impact investment

Impact Investment

What is a social enterprise?

Activity

• Discussion in groups of 5, the life-cycle of a social enterprise– Idea– Funding– Incubation– Growth– Scale– Innovation– Buyout or death

How do organization fund their ideas and their businesses?

How to fund Your Organization?

• Different ways to finance your project– Crowd Funding– Bank Finance– Angel Investor– Venture Capital (profitability and exit potential)– Government backed finance– Traditional Fund raising activities (charity events, cold

calling, door to door, celebrity endorsement etc)– Social Enterprise competitions (Dell, Hult, Venture Cup)– Startup Weekends??– Social Investment fund

Bank Finance

• KFW and GIZ• ADB• Nabard India• IFU in Denmark for Developing countries• World bank and IFC• Porparco and AFD• OPIC US government

Crowd Funding

• KickStarter• Kiva• MyC4• Mylaap• Types– Reward– Equityhttps://www.youtube.com/watch?v=8b5-iEnW70k

Government Ministry Funds

• https://www.youtube.com/watch?v=iV2ViNJFZC8

• (Monty Pythons’ Ministry of Silly Walks)

Social Enterprise Competitions

• Dell SoCent Competition• Harvard SoCent Competition• OxBridge SoCent Competition• Hult SoCent Competition• X-Prize foundation• Startup Weekend Competitionhttps://www.youtube.com/watch?v=dPAOj40rr5k

Social Investment Fund

• It is not microfinance !!• It is not venture capital !!• It is investing in businesses that create positive

social value in communities

What is impact investment?

What is impact investment?

Impact Investment Firms 2001-2012

Types of Social Investment Fund• For profit social investment fund

– Bridges Ventures– Legatum Ventures– GrayGhost Ventures– Aavishkaar

• Foundations– Gates Foundation– Dell Foundation– Tryg Founden– Ferd Social Entrepreneurship Fund

• Incubation Funds– Villgro– Unitus Seed

• Fellowships– Ashoka– Acumen

Indian Case

• Aavishkaar (https://www.youtube.com/watch?v=r5vSbcxVGko)– 2002 with 100 dollars– Currently they have raise over $400 million– Mandate

• For profit social enterprises• Marginal markets and difficult to operation, remote markets• Ethical business practices• High level of innovation• $ 200K to $2 Million• Equity based investment: 10% to 30%• Institutional investors

Indian Case

• Villgro (https://www.youtube.com/watch?v=ZvblnKyJG28)– Investor, Incubator and Mentor– Invests in social enterprises where social mission is

integrated with the market– $20K to $200K– Equity 10%– Based inside an engineering university, looks for high

degree of innovation– Government grants

Due Diligence

• Type of Funding required (equity/loan/Grant)• Social Mission Diligence• Financial Return Diligence• Social Network Diligence• Political Diligence• Mission Drift• Exit Strategy

Type of Funding Required

• Equity Funding– Buy a part of company (shares) based on certain valuation– Valuation based on expected returns over the next 5 years– Valuation based on company capitalization in the next 5

years– Valuation based on the entrepreneurs’

experience/age/current customer/ board members/celebrity endorsement/novelty and innovation

– Very high risk

Type of Funding Required

• Loan– Based on collateral– Low risk– Interest rate

Type of Funding Required

• Grant– Project proposal– Project approval– Very low risk– Time consuming– Lots of paper work

Social Mission Due Dilligence

• Baseline case and theory of change• Qualitative and Quantitative• Qualitative– Peace and happiness– Reduction in social inequality

• Quantitative– Change in status quo as a function of intervention

Financial Return Due Diligence

• Market and industrial condition, Economic and social indicators

• Revenue streams– Costumers– Turnover time– Government grants

• Cost– Inventory– Customer acquisition cost– Salaries of staff– Office space

Social Network/Political Due Diligence

• Political climate of the local region and national level

• Entrepreneurs’ History and social network• Board members and their reputation• Staff and their social network

Mission Drift Management

• Hiring• Scaling• Managing investors• Managing Investees

Exit Strategy

• IPO• BuyOut (different strategies)• Collateral/ Asset Selling• Debt reimbursement

Investment Decision

• Contractual Document– Legal risk– ESG risk– Financial Risk

• Role of entrepreneur• Management of the investment

Activity

• Put yourself in the shoes of the investor• Critically study your projects and think what

will it take for an investor to invest in your project or reject your project

• Critically think who could be the potential investors and why

Crises of Legitimacy

• Lack of metrics• Lack of standard practices• Lack of standard valuation practices• Role of social in valuation of the enterprises• Managing financial returns• Conflict of social vs commercial