3. Farmers
produce little
for sale
• So no
commercial
loans
• So no reliable
market causing
much waste
Food
businesses lack
crop inputs
• So limited
growth and
investment
• So they import
needed volume
competing with
nearby farmers
Underlying
Problems
Dysfunction in the Value Chain
Cheetah must
work on both
halves because
the problems are
linked in a
vicious cycle
that damages
investments.
Underlying
Problems
3 innovations needed:
Finance solutions
for farmers,
and SMEs,
and farmers must become
investable
4. 3 Dimensions,
9 Aspects of the
Cheetah Model
for Ending
Smallholder
Poverty
& Creating
Profitability
5. From MIT group that
made the first major
review of microfinance:
“… the structure of
[microfinance’s] success
in lending to the poor is
such that we cannot
count on it to be a
stepping-stone for
larger businesses to be
created and financed.
Finding ways to finance
medium scale
enterprise is the next
big challenge for
finance in developing
countries.”
Microfinance
Small loans averaging
$300 filling microfinance
space
Less successful and
smaller in rural areas
and for agriculture
Best suited to micro
enterprises with no
usage control
Credit often based upon
peer pressure or
average risk factors
Cheetah’s
Finance
Innovations
Loans (and equity)
$5000-$500,000 filling
“Missing Middle” gap
Designed for
communities or midsized
businesses
Requires strict structural
control, which is built in
Credit based on
production capability
7. • Provides needed equity to
finance ag-food value chain
businesses (SMEs linking
to farmers)
Africa
Agriculture
Equity Fund
Investable
Cheetah
Innovation:
Micro Venture
Capital
8. Achieving Commercial Acceptance
Debt / Metafinance
Banks rarely give serious loans to smallholders because of high failure
rates. 5 solutions:
• Farmers have few assets so banks need guarantor to give loan.
• Cheetah puts collateral on deposit in USD (no currency risk).Collateral:
• With Cheetah’s coordination, bank makes and manages loan.
• Farmers know local banks have more ability to collect loans.
Bank
Enforcement:
• Loan is placed directly with farmer group by Cheetah.
• They get the ag inputs or equipment rather than cash.No Cash:
• Proceeds distributed to small groups as in the microloan model.
If a small group fails to repay, the larger group is still must.
Cross
Collateralization:
• Cheetah provides a market for the crops
• Bank gets paid first.Market Managed:
9. Achieving Commercial Acceptance
Equity / Micro Venture Capital
Venture capitalists avoid small investments because too much work
needed to get returns. 3 solutions:
• Pilot businesses internally in the nonprofit
before placing investments.Prove
Opportunity
• Use a franchise model to replicate success so
that future investments have a lower risk and
reduced cost of investment management.
Replay
Opportunities
• Share back-office services companies to lower
investment costs, risks, and improve quality.
Share
Opportunity
Cost
10. Cheetah Collateral Fund:
Metafinance
with Catalytic
First Loss Capital
• The Africa Farmer’s
Collateral Fund creates
manageable layers of risk
• Mission driven investors
take highest risk and
catalyze additional
investment
• Percentages are
approximate targets
Sub-Debt 2
(Mission Driven Investors)
Program Absorbed Risk
Possible
Government
or Major
NGO Shared
Risk Program
(45-60%)
Senior Debt
(Low Risk; Protected by
Other Investors)
Sub-Debt 1
(More Risk but still
Protected by Other
Investors)
10%
20%
20%
50%
11. Farmers lack access to crop
input & equipment finance
Farmers lack access
to markets & value chain
Africa Farmers
Collateral Fund
Africa Agriculture
Equity Fund
Financing Solutions with Companies, Foundations,
Governments and Accredited Investors
14. Africa Farmers Collateral Fund I
• Farmers turn in crops, they are
sold, loan is paid
• If crop does poorly, crops
produced are sold, farmers
achieve no profit, loan is paid
• If farmers do not pay, other
farmers cover costs, loan is paid
• If group fails, bank enforces loan
and farmers make payments over
time
• Supplier (usually investee of AAEF
Equity Fund) of crop inputs or
equipment covers a minimum of
10% of first loan losses, including
profits from other groups, loan is
paid
• Fund investors are in tiered risks A,
B, C so losses covered in lower
tiers
Africa Agriculture Equity Fund I
• Companies are sold to outside
investor
• Fund has preferred shares, equity
is converted to debt and repaid
(this is built into the fund model
from outset – for more
information see SEAF model)
• Future fund buys out current
investors
Investor
Exit Strategies
15. Investment Steps
• Identify opportunities
• SelectIdeate
• Prototype
• Validation requirementsPilot
• Demonstrate business model
• Verify validation requirements metActivate
• Invest
• Grow in origination and new locationsPropagate
Board approval required to
advance to each new step.
