Small Business

Nurturing Nicaragua

MANAGUA, Nicaragua -- As the owner of a new small business in this struggling Central American nation, Carlos Fernando Solórzano, 24, says he has the hopes of about 50 workers and 100 families riding on his success.

But his company, Vegyfrut -- which provides fresh-cut fruits and vegetables to high-end restaurants and hotels -- has something else riding on it too: a new poverty-reduction model.

Vegyfrut is the first company slated to receive backing from the Agora Venture Fund, an organization hoping to prove good deeds and profits are not mutually exclusive.

With offices and co-founders in Washington, D.C., and Managua, Agora has raised about a quarter of a proposed $2 million venture fund, which it will invest in socially responsible small businesses in developing nations.

Veering away from micro-lending models, Agora takes an equity stake of between $25,000 and $200,000 in small firms. The organization's nonprofit arm, Agora Partnerships, backs up the investment with consulting and training.

Ben Powell and Ricardo Terán Jr., the organization's founders, admit the concept is relatively new and fraught with obstacles. But the promise of creating a model where aid is also a savvy investment "is the holy grail of development, " said Powell, who runs the group's Washington, D.C., office.


Microventure programs have been around for years but have been largely obscured by better known micro-lending programs. That shadow is even larger now that Muhammad Yunus, who launched the modern micro-credit movement in 1976 with a $27 loan in Bangladesh, won a Nobel Prize for his work.

But micro-lending only goes so far, said Terán, who runs Agora's Nicaragua operations.

"What we were seeing was that [micro credit] wasn't taking companies to the next level, " he said. "It was creating micro-enterprises, but it wasn't creating that many sustainable jobs; and it really wasn't creating competitive companies -- especially ones that can survive in a regional marketplace."


The poorest nation in the hemisphere except for Haiti, Nicaragua is a prime testing ground for Agora. More than half of Nicaragua's population lives below the poverty line. While unemployment is relatively low, 47 percent of all workers are considered "underemployed" and the nation needs to create 60,000 new jobs a year to accommodate a growing workforce.

"Foreign direct investment isn't enough [to generate new jobs] and national investment isn't enough, so we need to create new companies, " Terán said. "But why aren't they being born? Lack of financing, lack of access to networks and lack of contacts."

Agora is trying to fill those gaps in the entrepreneurial chain by helping organize a business plan competition, providing training workshops and bringing in volunteer consultants from Ivy League MBA programs.

Solórzano -- who is using part of a $100,000 commitment from the Agora Venture Fund to pay for a refrigerated warehouse and expand Vegyfrut's offerings -- said one of the most important benefits of working with Agora has been meeting suppliers and customers who would have been inaccessible in Nicaragua's tight-knit business community.

No one knows how much is being plowed into global micro-venture efforts, but it's just a fraction of what goes into other types of aid, said Andrew Stern, a partner at Dalberg Global Development Advisors, a management consultancy firm focused on development issues.

Last month Dalberg and the Aspen Institute organized a meeting of about 30 aid organizations, including Agora, to try to raise the profile of the "next generation" of development tools.

"We are hoping this is an opportunity that is comparable to micro-finance, " said Stern. "But people also realize it's a much tougher sell. Investing in small businesses, particularly in the developing world, is inherently riskier."

Agora is trying to minimize those risks with its hands-on approach, and because the fund's investors are watching the "double bottom line" of economic and social returns, it changes the definition of success, Powell said.

Gian Marco Palazio is one of the fund's investors and the owner of Avanz, a Nicaraguan firm that sells protective industrial clothing.

"It's very hard to get commercial banks to believe in new projects, particularly if you are young and don't have any collateral, " said Palazio, who ultimately had to rely on personal connections to get his enterprise financed. "Frank Sinatra had it wrong. If you can make it here, you can make it anywhere."

Palazio said he hoped his investment in the fund would give other entrepreneurs a leg up.

"If it ends up being profitable, that would be welcome and fantastic, " he said. "But really it's an investment in young entrepreneurs in our country and [an effort] to try to change the business climate little by little."


Proving that businesses can be a force for positive change is particularly important in a region increasingly disillusioned with free-market capitalism, Powell said. Venezuela, Ecuador and Bolivia are all embracing socialist policies and former Sandinista commander Daniel Ortega recently won Nicaragua's presidential election with promises to do the same.

"If you can make the case that good small businesses help the community, you are going to make a stronger case as well for democratic capital-ism, " Powell said.

Terán -- who studied at Georgetown University but says he learned about entrepreneurship running a neighborhood car wash in Miami while he was attending St. Brendan's elementary school -- said Agora has about 15 other investment opportunities in the pipeline. And thanks to donations from the Dutch government and USAID, Agora hopes to be working in El Salvador and Honduras next year.

But the fate of Agora and their aid model are ultimately in the hands of companies like Vegyfrut, said Powell.

"We are putting our reputation as a nonprofit on the line with these businesses, " he said. "If they fail, you should legitimately call our model into question. But if we are successful, we hope to replicate this and make a big impact [around the world], not just Nicaragua."