A version of this post was written by Dennis Price and originally appeared on ImpactAlpha.

The government officials, business leaders and private investors who gathered at Davos a few weeks ago can continue their deal-making after the elite event on Convergence, a new online match-making platform to facilitate “blended” financing for developing countries.

Officially launched at the 2016 World Economic Forum, Convergence aims to expand investor networks, reduce search costs and streamline due diligence and overcome other barriers to speed completion of the often-complex deals.

Blending capital from public, private and philanthropic sources is considered critical to financing the Sustainable Development Goals. Tweet This Quote

Blended finance structures, which leverage public and philanthropic funds to attract private capital, have the potential to reshape global development financing and help private investors enter high-growth emerging markets.

“We are making it easier for public and private investors to pursue purpose-driven investing and find co-investors in developing countries,” Chrystia Freeland, Canada’s Minister of International Trade said at a World Economic Forum event on financing the new Sustainable Development Goals, or SDGs. She said the increase in development financing, “will in turn lead to economic growth and stability.”

The Canadian government backed Convergence, based in Toronto, with $23.5 million. Citi Foundation also provided funding. Other partners include Dalberg, the Global Development Incubator and the World Economic Forum.

Growing Pipeline

Open deals won’t be available on the platform until this spring, but the site already includes data on more than 150 closed deals. The organization is offering $7 million in grant funding to fund the creation of new blended finance products. Freeland said the platform hopes to list over $10 billion in deals in its first five years (see “Convergence Seeks to Blend Public and Private Investment for Global Development“).

Blended finance structures have the potential to reshape global development financing. Tweet This Quote

Already, 31 investors are signed up to participate, including emerging market financiers Black Rhino and Cordiant; foundations including the Bill & Melinda Gates Foundation and the Lundin Foundation; impact investors such as Aavishkaar, Bamboo Finance, and Grassroots Business Fund; development agencies including Sweden’s SIDA, South Korea’s KOICA, and the United States’ USAID; and the governments of Ethiopia and the Netherlands.

“It will become much easier for investors to find high-quality transactions in emerging markets that will allow them to leverage their dollars towards greater economic, social, or environmental impact,” said Joan Larrea, Convergence’s new CEO, formerly with the Overseas Private Investment Corporation.

Crowding Capital

There is growing interest in blending capital from public, private and philanthropic sources. Such layered structures are considered critical to financing the SDGs. Public investors have launched new blended finance vehicles (see, “Financing the Other 90 Percent of Smallholder Agriculture“) and models aiming to “crowd in” private capital (see, “Social Impact Incentives Aim to Tilt Businesses Toward the Needs of the Poor“).

Blended finance structures help private investors enter high-growth emerging markets. Tweet This Quote

Blended finance vehicles bring together investors with different risk tolerances and return expectations, helping bring private investors to capital-starved but often volatile sectors and markets in developing countries. Public and philanthropic funders can reduce risks for private investors with first-loss protections or loan-guarantees, or increase their returns, by providing low-interest loans. Any first losses in the Africa Agriculture and Trade Investment Fund, for example, are covered by development banks, reassuring private investors.

“As the global economy shifts, a platform like Convergence is critical to make it easier for corporations and institutional investors to invest in growing markets, while also supporting economic development around the world,” said Walt Macnee, the vice chairman of MasterCard Worldwide, who chairs Convergence’s board.

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Led by David Bank, formerly of The Wall Street Journal, ImpactAlpha is establishing a major new media brand for the growing number of people who believe our most pressing social and environmental challenges represent the biggest business opportunities of the 21st century. ImpactSpace is the world’s largest open impact database of ventures, funds, deals, people and organizations.

  • Charlee Riggio

    I really like this idea. As it turns out one of the biggest obstacles for businesses is a lack of capital. As you highlighted there are some people that have world changing ideas but they don’t have the monetary means to get that idea off of the ground. This idea for duel exposure and support is going to change the way we think about business investors.

  • David Kidd

    This new blended finance model actually goes hand in hand with last weeks article “What corporations will look like a decade from now”. These potential markets that will be financed by blended finance, as exemplified in last weeks article, will serve to promote innovation throughout new smaller businesses rather than profit for existing powerhouses. The new innovative blended finance model only serves to further prevent big business taking over these potential markets. This convergence allows it to be easier for smaller businesses in these developing markets to receive capital. In my opinion entrepreneurship and innovation has the potential to improve poverty around the world, but not-without the premise that capital is readily available for these innovative new solutions. With that, I bid bravo to emerging investors and their new matchmaking solution.