16. Target Investment Criteria
Profitable
High impact –
change livelihoods
significantly
Ag or ag value
chain
Replicable – can be
replayed and cross
cultures
Scalable and able
to grow quickly
meeting the needs
of many
High need, fills a
critical gap, ‘last
mile’ to farmers
High leverage – few
employees or low
investment
changes many lives
Cluster – fit with
other investments
to multiply effect
Red: priority
preference
Green:
important
preference
18. Innovation: Making Farmers Investable
Why have cooperatives failed?
Coops are the
answer:
• Cooperatives have
worked to lift
farmers for over
200 years in all
cultures
• Coops succeed with
joint marketing,
financing and
purchasing and
sharing other costs
and investments.
Coops fail in Africa
for three primary
reasons:
• Shortage of finance
• Lack of trust –
corruption
• Unreliable market
access dominated
by middlemen
Cheetah’s solutions
to the problems:
• New finance models
• Make all farmer
activities
accountable and
enforceable
• Partner on markets,
owning all logistics
19. Example of Structure for Organizing
Smallholders
FARMING,MARKETSANDFINANCE
Farmer
Group
Farmer
Group
Accountability and mgmt with
Teams of 5-15 self-selected
farmers
Structure is a combination
between savings/microloan
groups and coops
Pearl Foods partners with farmers
on markets and other
opportunities.
Pearl is unifying point for coop
marketing. Controlling crops
secures investments
Timu
Wakalimu
Team
Farmers
Farmer
Group
Team
Farmers
Pearl
Foods
Cheetah
(& Loan
Guarantors)
Masoko, Markets
Benki, Bank
Finance and
Accounts
Wateja Customers
(Buyers of Crops)
20. Step-by-StepScalingProcess
Grow Enterprise
Increase number of farmers
Allow successful farmers to
double loans
Increase coop mgmt
training
Initiate Activities
Begin with harvest to establish mutual trust Continue with finance for trusted members
Organize
Recruit members and train Legally register groups
Arrange for finance and
markets
Select a Target Village
Choose target villages based on
productivity, work ethic and trust
Hold meetings in many villages and choose
best
23. Risk Mitigation
Africa Farmers Collateral Fund I Africa Agriculture Equity Fund I
On-the-ground presence, active management in portfolio companies
Cheetah keeps control of accounting, reducing likelihood of corruption
Shared back office services and location reduces startup costs
Preferred share position for investors in many cases
Local village leadership for most activities bridges cultural gaps
Loans made by local commercial banks that
have rights of loan enforcement
Usually have controlling interest in
companies
Money stays in US dollars to avoid currency
exchange
Prototype many company activities before
receiving investment
Farmers cross-guarantee loans between
members of groups
Partnering when possible reduces
investment required
Farmers receive crop inputs or equipment
rather than cash; loan is paid by delivering
crops
Keeping companies small and scale
achieved through franchising reduces risks
of concentrated capital
Diverse crops and climates Franchising approach creates a higher
dedication to standardized procedures,
thus more predictable outcomes
24. Equity
Fund
Debt
Exit
Strategy
Created by
SEAF (30 yr.
proven
experience,
impact
investment
model)
Local Investors,
Employees
Common Shares
Cheetah
investment –
preferred shares
1. Cheetah raises needed investment and has board control
Common Shares
3. Loans are repaid, shares divided pro rata by others
Common Shares Cheetah shares
4. Company is revalued by pre-agreed formula
Local investors equity – common shares. However by
contract Cheetah controls accounting function to guarantee
transparency. Sale of shares is restricted by agreement.
