Cambodia Investment Review
Khmer Enterprise, USAID’s WE Act and Swisscontact held their monthly ‘Give a Day’ initiative that aims to strengthen the relationship and efficiency between Cambodia’s investors and start-up entrepreneurs, by harmonizing the efforts and understanding of the Entrepreneurial Support Organizations (ESOs) that oversee their collaboration.
April’s instalment saw various ESOs come together, along with the entrepreneurs themselves, to better understand the topic of ESO ‘Program Mapping’.
Program Mapping is an effective tool used by ESOs to provide an appropriate mix of generic and specialist resources and support that can cover the entrepreneur’s entire start-up journey, from ideation to startup to early operations and beyond.
To read more about other USAID’s We Act programs click here.
A keynote speaker at the event, Cheryl Ng, author of various guidebooks for development agencies such as the UNDP and coordinator of this month’s ‘Give a Day’ program, told Cambodia Investment Review her thoughts on the findings of the event and wider investor landscape.
Speaking about the April ‘Give a Day’ instalment Cheryl said: “When I originally designed the draft ESO program map, I realized there are still many programs missing from the process. This collaborative session helped served the purpose of gathering ESOs together and creating transparency on what is offered in the Ecosystem, which will help ESOs operate their programs more effectively.”
“We have seen staggering growth in the number of supporting programs for entrepreneurs, including support for ESOs themselves, since the Supporting Young Entrepreneurs Guidebook – Incubators and Accelerators released in November 2021,” she added.
Improvements in Program Mapping for Cambodian entrepreneurs
Replying to questions around what improvements could be made with the current activity map for entrepreneurs, Cheryl outlined that there were many ideation and prototype stage programs for individuals who aspire to be entrepreneurs, but participating in each program doesn’t necessarily mean they are an entrepreneur.
She added, that there is a lack of support for startups in their operational and scaling phases because there are not enough businesses yet to design scaling programs.
“Currently, there lacks an equity and/or debt financier-run accelerator program in the Cambodian startup ecosystem. I think in the next three years, with more local startups proving themselves to be a worthy equity or debt investment, there will be more of a risk appetite for financiers who want to fund startups that participate in programs,” she said.
“These improvements will lead to stronger accelerator programs for investors to get their return, and potentially lead to thriving operational startups who are ready to scale,” she added.
Creating connections between international investors and local entrepreneurs is a key component for the investment community with Cheryl also believing it was vital to include entrepreneurs at various startup stages in the conversation with ESOs in these meetings. She added often, ESOs are facilitating amongst themselves, without inclusive discussion with entrepreneurs.
To read more about the ‘Give a Day unlocking the missing middle’ click here.
“As one of the entrepreneurs mentioned at the event, they would like to see more discussions and events that are purposeful for them to connect with government, private sector individuals related to their industry, investors, peer-to-peer events, and being part of conversations like this with ESOs,” she said.
“Having this forum creates an environment for entrepreneur feedback on ESO program support to be heard, which can enable for the ecosystem to facilitate better collaboration as well,” she added.
Adaptive capital key for Cambodia
Ian Jones, a discussion panelists at previous ‘Give a Day’ forums and co-founder of Mekong Inclusive Ventures, an impact venture business working to build an inclusive impact finance ecosystem in Cambodia, gave his thoughts to Cambodia Investment Review on where the investment landscape needs development.
Reflecting on the biggest pain points between investors and entrepreneurs in Cambodia Jones said that: “Many investors still take a traditional VC approach and complain of the lack of deal flow, including the high costs of due diligence.”
He added while this can be overcome by working closely with ESOs who know their impact ventures fairly intimately and can reduce the costs and pre-investment support time. Additionally, there is a need in Cambodia to start moving towards new forms of capital, such as adaptive capital.
“Adaptive capital takes a demand lens approach, and takes into account the requirements of the founders, and also areas where they might not traditionally meet the due diligence needs of investors, who often complain there are not enough deals in the market, but are inflexible in their approaches,” he said.
“Flexibility in the deal structure can range from patient/grace periods, revenue-based dividends and structured exits,” he added.
‘Give a Day’ proving an important development initiative
Responding to a question if the ‘Give a Day’ initiative was having an impact Jones replied: “Absolutely. What often occurs is that high level and deeply reflective conversations about the impact ecosystem are only ever had at regional conferences, which can exclude the local players and form an echo chamber, quite often missing local contexts.”
“Give a Day allows for Cambodian stakeholders in the impact investment ecosystem to systematically deep dive into key issues of what is working, what isn’t and the opportunity to discuss how we can synthesize that information to continue to improve the ecosystem for all actors,” he added.
To read more about the ‘Give a Day’ concept click here.
However Jones believes it was important for investors looking to Cambodia to understand it is a different market to developed economies such as America or Europe.
“We can’t take a ‘cookie cutter’ approach to impact investment in Cambodia if we want to see considerable growth in the flows of impact capital. There are two key examples from different lenses,” he said.
“We need to take into account the influencing factors in the ecosystem – this can include cultural approaches to doing business, how it is perceived and even the influence of the educational system,” he added.
Jones also believes that investors need to take into account the broader requirements of the ventures and their customers, explaining that for example introducing new solar technology takes considerable time to validate the tech and attain proof of concept and product solution fit, then it takes additional time for behavior change to convince farmers to adopt new tech.
“By the time this all occurs, existing forms of capital aren’t patient enough or interested in the longer lead time for returns. Alternatively, the conditions of the capital are often unsuitable for this model and stifle innovation and new product development, further reducing ventures for investors to invest in,” he said.
Thankfully, there are organizations such as Nexus for Development provide opportunities to fill these gaps in the agricultural sector through their patient impact debt loans,” he added.
Developing the local start-up community is considered key for Cambodia to achieve its aims to reach upper-middle-income status (GNI per capita between $4,036 and $12,475) by 2030.