Daniel Gizaw faces an exciting challenge. His firm, dVentus Technologies, is a clean-energy company based in Ethiopia with promising prospects but a need for growth capital.

Daniel’s journey to innovation in Ethiopia’s energy sector began during his tenure as an engineer in the American automotive industry. He initially established a company in the United States in 2001 and partnered with the engineering faculty at Addis Ababa University to increase the company’s technical capacity.

As Ethiopia’s economy picked up steam, Daniel shifted his base to Addis Ababa and launched dVentus Technologies. There, he focuses on system integration for renewable energy projects and advanced transportation.

With significant outside investment, dVentus faces unlimited potential as an early player in the clean-energy sector, where the impact of providing energy to millions is untold.

This arena is known as “impact investing” — focusing on industries that deliver significant financial and social or environmental impact to improve the welfare of those at the base of the pyramid. Those industries include: sustainable agriculture and consumer products, clean technology, access to clean water, and affordable housing, education and health care.

About 65 percent of impact investors expect market-level financial return from their involvement, while the other 35 percent prioritize social and environmental impact (and are satisfied with below-market-level financial returns).

The scope of the impact market is promising for investors. A study by JP Morgan, which focused on five of the above target industries, projected an investment opportunity of US$400 billion to $1 trillion and a gain of $183 to $667 billion (after recouping that investment) by 2020.

Impact investing in Africa

From a sample of U.S. and European investors in 2010, only 30 percent had made investments in Africa, and 45 percent of those investments were exclusive to South Africa. Through increased exposure and collaboration, however, investments are now shifting toward sub-Saharan Africa, and up to 60 active impact funds exist in the region as of May 2013.

One example of such impact investments is Acumen Fund, an international nonprofit that’s working to erase poverty. Acumen Fund invested $2.1 million in Western Seed, which increases the productivity of low-income farmers in Kenya.

RENEW is another organization that’s pioneering impact investing at the small/medium enterprise (SME) level in East Africa. “The investment community is trying to crack the code to get capital into SMEs,” says Laura Grazier, a partner at RENEW. “But the transaction costs are high.”

For example, she explains, most SMEs in Africa don’t yet need $10 million in capital, but transaction costs for a $100,000 to $3 million deal are often just as high as for a $10 million investment. So, many impact investors ignore the SME level.

Except, that is, the “angel investor” — an individual who takes on more risk in exchange for more potential upside — who might pool his or her capital with others to invest in a company for financial and social return. “We partner with the development community to make these [smaller] investments viable for angel investors,” Grazier explains, “thus unlocking capital for companies like dVentus.”

The simple realities of doing business in Africa can also challenge investors. For example, although Ethiopia has improved access to credit information, there is still a credit and liquidity shortage.

Organizations such as RENEW host groups of investors to check out opportunities in East Africa that are within their scope of interest. During these “econ-tourism” trips, clients not only visit a business but also engage in cultural experiences and meet with influential leaders.

One of RENEW’s clients is Dr. Andrew Umhau, a medical doctor in the Washington, D.C., area who was inspired by annual service trips to Haiti and by his affinity for the vibrant Ethiopian community in D.C. Umhau shared his reflections on RENEW’s blog:

“Investing with RENEW allows me to maximize my own investments, put my money into something I understand and can visit if I want to, and that integrates many of my desires and interests — [including] a fascination with other cultures [and] an excitement about what is happening in the developing world.”

Through RENEW’s facilitation, a North Carolina-based chapter of RENEW’s angel network made an investment into dVentus Technologies that is allowing the Ethiopia-based firm to prototype new smart grid solutions.

The results of this investment include positioning the company for future rounds of capital and job creation. But the impact of providing reliable, efficient energy to millions of Ethiopians in the future is simply beyond measure.