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

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Power of Social EntrepreneurshipVision 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.

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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

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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

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Social Enterprise Investments: Three Elements

High Social Impact

investments have a high rate on

social return and service BoP

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

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The Challenge+Declining Unit Costs ---downward sloping cost curve+Increasing Coverage --- geographic, consumer numbers

+Cover Operating Costs+Breakeven on cash flow basis +Full cost breakeven+ Assured funding for financing cash deficit

+ High Social Rate of Return+Income benefits@ BoP+Income Mobility of Poor+Impact on Availability of essential living goods

Financially Viable

High Social Impact

Scalable

Challenge

Space

Sweet Spot

DM & Impact Investors catalyze investment where commercial investors will not venture

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Where we need to add value.

• 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.

Commercially Viable

High Social Impact

Scalable

Adding

Value

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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.

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Financial-Social Axis

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Social Investing EcosystemEarly/”idea” stage –“Seed capital”

Established market viability – “investment phase”

Proof of concept stage–“venture capital”

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Current Environment for Social Entrepreneurship

... Growth Finance from

Impact Investors can

flow

If origination/due diligence costs are

lowered and targeted capacity

building is available…

Impact Investors looking to increase

deal flow

Governments willing to help fund

PPPs

Few ventures are financially stable and achieve systematic impact and scale

Limited access to targeted capacity development and

patient capital

Access to growth capital is inhibited

Issues and Needs

Opportunities

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The Financial Conveyor Belt

Experiment Catalyze Scale

Grant Capital from Donors and Philanthropies (Current DM)

Targeted capacity building, patient capitalMissing portion of financial conveyor belt

Equity and DebtMany investment funds operate at this stage

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Our Objectives: Mobilize Capital +

Capital + Capacity

Sovereign wealth funds

Pension funds

Wealthy diaspora

Foundations

Capital markets

Local Philanthropy

SEs

“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

TA Providers

SEsSEs

SEsSEs

SEsSEs

SEsSEs

SEsSEs

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New DM Focus

Experiment Catalyze Scale

Grant Capital from Donors and Philanthropies (Past DM)

Targeted capacity building, patient capitalMissing portion of financial conveyor belt ---- NEW DM

Equity and DebtMany 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

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New Development Marketplace Strategy

Direct funding of Grantees

Build ecosystem from HQ then “Fund and

Forget”

One-off Competitions

Direct Origination

In-house management of

grants

Linking mature pipeline to impact investors

Work with local partners for origination, due diligence, capacity development and incubation

models

Programmatic approaches and leveraging Bank balance sheet

Support existing pipeline of “nearly financeable” projects

Subcontracting to third parties such as Ashoka

From To

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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.

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Types of Impact InvestorsUltra 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

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Evaluation Criteria

Criteria Description

Social ImpactProposals 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.

InnovationProposals should demonstrate the extent to which the organization and project have innovative and inclusive approaches to lowering costs and enhancing affordability.

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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.

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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.

MNAo 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.

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DM Projects with FundersInvestment 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.

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13 winnersAwards: $50,000

over 2 years+Technical assistance

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

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India DM Assessment Process

264 Proposals received in Open Call

187 Eligible for being Assessed

Assessment

30 Finalists to Marketplace Event

2011 India DM EventApril 6

13 Winners

Eligibility Screening• 4 “screeners” on eligibility

Marketplace Event• 8 jurors interviewing 30

proposals

Assessment Process• 36 Assessors