CFYE is looking to support and seed the establishment of an investment fund that will focus on the “Create” and to some extent can consider “Improve” employment outcomes. The fund is expected to provide growth capital to Small and Medium sized Enterprises (‘SMEs’) that are well-positioned and have the intention to grow their workforce by investing and employing youth. These enterprises need capital to expand their businesses, yet are poorly served by existing finance providers. Established fund managers, with a track record of financing SMEs in some or all of the regions mentioned above and proven track record in developing and implementing robust frameworks for measuring social impact, are invited to submit a proposal to become the manager of the Fund. Any DIFYE specific questions can be sent to firstname.lastname@example.org.
The objective of the Fund is to identify and support those enterprises that, through their growth, can grow the number of quality jobs for young people (defined as being between 15 and 35 in age), especially young women (with the explicit target that 50% of jobs created need to be for women). The fund is expected to create at least 25,000 jobs by December 2025.
The structure and strategy of the Fund need to be geared towards this aim. How this is achieved, what companies in which of the focus countries to target, what type of financing to offer, etc. is left to the fund manager to suggest through its proposal. A clear theory of change, setting out how the objective of generating job opportunity for youth will be achieved, is a core part of the proposal.
Fund Manager Role
It is anticipated that the Fund Manager will manage the entire investment process. This will include:
- Pipeline creation
- Preparation of Investment Committee materials and presentation of the opportunity
- Due diligence, negotiation, structuring and documentation of the investments
- Management of liquidity and FX exposure, as well as other back-office functions
- Portfolio monitoring and reporting
- Sourcing of exit opportunities (where needed)
- Raising capital (with support from a placement agent)
Certain responsibilities are expected to be taken on by third parties, e.g. auditor, custodian, transfer agent and registrar.
We hosted a webinar on the Dutch Investment Fund for Youth Employment on Wednesday, July 22nd (15:00 to 16:00 hours (GMT+2) Netherlands Timezone). You can watch the recording below.
Request for Proposal
Interest parties are invited to respond to this Request for Proposal. You are requested to submit a proposal of not more than 30 pages providing answers to the questions in the full ToR.
You are kindly requested to submit your proposal by e-mail, no later than 15 September 2020, to email@example.com.
A shortlist of prospective fund managers will be invited for a presentation in September, conducted virtually and designed to expand on the written submission. This will help us achieve a better understanding of the alignment in terms of philosophy, approach to promoting youth employment and measuring impact.
After the workshops, Palladium anticipates selecting a preferred bidder. The evaluation criteria are specified in Appendix II. Palladium will enter into final negotiations on an exclusive basis with the selected Fund Manager.
Responses to clarifying questions
In terms of coordination between CFYE and DIFYE we expect the following:
- We require the proposers to indicate that the fund will be open to considering applications from CFYE graduates. The ultimate investment decision sits within the governance structure of the investment fund and thus is independent of CFYE.
- We encourage close co-ordination with the challenge fund to spot opportunities for co-operation. Fund managers can make several suggestions, but we would expect that this involves some degree of participation of the investor on the grant committee and an LPAC seat for the CFYE in the DIFYE. Regarding the latter: bids received on calls for the Challenge Fund could be considered either:
a. straight for investment (possibly in combination with a grant and/or technical assistance);
b. scored as interesting in the future,
c. scored as potentially interesting provided a number of key issues are addressed or;
d. scored as little investment opportunity potential.
In this way, we expect that the CFYE will serve as a part of the pipeline for the DIFYE.
Furthermore, the CFYE is open to explore other possibilities of joint sourcing of pipeline through our network or through more pro-active participation of the fund manager in a specific call for proposals.
- The investment fund is expected to also consider investment proposals outside of the Challenge Fund. The Challenge Fund can bring in additional expertise where relevant such as on impact and measurement, local context, and possibilities to increase the social impact of the program.
Before the launch, the team envisages being involved in advising across the board including structuring, pipeline, governance, restrictions, etc. After the launch, it is envisaged that there would be an LPAC seat and cooperation around the pipeline building. Please read through the answer of ‘How is the co-ordination envisaged to take place between CFYE and DIFYE?’ for more information.
This is just the catalytic vehicle (or DIFYE).
