Invested Development: May 2011

Friday, May 27, 2011

Weekly Review May 23-27

In honor of the upcoming SOCAP/Europe conference, this Weekly Review focuses on social entrepreneurs and the challenges they face in the industry, most prominently the task of finding a balance between financial and social returns.

SOCAP Social Entrepreneur Spotlight Series from Social Capital Markets

SOCAP/Europe (at the intersection of money and meaning) is in on in Amsterdam next week: May 30, May 31, and June 1. Our own Femi Akinde of SlimTrader and Sam White of Promethean Power Systems are both attending. Track Sam’s SOCAP adventure on his blog, Sam at SOCAP. SOCAP spotlighted Femi earlier this month. In the Spotlight Series, SOCAP asks the interviewees what they are working on and what problem it solves. Many entries also feature commentary on roles in the Social Capital Marketplace and reasons for attending SOCAP conferences. Other great spotlights have included COO Dennis Dijkstra from Movirtu and founder and CEO Christine Eibs Singer from E+Co. SOCAP focuses on both mobile technology and alternative energy innovations in developing countries, falling in line with our laser sharp focus. In fact, we first discovered our most recent portfolio company, SlimTrader, at SOCAP last year. Check out the Spotlight Series to learn more about who’s attending this year.

“Reflections on Sankalp 2011: The Curious Case of Economic vs. Social Value” by Tilak Mishra from Next Billion

In the wake of Sankalp Forum earlier this month, there have been many articles about the “ecosystem” and reflections on social entrepreneurship, impact investing, best practices, and the structure of the industry overall. Sankalp 2011 brought together entrepreneurs and investors alike, all with the common goal of providing affordable good and services to those at the Base of the Pyramid. It’s obvious that the flow of money at the BoP is not what it is at the significantly smaller ToP. Add this to the list of challenges including high costs, lack of infrastructure, risky and unstable markets. These are all normal challenges that any entrepreneur would face, but a social entrepreneur must consider their social returns as well as their financial. However, by finding innovative ways to meet the needs of the world’s poorest citizens and realize the potential opportunities for change and impact, social entrepreneurship can create value for all involved.

“Beyond Start Up” by Tony Sheldon from Beyond Profit

SELCO Solar Panels in India

As the social enterprise industry matures, we are seeing more articles discussing industry challenges and ways to overcome them. Tony Sheldon first shares his thoughts on financing, a topic that very much affects and is influenced by Invested Development. It’s difficult to match impact investors with the right social entrepreneurs and vice versa. The investor and entrepreneur must have a clear direction of the future of the business both financially and socially. Another challenge, rooted in required level of scale in order to maximum social impact, is managing human resources in emerging markets. Acquiring talent and paying fairly while meeting financial and social returns is a time and resource consuming challenge. Sheldon uses SELCO India as an example of a social enterprise that is handling their human resource challenges effectively and innovatively. SELCO seeks to “maintain a 50/50 balance among its staff between those who work there because of the social mission with those simply seeking a good job with fair pay and have the skills needed to do their jobs well.” The overall goal is to strike a balance between the financial goals and the social goals. Sheldon suggests that scale is “the link between profitability and impact.” Once again, however, striking a scaling pace that doesn’t compromise the mission or model is crucial.

“Off grid-PV is more than poverty mitigation – it’s sound business sense” by Simon Rolland from ARE via PV Magazine

Yesterday, I had the pleasure of speaking with Simon Rolland, the Secretary General of the Alliance for Rural Electrification. We discussed the alignment of values that Invested Development shares with ARE. We share the mindset that renewable energy technologies can reduce poverty and are a profitable business practice both in developed and developing countries. In this article, Rolland discusses challenges that social entrepreneurs face – they must meet rural customers’ needs and tailor the products and services accordingly. For energy solutions, business models and pricing models must fit the consumers’ needs and ability to pay, not the other way around. The article is rich with facts, data, examples of success stories, and ways to overcome challenges in electrifying rural areas in developing countries.

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Friday, May 20, 2011

Weekly Review May 16-20

This Weekly Review focuses on the economic and social opportunities in renewable energy and clean technology, especially within emerging markets to better the lives of the world’s poorest citizens.

