Transcript Social Entrepreneurs: Ready to Share Center Stage with the

einstitute.worldbank.org
Social Entrepreneurs:
Ready to Share Center Stage with the Public and
Private Sectors in Producing Growth with Equity
October 4, 2011 | 10:00 AM EST
Speaker: Arvind Gupta
Lead Financial Sector Specialist,
World Bank Institute
Power of Social Entrepreneurship
Vision Spring
Social enterprise
dedicated to reducing
poverty by delivering
high-quality,
affordable
eyeglasses to
individuals via a
network of local
entrepreneurs using
a scalable model that
reaches more people
every day.
2
Vision Spring
•
35% Increase in Productivity
– In collaboration with the University of Michigan, Vision Spring
performed a rigorous impact assessment --- demonstrated an average
increase in productivity of 35%, meaning more ability to work, learn
and support a family. Equivalent of adding two and a half working days
per week to each user of our products.
•
Increased Earnings. By conservative estimate of average daily income,
working days per year, and expected life of a pair of eyeglasses, Vision
Spring calculates that each pair of glasses produces Rs 15,000 in increased
earnings over two years for those who need it most.
•
Leverage of Each Donor Dollar in 2009: 55:1
3
Why Focus on Social Enterprises
o SEs combine three attributes central to "growth
with equity"
• social conscience and ethics,
• public service delivery mission of the public sector and,
• the business efficiency of the private sector.
o Put formally SEs simultaneously enhance
"Technical" and “ Allocative" efficiency.
SEs need growth capital and non-financial services
to scale via…
Replication
Expansion
4
Social Enterprise Investments: Three Elements
Scalable
investments have
declining marginal
costs and good
reach
Commercially
Viable investments
appeal to financial
investors, have
positive cash flow
and good rates of
return
High Social
Impact
investments have
a high rate on
social return and
service BoP
5
The Challenge
+Declining Unit Costs --downward sloping cost
curve
+Increasing Coverage --geographic, consumer
numbers
Scalable
Financially
Viable
High Social
Impact
DM & Impact Investors
catalyze investment
where commercial
investors will not
venture
+ High Social Rate of Return
+Income benefits@ BoP
+Income Mobility of Poor
+Impact on Availability of
essential living goods
+Cover Operating Costs
+Breakeven on cash flow
basis
+Full cost breakeven
+ Assured funding for
financing cash deficit
Sweet
Spot
6
Where we need to add value.
Scalable
Commercially
Viable
High Social
Impact
• Invest in areas others can’t
and won’t
• Catalyze the social
enterprise space with new
investors
• Invest in early stage
entrepreneurs who are first
movers in their space
• Convene a consortium of
official and private funders
interested in public goods
delivery by non-state actors.
7
The Double Bottom Line
o Focus on "Operational SEs" access growth finance and
capacity building services to enable them to go to "Scale"
in a "Financially Viable" manner.
• "Operational SEs" mean SEs that for at least two years have
been providing services using some type of a defined business
model.
• "Scale" means evidence of, or potential for, a downward sloping
marginal cost curve.
• "Financial Viability" (not the same as commercial viability)
means ability to secure a predictable and growing cash flow
stream to fund expansion in operations --- capex and/or working
capital, for at least three to five years. The distinction between
financial viability and commercial viability is critical.
8
Financial-Social Axis
9
Social Investing Ecosystem
Early/”idea” stage
–“Seed capital”
Proof of concept stage
–“venture capital”
Established market viability
– “investment phase”
10
Current Environment for Social Entrepreneurship
Issues and Needs
Limited access to
targeted capacity
development and
patient capital
Few ventures are
financially stable and
achieve systematic
impact and scale
Access to growth
capital is inhibited
Opportunities
Impact Investors
looking to increase
deal flow
Governments
willing to help fund
PPPs
If origination/due
diligence costs are
lowered and
targeted capacity
building is
available…
... Growth
Finance from
Impact
Investors can
flow
11
The Financial Conveyor Belt
Experiment
Catalyze
Grant Capital from
Donors and
Philanthropies
(Current DM)
Targeted capacity
building, patient
capital
Missing portion of
financial conveyor
belt
Scale
Equity and Debt
Many
investment
funds operate at
this stage
12
Our Objectives: Mobilize Capital +
Capital markets
Sovereign wealth
funds
Pension funds
Wealthy diaspora
Foundations
Capital +
Capacity
SEs
SEs
SEs
SEs
SEs
SEs
SEs
SEs
SEs
SEs
SEs
Local
Philanthropy
TA Providers
“This group recognizes that it is not a “supply of capital” nor a “lack
of deal flow demand” but rather intermediation barriers that inhibit
the sector from achieving its full potential”
Aspen Network for Development Entrepreneurs
13
New DM Focus
Experiment
Catalyze
Grant Capital
from Donors and
Philanthropies
(Past DM)
Targeted capacity
building, patient
capital
Missing portion of
financial conveyor
belt ---- NEW DM
Scale
Equity and
Debt
Many
investment
funds operate
at this stage
DM support is at
the "early take
off" stage. --a
tested working
prototype
business model
ready for
scaling /
replication with
support of
patient capital.
