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Impact investing and bio-businesses in Latin AmericaLATAM

Question 3 of 4

Which financial instruments work for a bio-business?

The short answer

It depends on the stage. Without stable sales, seed capital or grants fit. With purchase orders comes working capital, and with predictable cash flow, debt. Blended finance spreads risk across layers of capital, and equity arrives when scale justifies it.

The full answer

Step by step

  1. The capital ladder, with its thesis and its proof.

    1. 01Seed capitalSeedIts thesis: Bets on a team and a real problem before there are stable sales.What the company proves: A problem validated with customers, a team able to execute and a use-of-funds plan with milestones.
    2. 02Working capitalWorking capitalIts thesis: Finances the cycle between buying from producers and getting paid by the customer. It is repaid by the same sale.What the company proves: Purchase orders or contracts, a known cash cycle and a repayment track record.
    3. 03DebtDebtIts thesis: Lends over a term against predictable cash flow, at a fixed return.What the company proves: Positive or near-positive cash flow, known unit margins and reasonable collateral.
    4. 04Blended financeBlended capitalIts thesis: Combines philanthropic, concessional and commercial capital so that each takes the risk it can bear.What the company proves: Measurable impact, a first-loss tranche and a path for commercial capital.
    5. 05Fund equityEquityIts thesis: Buys a stake in the company because it expects it to be worth several times more.What the company proves: Unit economics that improve with scale, corporate governance, clean due diligence and a credible exit.

  2. The grey zone: businesses too large for microcredit and too small for a fund.

    Many businesses with customers and margins sit between microcredit and the fund, in what the industry calls the «missing middle».

    Read the idea of the grey zone

  3. The order of capital: the return that philanthropic, concessional and commercial capital expect, and the risk each one takes.

    Blended finance combines the 3 layers so that each takes the risk it can bear. The first to come in lowers the risk for the next.

    Read the idea of the order of capital

  4. Natural capital as the basis of a business, when there is a product that sells and cash flow that sustains it.

  5. The first deal as a track record for the next funder.

Frequently asked questions

People also ask

When is debt a better fit than a grant?

Without stable sales, seed capital or grants fit. Debt lends over a term against predictable cash flow, at a fixed return, and asks for positive or near-positive cash flow, a known unit margin and reasonable guarantees or collateral.

Why does an equity fund not fit many bio-businesses?

An equity fund buys a stake in the company because it expects it to be worth several times more. It needs growth and a possible exit, and asks for unit economics that improve with scale, a large market, corporate governance and an exit thesis.

What is blended finance?

A combination of philanthropic, concessional and commercial capital so that each takes the risk it can bear. The first to come in lowers the risk for the next. The company shows measurable and verifiable impact, a logical framework with activities and targets, and a path for commercial capital to come in later.

Public sources

Sources

IDB GroupNaturaTech LAC, an IDB Lab initiativeiadb.orgIDB GroupGET Forum 2025, San Salvadoriadb.org

Questions

The other questions

  1. 01How do you prepare a bio-business for investment?Investment readiness, the Investment Passport and what an investment committee asks.
  2. 02How does a bio-business reach break-even?Real unit economics, with losses, freight and the harvest cash cycle.
  3. 04How do you scale a bio-business?Operations, market and capital, with field logistics and supply.