social venture capital - a means to alleviate poverty

PROJECT PYRAMIDSUSTAINABLE CO-LEARNING IN ACTION

CATALYST Consulting:Matthew Cohen, Ian Howard, Simon MacMahon, Bob Mann, Alexis Morgan

The Challenge

Create an organization that stimulates and supports sustainable development (economic, social and environmental) at the base of the pyramid that utilizes Project Pyramid’s scarce resources

Our Development Philosophy

Development from Below Needs-oriented Endogenous Self-reliant Ecologically sound Fosters participative

decision-making

Poverty Alleviation Through Empowerment

“Poverty will end as it has ended everywhere else, by homegrown political, economic, and social reformers and entrepreneurs that unleash the power of democracy and free markets.”

- William Easterly in response to How Aid Can Work (December 21, 2006)

Capability and Resource Assessment

Strengths Weaknesses

Dedicated Volunteer Base Lack of Onsite/Local Expertise

Business Acumen Lack of Site Specific Infrastructure

Access to Capital and External Expertise

High Turnover (Institutional Memory)

Partnerships (Divinity) Finite Volunteer Hours

Leverage Minimize

Business Acumen Lack of Local Expertise

Partnerships (Divinity)

Project Pyramid must work to:

Project Pyramid Alternatives

BOP Philosophy

Strengths - Bus. Acumen- Partnerships

ScalableImpact

3 Pillars- Education- Collaboration- Action

Project Constraints - Time- Lack of Local Expertise- Limited Funds

Single Business Model

Consulting Services

Micro-credit

Social Venture Capital

Development Intervention

NGO/Micro-entrepreneursInvestment Range: $100-$5,000Financing: Microcredit, special funds

Small Social EnterpriseInvestment Range: $5,000 - $50,000Financing: Local Banks?

Large Social EnterpriseInvestment Range: $50,000 - $500,000Financing: Local Banks

SMEInvestment Range: > $500,000Financing: Commercial Investments

Social Venture Capital – Why?

Commercial Investment (SME Financing)

Grant Funding

Deg

ree o

f S

elf

-relian

ce

& t

yp

e o

f cap

ital in

pu

t

Aid/Microcredit Market

Source of capital

Commercial Banks

Range: $100-$5,000•NGO•Micro-entrepreneurs•Microcredit

Range: $5,000 - $50,000•Small Social Enterprise•Local Banks?

Range: $50,000 - $500,000•Large Social EnterpriseInvestment•Local Banks

Range: > $500,000•SME Investment•Commercial Investments

Gap

Sustained Action

The Business Model – Identification

Screening Process

1.Identify local companies that fit our criteria. Company referrals will come from,

• Church network• Business associations• Ministries• NGOs

2.Screen down to 5-20 companies • Initial screening based on a simple process• Local advisory board suggests and assesses

Identification CollaboratingCo-Learning

Consultation Process:• Teams of 2 students per enterprise• Maximum 4 weeks• Collaborative development of initial business plan• Support from local advisors & Vanderbilt faculty

Sustained Action


The Business Model – Co-Learning

The Business Model – Co-Learning

Learning Elements – Students

• Learn: Local industries and enterprise models

• Adapt: Classroom theory to local circumstances

• Understand: Local culture

Learning Elements – Company

• Learn: Business reporting skills

•Adapt: North American business tools

• Understand: Foreign culture Sustained

ActionIdentification CollaboratingCo-Learning

The Business Model - Collaborating

Review and Assessment of Candidates

Score Sheet for: Anasset LPG

Criteria Score

Economic Impact 8

Social Impact 7

Environmental Impact 6

Fits Project Pyramid Capabilities

8

Capital Constraints 9

Openness to Collaboration 7

Viability of the Business Plan 7

Total 52 / 70 Sustained Action


Full business plan developed with students

Business plan reviewed by Investment Committee

Initial capitalinvested

The Investment Committeeis composed of local leaders, Owen facultyand key professionals

Plan submitted

Changes requested

Sustained Action


Plan approved

The Business Model - Collaborating

The Business Model - Sustained Action

Sustained Action


Further FundingContinued

Business Growth

Performance Monitoring

Strategic Adjustments

Consulting and Training

Ever Improving Processes

Potential Exit Strategies

Funds invested in subsequent

venture

Still has potential - Adjustments, Still has potential - Adjustments, continued investmentcontinued investment

