GOOD BUSINESS TO FacE the triple planetary crisis

Harriet (42 years old) is a seasoned Ugandan manager. She has 11 years of experience with project and team management in two food multinationals. Harriet has come to a stage in her life where she wants to give back to her community, start building a legacy, and venture into an agri-food business of her own. She might not tell you in so many words, but she cares about making healthy and sustainable food more affordable and available for all her fellow countrymen and women.

For Harriet and those of us that care about building good businesses – enterprises that put social and ecological impact first – looking at the start-up studio model makes a lot of sense. Yet, when spearheading this approach in an emerging economy like Uganda, some key questions remain unanswered for now. Will we find sufficient amounts of patient capital and impact investors willing to work on blended finance solutions to fund the change we need? Will alternative ownership structures protect their purpose, and enhance or hinder these good businesses’ capacity to raise funding? Will we be able to source the talent and ideas we need to build profitable businesses and make our studio model work?

As a global society we face i) an accelerating climate crisis, ii) growing worldwide inequality, poverty, hunger, and malnutrition, and iii) ecosystem collapse, biodiversity loss, and soil degradation at devastating speed. According to us, this triple planetary crisis is strongly linked to the flaws of venture capitalism and how our (agri-food) businesses are financed and owned. Underlying all of this, are the dominant power structures and how money is allocated to food, agriculture, and international cooperation.

BUILDING Impact Ventures in AGRI-FOOD

Bart Van der Zande from Fresh Ventures Studios will tell you that “the food system is a key driver of both the problems and the solutions for these environmental impacts. But not enough funding and efforts are flowing to the highest impact areas, agriculture, and food”. Bart also often refers to this quote by Koen Van Seijen, the Investing in Regenerative Agriculture and Food podcast host: “What we need more of is people building things in the regenerative agriculture space. Entrepreneurial farmers, funds, investment vehicles, technology, food companies, everything we need for this revolution.”

By enabling Ugandan social entrepreneurs to build and own the solutions and businesses they see fit for their context, we want to strengthen their capacity to change and uproot the food system.

Root! cal’s start-up studio approach is based on 3 key pillars. First, regenerative agriculture is the best paradigm for the future of our food systems. Acknowledging the nuances in definitions, we use regenerative as a synonym for organic and agroecology as they are all strongly aligned in their principles. In the words of Hans R. Herren, agroecology pioneer and Biovision’s President, “regenerative agriculture is agroecological if done right”. The IPES-FOOD Smoke & Mirrors report on the risks of greenwashing warns that “leading agri-food businesses are in some cases invoking ‘regenerative agriculture’ in their corporate sustainability schemes, often in conjunction with carbon offsetting schemes, stripped of social justice dimensions”.

Our second pillar, therefore, focuses on social entrepreneurship and inclusive business models to build impactful solutions that are accessible and affordable for mainstream producers and consumers in Uganda. Not, for instance, focusing exclusively on organic exports to Europe. And, three, steward ownership as means to avoid mission drift and protect the purpose of the companies we build together. To be coherent on governance, finance, and all of the above.

Finally, enabling smallholder farmers in their transition to regenerative agriculture is at the heart of our purpose. We will give people like Harriet an onramp to do so by building start-ups that either provide solutions to support them in that transition (e.g., access to biopesticides) or by creating companies that buy their products as a market incentive to start or continue producing regeneratively.

DE-RISKING EMERGING markets

It is important to highlight how the choice for the start-up studio model is rooted in strong evidence of its performance in other geographies and sectors. By taking a lot of early risks out of the equation, start-up studios are designed for success. They are better at building ventures faster and with higher rates of success. The studio model is fully aligned with the adagio of human-centered design to ‘fail fast, fail early, fail a lot’ to avoid failing big later on in the venture cycle when it might have become too expensive or even too late.

As Todd Ehrlich from Rule 1 Ventures, would explain to a potential investor: “Studios are designed to build highly profitable businesses in half of the time and at one-third of the price compared to venture capital. We’re built to do this and get outstanding results”. Suggesting the importance of playing the hand you are dealt and not the hand you would wish for, he told me “a studio would be a much better hand to play than VC”. “As a way of investing in the regenerative agriculture and food space in East Africa, studios will be a less risky, better returns approach and allow you to generate deal flow and gather much more expertise in that space”.

In addition, like the team at Metabolic and Fresh Ventures Studio, I am very convinced that the start-up studio model provides a fantastic framework for systemic venture building. It’s a unique approach for building start-ups that address key challenges and leverage points in the food system, or any system. Much more so than in incubation or acceleration, where the founder–opportunity match is given, the studio model allows us to start from a deep understanding of the problem and build ventures where we have potentially the highest impact in terms of social and environmental outcomes.

challenges for Impact Studios

We will not be hunting for unicorns or betting on outsized successes. We aim to co-create Small and Growing Businesses that can follow realistic growth paths and, in line with steward ownership principles, provide returns that are fair both for the start-ups and the studio and investors that enable them to get to scale.

Moving into the world of start-up studios with strong impact imperatives goes with three key challenges. The vocabulary, design principles, and end goals in the studio universe are quite different from those in the societal impact space.

First, most successful venture studios aim to build a start-up and money-making factories. According to some pioneers, start-up studios are the next big thing. Here to outperform venture capitalism and even make it redundant. Yet, if impact is your end goal – and building scalable, profitable businesses only a means – then hacking venture capitalism becomes a necessity, instead of improving on its money-making (at-all-costs) capacity.

Second, if ESG and impact investors are real about their impact goals, attracting the right type of impact investors should not become a dealbreaker for studios. They are all about de-risking. However, considering our geographical and thematical focus on agriculture and food in emerging economies – a double up for high-risk environments, especially when factoring in climate change and ecological degradation – this might become less straightforward. The pool of aligned foundations providing grant funding and blended finance solutions is quite a niche but growing. The field of impact investors interested in regenerative agriculture while also actively looking at investing in agriculture in Africa is very thin and fragmented.

Third, when innovating in two spaces simultaneously – powering social entrepreneurship in the world of agroecological development, plus combining steward ownership and the studio model to put impact first – you are faced with myriad design and intervention challenges. For instance, as both start-up studios and steward ownership usually come with a dual entity model, on the legal entity set-up side this brings about the complexity of a double dual entity model. As Attila Szigeti from Studio 1 Start-up Factory suggested, “You don’t have the opportunity of A/B testing with 10 different models. So, the mental modeling and projections become very important.”

Finally, most studios operate with rather top-down, in-house venture-building decision structures. Yet, when aiming for developmental impact and food systems change, it is paramount to consider who should be in the driver’s seat for directing that ‘development’ and leading governance, and allocating resources and wealth. From the problem definition to co-owning the businesses, Root! cal’s participatory approach puts building solutions by Ugandans for Ugandans at the center of its model. That is why, we protect the purpose of the studio ventures with steward ownership and actively contribute to shifting how food businesses are financed and owned, and how wealth is generated and distributed.

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