  • Daniel Hartman

    I agree David, one of the most challenging parts of new business is the acquisition of a reliable source of capital. It is important for these innovations and developments in the quest of attaining this capital become more available.

  • Reid Trauernicht

    The concept of connecting budding companies in developing countries with investors in establihed markets is brilliant. Many of the these companies in developing markets struggle to develop capital to build or expand their businesses and some have drastically different levels of risk associated with the small growing companies. Despite this, I would like to know whether the companies in developed markets who invest in these growing companies gain anything in return; or is this just a company giving back to the less fortunate?

  • Hunter Ward

    I think that this concept will really help companies, who have brilliant ideas, raise funds to get off the ground. One question is how do companies know that the investors wanting to invest in their companies are good, and vise-versa?

  • Kunal Patel

    I also agree it’s a good idea and would help smaller companies start to get lifted off the ground.
    adding onto his question about how they would know if they are good or not, would this really be the solution to helping the global situation as the economy shifts. If it does work, I really do believe it will change the way we perceive private investors.

  • Brittany Lane

    Hi Reid, good question. According to the World Economic Forum, blended finance refers to the use of public funds to attract private capital towards investments, and it’s been discussed specifically in the context of emerging and frontier markets. More specifically, public investors use their funds to mitigate investment risk and/or enhance returns for private investors. Thus, I would assume almost always these investments are placed in the full expectation of getting a return. They aren’t simply loans. It’s more of a partnership, and less of a “charity,” so to speak.

  • Brittany Lane

    Hi Hunter, that’s a good observation. This is what I found on Convergence’s FAQ page, answering the question, “What are the requirements to post a deal on the Convergence network?” A: Registered institutions can post blended finance investment opportunities on the deal database that are located in an emerging or frontier market(s), have an overall deal size of at least $5 million USD, and can demonstrate a commitment from at least one anchor investor. This commitment could be a signed Letter of Intent, a verbal commitment, a completed investment, or some other form of commitment. This latter requirement helps to ensure the quality of deals posted.

    So, it appears that Convergence has a method of doing due diligence on those investors that seek to participate.

  • Emily Butler

    In one of my business classes last semester we were asked to come up with a business and figure out how to finance, market, and run it. We came up with a website for entrepreneurs and the like to come and share and sell their products. Obviously it wasn’t as well thought out as this idea (though I would like to say that for a group of college freshmen it wasn’t too embarrassing), I think it’s absolutely brilliant. It’s such a useful way to connect and I think it’s an undeniably good idea for upcoming companies to get out there and get started.

  • Kade Hanson

    This is a great article and it shows us many things. Connections and communications seem to be key in many of these articles and I see connections to out marketing class. Within values of businesses and marketing what way can we connected out marking class further to this post? How are values communicated thought this articles?

  • Victor Ribakare

    I believe if this platform can really take off on a different level, it will change the way business obtain capital throughout the world. This platform provides a great middle ground for all types of investors. When multiple parties take part in a venture, in this case investing, then more responsibility is held amongst all. The fact that others can also view this will just create a greater network of people to connect with. This venture really needs to take off because I would love to see some of its final products.

  • Charlee Riggio

    The quote “As the global economy shifts, a platform like Convergence is critical to make it easier for corporations and institutional investors to invest in growing markets, while also supporting economic development around the world,” by Walt Macnee sums up the importance of an investment plan like this.

    I think we often find that sometime the people with the best ideas don’t have the means to execute them. By allowing involvement of both capital as well as potential partnerships (ideas and opinions) can create a powerful collaboration.

  • Agreed @victorribakare:disqus! I also get really excited about the potential of where technology will take us in regards to micro-investing and crowdfunding type platforms and where there will be intersections in social entrepreneurship and impact investing. Two newer innovations I admire are Acorns (www.acorns.com) an app that allows you to place small investments that any person can afford to take part of. And Startwise (www.startwise.com) that is launching the an impact investing community platform where impact investors can access high potential social enterprises investment opportunities in exchange for revenue. I’m so excited for the innovations and tech that are evolving the ease in which we can make impactful investments and give opportunities for people of all socioeconomic statuses the opportunities to invest. Thanks again for your comment!