Fund Models & Conservation Finance

This page addresses fund models and finance tools for conservation.

INVESTMENT MODEL
Our approach in funding new innovations will be to partner with a variety of institutions to de-risk individual investments and leverage additional capital. Moreover, we will use a tiered investment model to support innovators who may be at different points along the pipeline.

INITIAL INVESTMENTS
Drawing inspiration from product development enterprises, venture capital, and the Grand Challenges for Development program at USAID, we may use a three-tiered finance model to maximize cost-effectiveness and minimize the risk of testing new ideas. This approach will be used to determine the initial level of investment into an enterprise in exchange for equity.

STAGE 1 | PROOF OF CONCEPT:
Stage 1 grants support prototyping and the introduction of a solution in a conservation context to gain an early, real-world assessment of the solution. This includes testing for technical, organization, distribution, and financial viability. Key activities could include initial field testing, assessing user feedback or demand, willingness to pay, and product design, as well as documenting social outcomes and real- world costs to implement the solution.

Stage 1 funding levels range from $25,000 to $100,000 per project.

STAGE 2 | TESTING AND POSITIONING FOR SCALE:
Stage 2 grants support testing for conservation impact, improved outcomes and/or market viability, as well as operational refinement to build paths to sustainability and scale. Stage 2 applicants should have already met all the requirements of a Stage 1 project described above. Stage 2 projects range from $150,000 to $500,000.

STAGE 3 | TRANSITIONING PROVEN SOLUTIONS TO SCALE:
Stage 3 grants support the process of transitioning proven approaches to scale, which could include adaptation to new contexts and geographies. Operational challenges for scaling should be identified and addressed, allowing for refinement and iteration along defined pathways to scale. Stage 3 applicants must explain how they will use investment funds in a catalytic fashion so that they can leverage additional needed resources from outside sources. Stage 3 funding and support provides a runway for applicants to grow by preparing them for outside investment, while engaging additional partners who will help scale the project beyond our support, but for whom more evidence of success and track record are needed. Stage 3 grants range from $500,000 to $2.5 million. Most funding would be done in partnership with other sources, including development agencies, impact investors, and foundations. Public funding would be used to de-risk other potential investments.

CAPITAL FUND
Beyond the initial challenge investments, we may set up a flexible, higher risk capital fund to de-risk second-stage investments and make the deals competitive. The capital can be structured as needed to stimulate private investment. This fund could provide both grants and financing.

Grants may be used to fund supply- side interventions such as improving the innovation, capacity building of the management team, facilitating production, improving distribution models, gaining operational efficiency, and expanding access to capital to finance the growth strategy. Demand-side interventions may include improving market linkages, securing contracts, building partnerships, enabling penetration of new markets, and providing support in attracting a larger customer base.

The fund could also provide a first-loss loan that would be ranked junior to the commercial investor. Alternatively, the impact-first investor could receive a fixed return (e.g., principal plus low interest), allowing any remaining profits to be distributed to the commercial investor. Private investors will be more willing to support the businesses when they are more “investment-ready” and the management team is proven. In addition to lowering risk for private investors, this structure helps to increase transaction size for private investors, since more-developed business opportunities tend to require larger amounts of capital for growth compared with those in the seed-stage phase.