Project detail - Gazelle Fund II LP

Who is our prospective customer?

Gazelle Finance is a multi-country fund manager with the objective to provide growth capital and mezzanine stage financing to high-growth small and medium enterprises (SME) - "gazelles" - in the Eurasia region. In 2016 Gazelle Finance Partners LLC was formed to be General Partner for Gazelle Finance’s first fund, Gazelle Fund LP (“Gazelle Find I”). Upon first close of Gazelle Fund I in 2017, the partners in the GP resulted in 50% female representation. Gazelle Finance model is based on a recycling strategy, where reflows are immediately reinvested during the investment period. Since its final close, the Fund I became a reputable financing source, both in Armenia and Georgia, with a tailored instruments adapted to the entrepreneur’s needs.

What is our funding objective?

Gazelle Fund II intends to continue its focus on the early-stage to growth-stage investments providing USD 0.5 million up to USD 2 million tickets to promising business. This financing model is complementary to the banking sector as it provides a necessary growth capital with a lower collateral requirement to SMEs, which are underserved in the region due to their lack of bankability and other sources of financing.

Why do we want to fund this investment?

The intended investment in Gazelle Fund II is a strong fit with FMO’s objective to empower entrepreneurs and their local communities, create sustainable economic development in emerging markets and to reduce inequalities. To date, Gazelle Finance is the only fund manager, which provides this type of SME financing in the region. As in many places, SMEs are the backbone of the economies in the Caucasus Region. However, the companies indicate a consistent lack of access to capital. Due to their size, most of them are unserved by the banks in these markets as they are unable to meet the banks’ lending requirements of minimum 100% (typically 150%) collateral. There is very limited activity of PE Funds in the described countries, especially in the lower SME segment, therefore FMO’s participation is critical to support in filling this funding gap.

What is the Environmental and Social categorization rationale?

Previous Gazelle I fund performance on E&S management was considered sufficient for the lower risk pipeline was maintained. Maintenance of the risk category B was advised if the pipeline had similar opportunities and risk level. After review of the pipeline for Gazelle II, we believe that the new pipeline includes mainly lower risk investments that can be categorised as a B. Therefore, we agree with the preliminary E&S categorisation “B” to remain after DD/FP. Nevertheless, we do want to add the recommendations below to manage the E&S risk, as recently we have come across funds that were categorised as a B, but after change in risk appetite came across opportunities that were considered category A investments from an E&S perspective.

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Date	Total FMO financing
3/2/2024	USD 4.00 MLN