Major hump and
transition point
in a firm's life
cycle. If
navigated leads
to successive
rounds of
financing
14
New Development Marketplace Strategy
From
To
Direct funding of
Grantees
Linking mature pipeline to impact investors
Build ecosystem
from HQ then “Fund
and Forget”
Work with local partners for origination, due
diligence, capacity development and incubation
models
One-off Competitions
Programmatic approaches and leveraging Bank
balance sheet
Direct Origination
Support existing pipeline of “nearly financeable”
projects
In-house
management of
grants
Subcontracting to third parties such as Ashoka
15
Program Objectives
1. Identify and support field testing of INNOVATIVE,
early stage ideas with potential for high
development impact.
2. Forge strategic partnerships to execute and
scale-up these ideas.
3. Serve as a source of skill building and knowledge
of best practices for social entrepreneurs.
16
Types of Impact Investors
Ultra High Net worth individuals
Mostly self made entrepreneurs that are looking to give
back.
High Net worth individuals
They are traditionally philanthropic providers and will
need more accurate advice and track record to get fully
involved as investors
Family Offices
Idiosyncratic decision making; personal engagement
required; will be more willing to experiment and become
first loss equity
Foundations
Tightly regulated and wary of what they can and cannot
do; facing pressure to increase their MRI
Impact investment funds
Led by development-type individuals that see the need
and the opportunity to fulfill this gap in funding;
increasingly led by newcomers into this space that see a
niche business opportunity
Institutional investors (asset managers)
They need to justify this investment type to traditional
clients and stakeholders: there is no track record, no
returns, no measurement for social impact, too small
investment size, etc.)
Pension funds (asset owners)
Too small for them; regulation does not allow them to get
involved at lower than commercial returns
17
Evaluation Criteria
Criteria
Description
Social Impact
Proposals should demonstrate how the project provide low income
communities with greater access to goods/services, and/or income
generation opportunities.
Sustainability
Sustainability of results and development impacts projected by financial
and organizational capacity should be assessed.
Enterprises need to have been operational for at least two years and
demonstrate they are on a pathway to organizational and financial
self- sufficiency.
Growth Potential
Proposals should exhibit potential for being replicable/scalable and be of
potential interest to social investors and/or mainstream venture investors
and financial institutions.
Innovation
Proposals should demonstrate the extent to which the organization and
project have innovative and inclusive approaches to lowering costs and
enhancing affordability.
18
DM Program In India
India.
o Support SEs in the seven officially designated low-income
states.
o With IFC and a local collaboration partner DM providing
intensive capacity building support to 14 selected via a
competitive process. In addition DM is also supporting 140
non-winners through a collective capacity building program.
o This fiscal year DM plans to hold one or two competitions
targeted at SEs in the other four low income states or targeted
at SEs that work in the area of improving rural livelihood
o DM working with key local partners to strengthen local
ecosystem capacity for pipeline generation, enterprise
incubation, and growth financing.
19
DM Program In East Africa & MNA
East Africa
o Pilot TA facility that in collaboration with IFC, impact investors and early
stage Investment funds would select and curate a set of SEs that after
purposive capacity building support are likely to reach financial close with
funders.
o The aim is to curate at least 30-35 enterprises during the pilot stage, test
and refine the TA delivery model and in due course spin of the facility as a
self-standing institution. The pilot is expected to be launched by early next
year.
MNA
o Pilot competitive grants program to surface and curate social enterprises
that provide livelihood and income mobility services targeted at unemployed
youth. Pilot designed to test out the features of the SE landscape in the
MNA region.
o Long run intention is to strengthen local ecosystem for supporting SEs.
20
DM Projects with Funders
Investment Platform
o Uses MBA students to work with Social Enterprise to develop detailed
funding proposals that could be presented to funders.
o An on-line matchmaking platform organized as a club.
Capacity Building Alliances
o Collaboration with the Global Social Benefit Incubator (GSBI), School
of Business and Administration, Santa Clara University to scale up their
highly successful SE incubation and training program.
o Our planned collaboration will take this to scale ---- 300- 400 SEs per
year, by developing an online version coupled with remote and face to
face mentoring services provided by Silicon Valley entrepreneurs and
successful entrepreneurs/corporate executives located in the country of
the SE.
21
2011 India Development Marketplace
Identify and fund inclusive business models with a clear potential for going to scale
and/or being replicated in the States of Bihar, Orissa and Rajasthan
13 winners
Awards: $50,000
over 2 years
+Technical
assistance
22
India DM Assessment Process
264 Proposals received in Open Call
Eligibility Screening
• 4 “screeners” on eligibility
187 Eligible for being Assessed
Assessment
Assessment Process
• 36 Assessors
30 Finalists to Marketplace Event
2011 India DM Event
April 6
13 Winners
Marketplace Event
• 8 jurors interviewing 30
proposals
23