Business is in good shape Business is in good shape but not ready for but not ready for divestmentdivestment

The Overall Business Model – Sustained Action

Sustained Action


Funding Model

5-year Goal: $1.6 Million Endowment Fundraising with Owen

assistance Target Segments:

Individuals: Regional (Baptist?) Congregations ($300K)

Major Gifts: Owen Alumni ($300K)

Corporations: Those with linkages to Owen/Site ($300K)

Aid Agencies: USAID ($700K)

Funding Scenarios

Fundraising Scenarios

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Year

Pri

nci

pal

Rai

sed

Aggressive

Moderate

Conservative

Note: There are consequences to each scenario in terms of spending

Country: Why Ghana? Criteria

Low conflict High need English speaking High investor protection High % of Christians Strong institutions Relatively good IT infrastructure

Investor Protection Index

Ease of Business Rank

Private Credit

South Africa

8 35 52.1%

Ghana 6 87 0%

Nigeria 5.7 108 0%

Namibia 5.3 43 59.9%

Botswana 4.3 51 58.3%

India 6 120 10.8%

Source: DoingBusiness.org, 2007

Source: WRI, 2007

Vanderbilt Implementation Plan

Action Steps: Year 1 – Get Plans and Positions in Place

1. Communicate/modify plan to Project Pyramid Team (Principal)

2. Catalyst Fundraising Coordinator (Project Developer): Work with Owen Fundraising Team to approach donors Apply for matching funds from USAID

3. Catalyst Ghana Mission Liaison (Divinity Liaison): Establish mission liaison (USA/Ghana); research;

4. Project Manager: Develop & deliver marketing materials

5. Talent Manager: Complete trip logistics

Year 2 (2008-2009) – Institutionalize Process

1. Continue fundraising efforts

2. Inspire incoming class with 2008 work & recruit new team

3. Plan & coordinate spring/summer 2009 trip

Goal: Catalyst Capacity Development

Jan.2008

May Sept. Jan. May Sept.2009

Year 1 Year 21 - 3 4 5 1 - 2 3

Ghanaian on-the-groundPlan

Jan.2008

May Sept. Jan. May Sept.2009

Year 1 Year 21 2 - 4 1 2 3 4

Action Steps: Year 1 – Lay the Foundation

1. Missions distribute Flyer (written or verbally) to identify suitable businesses in Ghana for Catalyst to explore

2. Principal: Recruit Local Ghanaian Advisory Board

3. Talent Manager: Recruit and Hire local coordinator

4. Teams engage potential companies, explore and lay foundation for Year 2

Year 2 – Formal Launch of Sustained Action

1. Liaise with local coordinator

2. Solicit & identify 2009 businesses (missions/marketing)

3. Local Advisory Board to review candidates

4. Sustained action: identification, co-learning, collaboration

1113

80

44

13771

8783

12157

Community Outreach

Christian Missions distributed over Ghana Clergy can act as eyes and ears in the field

as well as assist with local advisory board Leverages Partnerships (Divinity) to

overcome a lack of local knowledge

Source: www.ghanamissions.com

Missions in Ghana – Total 704

http://www.ghanamissions.com/

Risk Assessment/Mitigation

Risk MitigationPotential for misuse of funds/accountability by Co.

- Phased funding - Mandatory reporting structure

High student turnover

- Faculty involvement- Creation of various boards to stabilize governance

Student’s safety

- Local Advisory Board will advise & develop emergency plan - Local support from clergy

Proposed funding targets are not met and anticipated perpetuity is not established

- Operate via annual fundraising- Decrease equity amount - Remove travel bursary

Case 1: Anasset LPG

Business Plan - provides liquefied petroleum gas

Opportunity - Expansion Constraint - Lack of financial

resources Need - $38,000 over 4 years

Triple benefit: Economic – Business growth a sustained profit of 40% Social – lower costs for cooking, less smoke inhalation Environmental – reduced use of wood for cooking fuel

Reference: Areed (UNEP)

http://www.areed.org/projects/index_projects.htm

Case 2: Gladymanuel Trading

Business Plan - Solar energy lighting company Opportunity - Significant growth due to power

shortages (water shortage for dams)* Constraint - Lack of financial resources Need - $70,000 over 3 years

