SMEs Are What's Next

Derek Newberry — Wed, 23 Apr 2008 13:30:30 -0500

"What poor countries need most is not more microbusinesses. They need more small-to-medium-sized enterprises, the kind that are bigger than a fruit stand but smaller than a Fortune 1000 corporation."

These were the words of James Surowiecki last month in his New Yorker piece What Microloans Miss. Now another mass media hit for the SME cause - the Miami Herald interviewed Root Capital founder Willy Foote this week about the basics of his enterprise development organization.

Root Capital identifies and supports SMEs in countries where the private sector is dominated by micro-enterprises and large corporations. This structure represents a dearth of businesses in the investment range of roughly $100,000 - $3 million - the infamous "missing middle"

Willy, a key player in this space, believes that providing success stories of SME finance can help set off a rising tide of investment in this sector - very similar to the New Ventures approach. In his words: "...we can really do what microfinance did. That is, show local financial institutions that this is an asset class they can penetrate profitably."

Reading this, it occurred to me that this is already happening - take the case of Brazil, where in the past several years, a number of funds have sprung up focusing on SMEs in environmental sectors, including Axial Par, the Stratus VCIII fund, Rio Bravo Investimentos and a new fund to be launched soon by Rio Bravo veteran Luiz Maia.

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SMEs Are What's Next