“One final ingredient for multisolving may be the most important of all: courage… Multisolving means starting with a tough problem and taking on other problems right at the start; saying that the rights of marginalized groups matter… and daring to believe that people can and will work together to heal our communities and Earth.”
—“The Magic of Multisolving,” Stanford Social Innovation Review, 2018
By providing biodigesters that reduce carbon emissions, lower on-farm costs, and create circular loops for organic waste, Sistema.bio has nailed the multisolve approach. Alex Eaton and Camilo Pages founded Sistema.bio in 2010 with a shared dream to improve the lives of smallholder farmers.
Biobolsa: Biodigester as Value Exchange
Our planet relies on smallholder farmers. A majority of the nearly 500 million of them worldwide cultivate areas of land smaller than 2 hectares, and yet they collectively supply 30% of society’s food. And yet, while the World Economic Forum emphasizes that smallholder farmers are “key to achieving global food security,” most of them survive on less than $2 a day while enduring the front lines of the climate crisis.
What if one solution could simultaneously:
- improve smallholder farmers’ unit economics and
- benefit the productivity of their business as well as
- transform livelihoods,
- remove harmful greenhouse gas emissions,
- improve soil health and water quality, and
- provide a source of regenerative fertilizer and renewable clean energy?
This is the dream and the promise that Sistema.bio has delivered: supporting climate resilience in over 53,000 households and improving the lives of nearly 500,000 people across 6 countries to date — Mexico, Colombia, Nicaragua, Kenya, Uganda, Malawi, and India.
By 2023, the team had the design, demand, patents, and production locked in. The challenge was how to finance their growth. If the whole point is to help smallholder farmers afflicted by poverty rightsize their unit economics, making capital expenditure affordable is going to be a huge challenge.
“Business as usual” will pass the cost onto the customer; social enterprise will not. Sistema.bio’s financial innovation lies in their decision to offset the cost of the biodigester using revenue from carbon credits.
Biodigesters metabolize animal manure into renewable energy and fertilizer, both removing methane emissions and avoiding future carbon emissions on-farm. Sistema.bio can repurpose income from carbon credits corresponding to sales of biodigesters as subsidies for their costs. With these economics, the purchase price of the biodigester is reduced from $1,400 to $800 for their Kenyan customers. Using Sistema.bio’s in-house financing program, farmers can pay $40 per month to own the biodigester outright after two years.
The only missing piece in the puzzle was the timing of the cash conversion cycle. Sistema.bio can only sell carbon credits upon presenting proof of installation of a specific device, months after upfront costs have been incurred. In early 2023, to sell 3,000 units in Kenya, they needed bridge financing to span the 6 months between production and receipt of income from carbon credit buyers to complete the puzzle.
That’s when Miller Center Capital stepped in.
Trust-based Innovation in Financial Instruments
Working hand-in-hand with the teams at Sistema.bio and Beneficial Returns, we timed cash flows such that loan repayments were linked to receipt of carbon credit income. This structure solved Sistema.bio’s problem by putting Miller Center on the hook for 6 months during the riskiest part of their business cycle, between production and installation. Why were we willing to take that risk?
Sistema.bio graduated from Miller Center’s flagship Accelerator program in 2014 and has since joined a dozen Miller Center programs. Their Africa Director joined our Fall 2023 In-Residence Program, where Sistema.bio won our annual Social Impact Excellence Award as well! Separately, since 2018, Beneficial Returns has been consistently lending to Sistema.bio without a hitch. Let’s just say we are all old friends.
Because of how much we trust Sistema.bio and how much confidence we have in their ability to deliver, we stepped in to invest using a structure perceived as high risk that we co-created with the entrepreneur’s best interests at heart.
Our $50K looped in an additional $500K from Livelihood Impact Fund. Together, our investment helped Sistema.bio generate proof of concept to fuel their international expansion. Biodigesters get produced, distributed, and installed, carbon credit dollars flow in, and we get repaid. Successfully delivering this arrangement proved Sistema.bio’s capacity and helped them close larger institutional funding shortly after.
Here’s where the numbers go bonkers. That institutional funding they received? $25 million, using a similar structure.
Right now, Sistema.bio is raising $50 million+ to scale the model as an off-balance sheet vehicle.
But wait — they’re not stopping there, either! By next year, they’re targeting $100 million+ assets in that vehicle, which looks like…
Miller Center Capital enthusiastically and creatively invested in a deal that would widely be designated “highly risky.” Not only did we go first, we also syndicated money. By partnering with Sistema.bio, as with the other trailblazing social entrepreneurs in our community, we build bridges across the impact investing landscape’s “valley of death.”
At that point, the size of investments in Sistema.bio will have grown 2000X in 2 years. Behold the power of leverage! And the multisolve approach continues: not only do smallholder farmers win, carbon buyers can lock in prices at greater quantities, and finance can serve the needs of people and planet — not the other way around.
We are so proud of Sistema.bio’s success and can’t wait to see what they do next!
