Heritas, DBS tackle ‘severe underfunding’ of social enterprises with new impact fund

SMALL and loss-making – these are some of the common perceptions about social enterprises. But of the over three million social enterprises in Asia, many are in fact profitable and anticipating growth, yet face “severe underfunding”, highlights venture capitalist Chik Wai Chiew.

“We have seen surveys that in South-east Asia, 50 per cent of social enterprises face great difficulties in accessing finance – grants and donations. That’s severe enough, and 90 per cent find it very difficult to get investors,” he said.

Chik, chief executive officer of Singapore-based investment firm Heritas Capital, has teamed up with DBS to plug this funding gap. On Wednesday (Mar 15), both companies announced the first close of a new fund, the Asia Impact First Fund (AIFF), with US$20 million raised.

Managed by Heritas, the fund will provide growth-stage capital to 10 to 15 Asian social enterprises in Asia, with cheque sizes of up to US$3 million each, said Chik, who was speaking at a press conference. DBS is its anchor investor, having committed US$10 million to the fund. (*see amendment note)

Notably, the AIFF is targeting an internal rate of return of just 5 to 10 per cent, well below that of a typical venture fund. It is focused on impact first and principal protection second, with returns only coming in third, explained Clifford Lee, a board member of DBS Foundation, who is also the bank’s global head of fixed income.

“We’re able to focus less on returns to give many of these companies the additional legroom, the additional breathing space to to be able to further build up their business, before they are able to be of the scale to be independent of this fund and go directly to the market for further fundraising,” he said.

The AIFF is keen to invest on two broad themes: improving livelihoods and protecting the environment. Business fundamentals will also be an important consideration, noted Chik.

“We want to see a proven business model and track record in their sales and profitability, and a differentiated product offering,” he said, adding that the fund plans to take board seats in its portfolio companies.

Besides DBS, other investors in AIFF include Singapore-based marine and real estate company IMC Group, the Tsao Family Office, the Ishk Tolaram Foundation, the ANF Family Office and Pang Sze Khai, the chairman of Singapore family office Octava.

Divya Patel, chief operating officer of the Ishk Tolaram Foundation, said that it is crucial for social enterprises to move beyond grants and seed funding to scale their impact.

DBS Foundation will serve as AIFF’s knowledge partner, providing its expertise on the region’s social entrepreneurship scene. The bank’s involvement comes as its sees the need for all businesses, even small and medium-sized enterprises, to have a “dual bottom line” of both impact and profit, said Karen Ngui, who heads DBS’ group strategic marketing and communications.

*Amendment note: A previous version of this article said that DBS committed US$10 million via its foundation. DBS has since clarified that the capital is directly from the bank, while the foundation conceptualised the fund.