The first-mover disadvantage: Why philanthropic finance may be the missing layer in building a foundation for the private sector

In development finance, few topics provoke more quiet discomfort than this one: Should for-profit companies receive grant funding?

To critics, the answer is obvious. Grants distort markets. They subsidize inefficiency. They pick winners. And in doing so, they risk creating businesses that cannot stand on their own. Yet, in much of the world where markets are still being built rather than competed in, this critique misses something fundamental.

As Fiona Hoffman-Harland, Head of Partnerships and Consulting at Pula, puts it, "There are a lot more risks and barriers to growing a business in emerging markets. In many cases, you have a first mover disadvantage, rather than advantage.” This distinction reframes the debate entirely.

From Boardrooms to The Field: A Different View of Capital

Hoffman-Harland did not begin her career in development. She spent her early career in Uganda, building businesses from the ground up, far from the abstractions of capital theory.

“I’ve always believed in business as a way of economic development,” she says. “Creating stable, successful businesses that generate jobs and build the economy.” Her belief led her into the funding world, spanning both investment and philanthropy.

The First-Mover Disadvantage

In Silicon Valley, being first confers an advantage. In rural markets across Africa, it often does the opposite. Companies entering these markets must build the entire ecosystem before they can launch the products.

"It involves high setup costs and the need for ecosystem building that does not make commercial sense for the private sector to fund. It is also too costly for an early stage company to invest in while keeping the lights on,” Consider what this means in practice. A company selling solar home systems does not only sell energy. It must invent credit models, payment systems, and distribution channels. A firm offering agricultural insurance must invest in data infrastructure, farmer and government education, and policy alignment, often before revenue is viable.

These are not competitive advantages. They are public goods. And public goods, by definition, do not generate immediate commercial returns.

Why For-Profit Companies Still Need Grants

This is where philanthropic finance enters. “For-profit companies still need grants to cover high setup and ecosystem building costs,” Hoffman-Harland notes.

At Pula, this has taken concrete forms. Grant capital has supported the design of insurance products for lower-income farmers, piloting innovative financing mechanisms, government program development, and the expansion into underserved demographics of female farmers. These efforts require research, iteration, and distribution models that may take years to become viable.

A Sector in Transition

The role of this capital is becoming more urgent as the development landscape shifts.

Hoffman-Harland describes a sector at an inflection point. “The development space… is undergoing a transformation ,” she says. The traditional model, often characterized by short-term projects and fragmented interventions, is hopefully giving way to a focus on long-term systems.

Sustainable growth, she argues, depends on moving “away from a handout culture toward an empowerment culture,” where businesses generate jobs, incomes, thus diminishing the public's reliance on aid.

Beyond Grants: The Discipline of Partnership

The answer to sustainable growth lies in public–private–social partnerships, but this is also where many initiatives fail.

Breakdowns often stem from misaligned expectations. Funders may expect rapid scale or immediate commercial viability. Companies, in turn, may pursue projects that are peripheral to their core business simply to access funding.

“Projects that are tangential to an early-stage company’s core business or growth strategy are a recipe for disaster,” Hoffman-Harland warns.

The discipline, then, lies in alignment. Grants must support pathways that lead to sustainable revenue, whereas companies must resist the temptation to chase capital at the expense of coherence.

The Role of Philanthropic Finance, Reconsidered

The debate over grants to for-profit companies is unlikely to disappear. But the terms of that debate may need updating.

Philanthropic finance is not about supporting companies but about making markets possible. Or, as Hoffman-Harland frames it, it is about “accelerating the ability for the private sector to grow in a systemic way”.

That distinction is subtle. But it may be the difference between projects that deliver outputs, and systems that endure.