Cheetah Preferred (15% minimum), dividing repaid
Preferred Shares with Common, (optionally, Cheetah
may be repaid while retaining equity)
6. Equity and control revert to local shareholders
Fund investment –
preferred shares A & B
Common Shares
Equity to
Debt
Round 1
Cheetah shares
2. Preferred shares divided into loan and equity
Preferred
shares
Loans
repaid
Cheetah shares
Preferred
shares
Preferred shares
Common shares
Cheetah equity subordinate to fund
debt
5. Remaining preferred shares are converted to debt and repaid (24-36 months)
Fund equity – preferred
shares, may be limited by
coupon value
7. All shareholders enjoy profit distributions pro rata with ownership
Exit Strategy:
the Process for
Fund Liquidity
25. Terms Africa Farmers Collateral Fund I
LLC
Africa Agriculture Equity Fund I LP
Manager or
General Partner
Cheetah Development, Inc., a 501(c)(3)
Size Up to $3.5 million by 31 Dec 2015 Up to $20 million by 31 Dec 2015
Target Return 2% 12% – 15%
Term 18 months, one 6-month
extension. Multiple series with
rollovers.
7 years, 2 one year extensions.
Target investors Governments, Corporations involved in agriculture or food, foundations,
NGOs.
Commitment Minimum 10 units or $100,000.
Fees &
Expenses
1.5% per annum of total
Commitments. Fund pays its
operating expenses.
3% per annum of total commitments, partially paid
up front for incubation and R&D. Fund pays
its operating expenses.
Legal Counsel Dorsey & Whitney LLP
Audit Firm Recognized audit firm(s) to be selected
Summary of General Fund Terms
26. Securities Disclaimer
This document is for informational purposes only and does not constitute an
offer or solicitation to sell shares or securities in the Company or any related
or associated company. Any such offer or solicitation will be made only by
means of the Company's confidential Offering Memorandum and in
accordance with the terms of all applicable securities and other laws. None
of the information or analyses presented are intended to form the basis for
any investment decision, and no specific recommendations are intended.
Accordingly this document does not constitute investment advice or counsel
or solicitation for investment in any security. This document does not
constitute or form part of, and should not be construed as, any offer for sale
or subscription of, or any invitation to offer to buy or subscribe for, any
securities, nor should it or any part of it form the basis of, or be relied on in
any connection with, any contract or commitment whatsoever. The Company
expressly disclaims any and all responsibility for any direct or consequential
loss or damage of any kind whatsoever arising directly or indirectly from: (i)
reliance on any information contained herein, (ii) any error, omission or
inaccuracy in any such information or (iii) any action resulting therefrom.
This document is designed to highlight the details of the funds and operating models Cheetah Foundation puts together to make smallholders investible.
Our Mission is tied to getting smallholders to be investible and receive cash/profits thru connecting the cogs of finance, markets and agriculture.
There are many potential ways to manipulate a Rubic’s Cube, but only one solution. In international development, aid and smallholder empowerment many variations have simply struggled to get smallholders to be investible and therefore profitable on a sustainable basis.
Philanthropy for Initial Risk Capital:
The context of these investments can be perceived as high-risk. Cheetah mitigates that risk by piloting investment opportunities within its nonprofit.
Farmer Market Partnership:
In order to end poverty, we need to shift from giving to the poor and start buying from them. Cheetah partners with smallholder farmers, joining our success to theirs.
Making Farmers Investable:
Becoming investable is subtle but important distinction from the current efforts undertaken. Every activity needs to be accountable and enforceable. Without it there is not enough money to end poverty.
Business for Self-Sustainability and Returns on Investment:
We don’t do projects – we start businesses. The latter has no planned end-date dependent upon donors for extensions. By further providing a return on investment, we are able to attract capital for growth.
Solve Value-Chain Gaps:
In agriculture, what is missing are the layers of small and medium businesses that surround smallholder farmers. These are gaps – there is little or nothing there. The solution is not investing in existing entrepreneurs but starting from scratch.
Metafinance:
(Not microfinance) Metafinance is a system of engaging local banks in agriculturally related finance to support communities of smallholders. It is a scale of finance not currently available and it overcomes many of the challenges for microfinance in rural areas.