Triple Benefit Economic - Returned funds at 7.5% Social - Lighting to 9000 families, fewer shortages Environmental - Provided green energy

* Source: Areed (UNEP)

http://www.areed.org/projects/index_projects.htm

Impact - Economic

Revenues

Impact - Social

Impact - Environmental

Conclusion

Identification Opportunities to empower

local knowledge to fight poverty

Co-learning Equity VC = Longer term

commitment, shared growth and learning

Collaboration Missions, Congregations,

Divinity school & local advisory board

SustainedAction

Questions

Funding Scenarios

Aggressive Scenario: Quick, Large Donations and Matching

Equity Funding

Local (Ghanaian) Coordinator

Student Travel Bursaries

Project Admin / Marketing

Total Costs

Year Starting Funds

Additions to Endowment Principal

Additions to Endowment Interest

Year End Balance

2008 $0 $6,000 $20,000 $10,000 $36,000 $75,000 $450,000 $1,950 $490,950

2009 $20,000 $6,120 $20,400 $10,200 $56,720 $490,950 $1,200,000 $21,712 $1,655,942

2010 $20,000 $6,242 $20,808 $10,404 $57,454 $1,655,942 $0 $79,924 $1,678,411

2011 $20,000 $6,367 $21,224 $10,612 $58,203 $1,678,411 $0 $81,010 $1,701,218

2012 $20,000 $6,495 $21,649 $10,824 $58,968 $1,701,218 $0 $82,113 $1,724,363

2013 $20,000 $6,624 $22,082 $11,041 $59,747 $1,724,363 $0 $83,231 $1,747,847

2014 $40,000 $6,757 $22,523 $11,262 $80,542 $1,747,847 $0 $83,365 $1,750,671

2015 $40,000 $6,892 $22,974 $11,487 $81,353 $1,750,671 $0 $83,466 $1,752,784

2016 $40,000 $7,030 $23,433 $11,717 $82,180 $1,752,784 $0 $83,530 $1,754,134

2017 $40,000 $7,171 $23,902 $11,951 $83,023 $1,754,134 $0 $83,556 $1,754,667

Funding Scenarios

Moderate Scenario: Steady, Large Donations

Equity Funding




Total Costs

Year Starting Funds



Year End Balance

2008 $0 $6,000 $10,000 $10,000 $26,000 $75,000 $60,000 $2,450 $111,450

2009 $20,000 $6,120 $10,200 $10,200 $46,520 $111,450 $200,000 $3,247 $268,177

2010 $20,000 $6,242 $10,404 $10,404 $47,050 $268,177 $400,000 $11,056 $632,182

2011 $20,000 $6,367 $10,612 $10,612 $47,591 $632,182 $800,000 $29,230 $1,413,821

2012 $20,000 $6,495 $10,824 $10,824 $48,143 $1,413,821 $200,000 $68,284 $1,633,961

2013 $20,000 $6,624 $11,041 $11,041 $48,706 $1,633,961 $60,000 $79,263 $1,724,518

2014 $40,000 $6,757 $11,262 $11,262 $69,280 $1,724,518 $0 $82,762 $1,737,999

2015 $40,000 $6,892 $11,487 $11,487 $69,866 $1,737,999 $0 $83,407 $1,751,540

2016 $40,000 $7,030 $11,717 $11,717 $70,463 $1,751,540 $0 $84,054 $1,765,131

2017 $40,000 $7,171 $11,951 $11,951 $71,072 $1,765,131 $0 $84,703 $1,778,762

Funding Scenarios

Conservative Scenario: Few/No Large Donations (Continual Fundraising)