These would be the local markets where you would make the investments (e.g. Nigeria).
It will be possible to position DIFYE as a major anchor investor in another initiative. Exact branding and reference will be agreed during the co-creation phase.
Eligibility and Consortia
Would fund managers or a consortium of fund managers with an AUM below 50 mln USD qualify for the Dutch Investment Fund for Youth Employment?
Unfortunately we are not able to change the eligibility criteria of 50 mln USD AUM. The (consortium of) fund manager(s) applying do need to have 50 mln USD AUM.
The targeted fund is 50 mln USD. If the subsequent fundraise yields less than the target, what would be the permitted minimum first close; and should the fund not reach the full amount, will there be any clawbacks?
The money provided is a grant. The risk of reaching the expected fundraise will be assessed before contracting. In addition, the strategy to raise funds will be discussed before the contract is signed and the desirability of the CFYE to assist with a capital raise can be considered. Not raising the full amount is not a reason for a clawback assuming that the fund manager has done everything reasonably possible to raise the capital.
How will the 25,000 jobs be counted? Will it be the new jobs after the investment is made or simply the cumulative number of jobs the Fund Manager has created?
It will be the new jobs created after the investment is made.
The ToR states: fund manager or investment manager with a minimum of 15 years of experience’ and ‘Impact specialist with a minimum of 5 years of experience’. The webinar seemed to imply this minimum criteria is applicable to the team members not the organisation bidding – could you please clarify?
This would be the criteria for the DIFYE team within the fund manager, as such the teaming of the management of this fund needs to have an investment manager with 15 years of experience and another team member with a minimum of 5 years of experience in impact M&E.
On the webinar there is a question pertaining to alliances which are welcomed but where a single contract is envisaged with a lead contractor. Does this mean a JV arrangement whereby a new entity (created by two or more providers that meet the criteria) delivers the contract would not be acceptable?
This would be acceptable
Where there is an alliance or consortium bid, with value add from the different organisations, – are there any essential criteria that must be met by the lead contractor apart from being a private company?
The consortium must meet the eligibility requirements, those are the only essential criteria and further discussions on set-up of JV will come up during the co-creation session if the bidder is selected.
The ToR calls for the business to manage funds of a minimum of $50m with a significant portfolio in at least two of the target geographies. In the case of a JV where a new fund would be offered is it sufficient for one of the parties to fulfil this criteria?
No, we expect the fund manager to suggest their recommendations based on the risk profile and diversification strategy.
Could businesses run by expats or with alternative country corporate infrastructure (e.g. overseas topcos) be considered for investment?
All companies are eligible, we would like the potential fund manager to state what their preferred targets are.
Yes, there is preference for ‘boots on the ground’.
The preference is for boots on the ground. Whether this applicant is from any of the target countries or region is not part of the scoring criteria.
Yes, there is preference for diversity in the fund manager. Scoring is integrated under expertise and team expertise, plan for addressing gender and diversity.
In the webinar it is noted that the fund concept should not be single geography but not necessarily cover all geographies. Is there any preference or weighting within the Challenge Fund that would influence where the DIFYE might be best to focus? Is there any benefit in the scoring to the breath geographic coverage?
No, there is no preference for particular geographies, yet the initial hypothesis from the DIFYE is that the geographies need to have enough pipeline and saleability to further funders.
Can the concept note include the secondary geographies that do not have anticipated calls for proposals but still fall in the challenge fund remit?
As long as the countries are part of CFYE countries this is possible.
Could any more materials on the Challenge Fund M&E and GESI systems and processes be released to enable bidders to consider opportunities to streamline the DIFYE’s own activities.
There is no more information available at this stage beyond what has been provided in Appendix III.
In the webinar it is noted returns should be appropriately risk/reward focussed in-keeping with the requirements of the RFP i.e. achieving the youth employment metrics. Is there any range of financial and commercial ROI metrics that are required? How will the proposals ‘saleability / attractiveness to investors’ be evaluated in this regard given some impact investors similarly do not set financial metrics?