Capital for Scalability:
Real economies need massive amounts of capital to grow and exist. Donor will never be able to provide a sufficient infusion of cash to sustainably end the horrors of poverty that these people suffer from. What is needed is to make the pie bigger, not just redistribute wealth.
Franchise-Like Replicability:
Having the businesses be replicable lowers the cost of future investments, increases the likelihood of success, causes all business processes to be carefully determined and managed, shares successes between different locations, creates resilience, and helps operations to cross cultures.
Micro Venture Capital:
As with metafinance, our Micro Venture Capital model is designed to place investments in the “Missing Middle”. It uses business pilots, franchising, and shared back office support to successfully enter this investment gap.
The key premise of Cheetah is that microfinance while useful simply misses the ability to scale or get farmers to meaningful profitability (and out of poverty) and less likely to work in agricultural areas where smallholders have to be coordinated in groups and financed at levels higher than microfinancing is designed around.
The Missing Middle is a gap of businesses that are largely missing in the developing world. The corresponding gap of funds was identified in a world wide study by the German Marshal fund as the predominant source of this gap. However, investing in Missing Middle is difficult because size of investment is small compared to needed vetting, accounting, mentoring, management etc. Therefore investors have avoided this space though it is the key size of investment for business development. What is needed is to make the investments extremely efficient. Cheetah uses four approaches to achieve this efficiency as depicted.
Fundamentally, to make smallholders investible (which is the essential key to making them profitable) risk must be managed.
Our Metafinance model works because it creates layers of risk with the first ones absorbed by mission driven investors and Cheetah’s for profit businesses which fill in the downstream supply chain gaps (and guarantee markets).
Here is a typical ‘market’ for farmers: come and stand by the side of the road. Clearly that is a market that can serve only nearby farmers.
It is widely agreed that in the developing world:
Farmers lack access to markets
Middle men are largely exploitative
Export crops are best bet.
The first two are correct. However, export crops aren’t the best solution because meeting international standards is expensive, marketing internationally is expensive, and local demand, including high rates of malnutrition continue unaddressed. Export crops are favored because local markets are undeveloped.
Typically, aid organizations speak of creating ‘market linkages’ to solve the lack of access to markets. However, to speak of linkages ignores the situation on the ground. There is no healthy distribution system in the poorest nations to link farmers into.
The farmer’s biggest problem is that they are too small. They cannot meet local demands because they are too expensive to work with one-by-one and because they are not operating in a commercial fashion.
Also notice that aid orgs are by their very nature not well positioned to solve the market problem – how can they enter a negotiation? What’s needed are business to enter into this opportunity/problem.
Exit is predictable and risk of failure mitigated providing traditional liquidity for investors at manageable risk.
Each investment concept goes thru a rigorous process of stage gates to ensure it is ready for commercial scale and risk is both mitigated and known. This occurs in EACH AND EVERY case at the board level.
To take a project to scale we both follow rigorous steps and demand certain key foundational principals be met. This ensures we are replicable and can effectively scale.
The idea of cooperatives is correct and essential, but traditional cooperatives do not work in Africa as easily as they did in Countries which transitioned thru clustering risk to modern agriculture.
Trust is established by ensuring every party has a stake in the risk and outcome with full transparency.
Cooperatives too have to scale but with rigorous discipline and stage gates to ensure the total risk taken is manageable.
Our 6 year R&D development, thought leadership and pilot phase has proven the model and created the infrastructure needed for scale.
We have three funds necessary for the scale of the model each with different needs.
The Philanthropy Fund is tied to our infrastructure and research development. We pilot our of Cheetah Development. There is no direct investment ROI tied to this fund.
Our Collateral Fund is a well managed fund that allows local banks to begin the process of investing in smallholder villages (in time they do so based on historic record and our village credit rating system and algorithm) so it is highly levergeable.
Our Equity Fund allows Cheetah to create for profit businesses needed to fill value chain gaps close to farmers and uses our Micro-Venture Capital (MVC) process.
Risk is essential to create enforceability and a wiliness to invest. This slide shows how Cheetah not only mitigates risk for commercial banking partners and smallholder famers but also our investors and donors.
The exit from an equity fund is tied to the SAEF model which insures we move from fund capital to local investor equity to both maximize our impact in the economies we serve and leverage our funds to begin more franchise like repeatable projects.