Equity Funding




Total Costs

Year Starting Funds



Year End Balance

2008 $0 $6,000 $0 $5,000 $11,000 $75,000 $20,000 $3,200 $87,200

2009 $20,000 $6,120 $0 $5,100 $31,220 $87,200 $30,000 $2,799 $88,779

2010 $20,000 $6,242 $0 $5,202 $31,444 $88,779 $40,000 $2,867 $100,201

2011 $20,000 $6,367 $0 $5,306 $31,673 $100,201 $40,000 $3,426 $111,954

2012 $20,000 $6,495 $0 $5,412 $31,907 $111,954 $40,000 $4,002 $124,050

2013 $20,000 $6,624 $0 $5,520 $32,145 $124,050 $40,000 $4,595 $136,500

2014 $40,000 $6,757 $0 $5,631 $52,388 $136,500 $50,000 $4,206 $138,318

2015 $40,000 $6,892 $0 $5,743 $52,636 $138,318 $50,000 $4,284 $139,967

2016 $40,000 $7,030 $0 $5,858 $52,888 $139,967 $50,000 $4,354 $141,433

2017 $40,000 $7,171 $0 $5,975 $53,146 $141,433 $50,000 $4,414 $142,701

Work Responsibilities

Leadership Positions Principal: overall

coordination and Ghanaian advisory board recruitment

Talent Manager: Ghanaian coordinator hire

Project Manager: Marketing materials & travel logistics

Divinity Liaison: Mission linkages & information management

Project Developer: Fundraising & USAID application

Catalyst Team Member Pre-Departure

Fundraise travel costs Research Ghana Obtain travel requirements

& immunizations Prepare business plan

templates Post-Departure (On-

site) Visit identified companies,

learn & share Select business &

collaborate to develop plan

Present plan to Local Advisory Board

Upon return Sustain follow-up

Social Venture Capital Our model is based on:

Funding companies with high growth potential that are presently constrained by inefficient capital markets and/or human capital constraints

Target companies that have the opportunity most positively local communities – poverty reductions

Model – the company owner will buy back their shares in 5 years

We will buy no more than 25%

Start with one company per year, and grow from there.

Two to stage funding

Operating expenses in the company will be covered by our operations in the country

Our costs to send our staff will not be covered by operation, must be fund raised

This is a one country model

Capital market is inefficient and underperforming

We need to address what is failure, not getting our money is not failure.

What success is to us

We will use NPV and discount rate would be - real difference between us and another

Metrics

Impact

Staged Funding

Community Outreach

1. Establish Local partnerships

2. Grassroots Publicity via word of mouth, local press releases

3. Limited Marketing Initiatives

.

The Business Model - Collaboration

A Phased Investment Approach

Sustained Action

Identify CollaboratingCo-Learning

Step 1: PlanningAn acquisition plan is drafted

Legal/Structural changes beginOutput: Initial Plan

Step 2: ConsultingPlan is further developed, performance changes

Output: Plan & Structural Changes

Step 3: Initial Capital InvestmentInvestment in capital to achieve business goals

Output:

Output: Acquisition Plan

Amount of Capital Invested

Environmental Impact

Solar panels installed Solar panels Pound Lbs Total Tons

50 1 50 50 2,500 2.50

55 2 110 50 5,500 5.50

61 3 182 50 9,075 9.08

67 4 266 50 13,310 13.31

73 5 366 50 18,301 18.30

81 6 483 50 24,158 24.16

89 7 620 50 31,002 31.00

97 8 779 50 38,974 38.97

107 9 965 50 48,231 48.23

118 10 1,179 50 58,949 58.95

Ensuring Positive Impact - Metrics

Year Revenue Costs Wages Fixed Profit Employe

esNumber of Companies

# employess working for our

companiesGross

Revenues

With fiscal Mulipli

er

2008 60,000

45,000

20,000

25,000

15,000 20

1

20

60,000

108,000

2009 66,000

49,500

22,000

27,500

16,500 22

2

44

132,000

237,600

2010 72,600

54,450

24,200

30,250

18,150 24

3

73

217,800

392,040

2011 79,860

59,895

26,620

33,275

19,965 27

4

106

319,440

574,992

2012 87,846

65,885

29,282

36,603

21,962 29

5

146

439,230

790,614

2013 96,631

72,473

32,210

40,263

24,158 32

6

193

579,784

1,043,610

2014 106,294

79,720

35,431

44,289

26,573 35

7

248

744,056

1,339,300

2015 116,923

87,692

38,974

48,718

29,231 39

8

312

935,384

1,683,692

2016 128,615

96,461

42,872

53,590

32,154 43

9

386

1,157,538

2,083,568

2017 141,477

106,108

47,159

58,949

35,369 47

10

472

1,414,769

2,546,584

social venture capital - a means to alleviate poverty

Economy & Finance