There is no stated range, we aim to get input from the fund managers as to what they expect to be realistic given their investment thesis (geography, sector, stage etc.), yet the expected return (Gross and net IRR) and cost metrics (management fee etc) need to be stated. The saleability scoring will be based around the investment thesis and how this would align/or not to the targeted investor network, such as the required risk return, cost, sector, impact metrics, timing etc.
The 30 pages are excluding appendices.
Could you please precise the difference between a) Relevant financing expertise (structuring and execution) and b) Investment expertise (structuring, investments, portfolio management, risk management)?
A is in reference to deal-making whereas B is in reference to managing assets.
The more information that can be shared, the better. The minimum would be a job description meeting these minimum requirements. Where possible anonymized full CVs can be shared.
The current view is sector agnostic from a DIFYE perspective, and we would like the fund manager to state their preferences for thematics/sectors as well as the according metrics (Job creation and Gender metrics are necessary though).
Is there absolute flexibility on deal size and business stage? Could start-ups or mature companies as well as SMEs be investees?
Yes, there is absolute flexibility it is all dependent on the fund managers pipeline, capabilities etc with the aim of meeting the impact metrics. The alignment with the CFYE graduates is the only aspect that may need to be discussed.
Is there a minimum requirement of funds that should be earmarked for pipeline from the broader challenge fund? Would it be acceptable if no investment from the DIFYE was made into any company coming through the broader challenge fund pipeline?
There is no minimum requirement, the aim is to ensure that there is alignment and leverage the CFYE grant portfolio. We envisage coordination to take place with the CFYE to enable this where possible. In this regard, we would like to refer to Q&A page on the website.
The first window for deployment of capital is very rapid. Is there a minimum deployment anticipated? Is there a requirement for any matched funding to be attached to these early deployments? Are there any requirements for when the 10M in total should be deployed in total?
The initial deployment needs to be indicative and not prescriptive; the aim is to use this portfolio as an indicator when raising further capital. As such there is no need for initial matching funding and no minimum. The total deployment will be based on the envisaged LPA and the investment period put forth by the fund manager and in alignment with the opportunities available.
Is it envisaged the Challenge Fund will already have generated some pipeline which is fit for investment by Q1 2021.
Given the current stage and envisaged stages of the various calls, it will be dependent on the fund managers target countries, there may be pipeline available from the calls already completed yet the fund manager is expected to have generated their proprietary pipeline too. Please refer to the Q&A page on the website for more information on the (potential) current pipeline.
It is currently difficult to provide more information about the pipeline that the Challenge Fund for Youth Employment will create at this stage for the DIFYE for the following reasons:
- We are still at the initial stages of the fund. Our first call for Uganda has just been completed and the calls for Egypt and Nigeria are currently live.
- The sectors and types of companies are different for each country and based on an analysis that is carried out in each country prior to the call to ensure that the call is relevant in terms of the type of companies and organisations targeted, key sectors, and constraints hindering the employment of youth.
- The calls for proposals will also evolve based on learnings on other calls and suggestions from other
With the above-mentioned limitations in terms of stage and differences per country, we are providing some more background information on Uganda, Nigeria and Egypt.
For Nigeria, our call for proposals focuses on private companies with ideas to create digital jobs or skilled craftwork for youth. Projects should result in decent employment for at least 500 young people (aged 18 to 35), especially young women. More information on this call and the scoping report on which the call is based can be found here: Call for Solutions Nigeria.
For Egypt, our call for proposals focuses on private companies that wish to invest in projects that generate (or sustain) decent employment for young people (aged 18 to 35). Flexible and decent work is an important focus within Egypt and priority sectors are agriculture, retail trade, manufacturing, ICT/digital business, renewable energy, health services, hospitality services and SME support, accelerators, and business angels. More information on this call and the scoping report on which the call is based can be found here: Call for solutions Egypt
For Uganda, the call was open for NGOs and private sector companies. We received over 300 applications. After screening, 22 applicants were invited to submit a full proposal and of those 7 organisations whose applications have been approved. Download the portfolio dashboard with some more details of those 7 companies.
The Challenge Fund for Youth Employment is funded by the Netherlands Ministry of Foreign Affairs, and managed by Palladium, in partnership with VSO and Randstad. This call for concept notes is the first stage of the application process, and successful applicants will progress through to the next round, where they will be invited to submit a detailed proposal and business case.