock tech)
• Impact Investors, DFIs

19. Pitch
1. Launch a dedicated African Livestock Catalytic
Fund to grow defined market clusters,
partnering the livestock research and
development community
2. To include a portfolio of SME and large scale
business where social impact, positive financial
returns and ‘additionality’ can be demonstrated
3. Include subsidised or free mgmt T/A for MSMEs
alongside the fund (that could be grants!)

20. Thank You
Michael Shaw
Director
Wellspring Development Ltd
Nairobi, Kenya
michael@wells-dc.com
+254 (0)787 433301