As sustainable seafood markets grow, philanthropists, nonprofit leaders, and entrepreneurs see opportunities for impact-minded investors to make profits while creating positive change in the oceans. But what makes the conditions right for impact-minded investors to enter a relatively new field such as this one?
We have been wrestling with this question in relation to sustainable seafood and learning from other social impact sectors like sustainable agriculture and microfinance. As discussed in Priming the Pump by the Omidyar Network, impact investors helped these fields grow, and we can learn from their patterns of success and failure over time.
Building on these lessons, our Manta Consulting team developed a model of how four market conditions – the state of business development, policy, market infrastructure, and investment – are linked and must evolve together to drive positive change.
Our model posits that these four market conditions must develop in concert to create large-scale change. When they work together, progress accelerates. If any one pillar is stunted, or advances too far beyond the others, progress slows until the other three catch up in their evolution.
So, what conditions should sustainable seafood leaders look for as they seek to attract more investment into the sector?
1. A Pool of Viable Businesses
Investors are attracted to fields that have both a range and breadth of deals to consider. They like to see a large pool of promising entrepreneurs with viable business ideas that address all areas of a supply chain (see my previous blog to learn more about how this plays out in the seafood sector). A few shining companies can start a field, but are insufficient to build investor confidence. The sector needs a critical mass of new businesses that eventually evolve to growing enterprises that are ready to scale.
2. Supportive Market Infrastructure Developing Alongside Businesses
In addition to individual businesses, investors want to see developing market infrastructure: a network of businesses and non-profits that provide services or products used by multiple businesses and the investors themselves. These services may take many forms: they may enable users to access needed information and data, or help users connect with new markets, suppliers, and/or one another. They are essential to the growth of the sector, and therefore of great interest to any investor.
Some examples of market infrastructure include the Fish 2.0 program that connects multiple businesses with investors; companies like FedEx that allow fresh seafood to get to customers; and non-profits like Fish Choice and the Seafood Watch Program that enable grocers and restaurants to identify sustainable seafood products. Without these market infrastructure pieces in place, many sustainable seafood businesses and investor interest would fail to grow and develop.
3. Clear Policies That Support Market Development
Investors want to see a reliable market. This requires policies and regulations that allow new types of enterprises to legally function or set standards on how they can function. These policies enable entrepreneurs to justify focusing their energy on a specific technology or service. For example, laws allowing and describing how fishing rights can be held, used, and traded, are critical for organizations that lease and trade these rights (commonly called catch shares) to exist. As I wrote last month, the gap in clear policies establishing seafood traceability standards offers another example of why policy is important for market development and essential to attract investor interest.
4. New Investors Come into a Field as its Development Lowers Investment Risk
Different types of investors will be drawn into the sector as each of the above three pillars evolve. Philanthropic grant makers are often the first to invest in the innovative businesses, basic market infrastructure, and policy. And as they do this, they start to reduce the risk in the sector. With decreasing risk, other investors such as venture capitalists, impact investors, and-ultimately-mainstream banks, will enter the market if, and only if, the other pillars of the sector have evolved in a balanced way.
Putting the Pieces Together
Investment growth depends on many people and organizations to build the four pillars: we need non-profits, policy advocates, and market infrastructure organizations to develop alongside businesses and investment funds. There is a role to play for everyone involved in sustainable seafood.
When sustainable seafood leaders ask me how we can capture more of the billions of dollars going into the growing field of impact investing, I encourage them to examine the current state of evolution in each of the four pillars and identify how they can work together to fill gaps in the overall market. We will make faster progress toward a new seafood system if we collaborate to fill these gaps and create the conditions that attract new investment.