SELCO solar panels in India at Simpa Site Visit

“Mobile Phones to Use Noise from Your Conversations to Charge Low Batteries” by Jaymi Heimbuch on TreeHugger

We know that there’s a certain connection between mobile technology and alternative energy, which is why they are our investment focus. Researchers at the Texas A&M and University of Houston are studying piezoelectric material that could harvest sound waves for energy. Researchers at a Korean university are studying particular ways to harvest sound waves that are abundant in urban environments. So far, tests show that “100 decibels of sound can generate 50 millivolts of electricity,” which is perfect for charging cell phones during conversations. Harvesting the sound energy from traffic has the potential to produce abundant clean energy, but would require extensive urban planning. The article reports that harvesting sound energy is still in its early stages, but something to look out for in the future. Capitalizing on energy that is readily available and potentially highly affordable will be beneficial to the poor populations in urban areas.

“Renewable Energy Can Power the World in 40 Years: IPCC” by Brian Merchant on TreeHugger

It’s clear that the global community needs to find sustainable and renewable energy sources before we run out of oil or do any more environmental damage. In order for this to happen, change is necessary. Realistically, people and, more importantly, companies won’t change their energy consumption habits unless the government requires them to do so. With some governmental policy, the Intergovernmental Panel on Climate Change reports that “the world can get 80% of its power from renewable sources by 2050.” This includes everywhere from the US to Tanzania (where EGG-energy operates), to India (where Promethean Power and Simpa Networks operate). The report from the Intergovernmental Panel on Climate Change offers many great stats, including “the investment that will be needed to meet the greenhouse gas emissions target demanded by scientists is likely to amount to $5 trillion in the next decade, rising to $7 trillion from 2021 to 2030. “ What the article doesn’t touch upon, however, is that many investments will come from impact investors who have social goals beyond those that are simply environmental. Impact investors' contributions will promote economic development and improve citizens’ lives in emerging markets. Clean energy and technology in emerging markets can do more than save the environment (which is important, too). Investing in renewable energy in emerging markets can create jobs and provide products and services that the people there need to get an education or overall better their lives.

“Emerging markets lead in energy growth,” by Aya Lowe on Gulf News

ExxonMobil’s latest Energy Outlook Report states that global energy demand “will be up 35 per cent in 2030 compared to 2005.” What’s interesting is that the demand coming from countries outside of the Organization for Economic Cooperation and Development (OECD) will “increase by 70 per cent in 2030.” See here for a complete list of OECD member countries. Non-OECD countries include India, all of Africa and most of South America. In other words, the three major areas where we seek to invest. Furthermore, “the types of energy consumed [are] also forecast to change in the coming years,” and we’re confident that the switch will be towards renewable in both developed and developing countries.

“Global alliance seeks to promote renewable solutions for rural electrification” by Eleanor Seggie on Engineering News

Simon Rolland is the secretary-general for the Alliance for Rural Electrification. He argues (and we agree) that people in Africa need to turn towards renewable energy sources. However, as we’ve noted before, there are many challenges for the social entrepreneurs who try to bring renewable energy to rural regions. The Alliance for Rural Electrification helps to alleviate some of those challenges by developing key recommendations for companies or those involved in the renewable energy sector “to guide governance and decision makers.” Rolland says, “Markets must be shaped according to the needs of the private sector because the first needs in developing countries are for reliable technologies, suitable business models and investment.” The Alliance believes that energy access in rural areas will contribute to sustainable development and progress. Here at ID, we seek to invest in those very companies that aim to electrify rural areas.

“How Start-Ups Will Lead the Clean Tech Revolution” by James Parle from Presidio Graduate School’s MBA program on Triple Pundit

Clean tech is one of the “fastest growing sectors in the economy.” Parle points out that GE’s Ecomagination foreshadows that “start-ups and not large corporations will lead the clean tech revolution.” More specifically, small start up social enterprises like those in our portfolio and clean tech incubators like our friends at Greentown Labs will have maximum impact and the greatest influence in the clean tech revolution. The most successful clean tech incubators, Parle notes, are those that operate with sustainable business practices with a triple bottom line: people, planet, profit. A combination of investors who are willing to offer patient capital and sustainable clean tech incubators will lead the clean tech revolution both in the US and in emerging markets.

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Thursday, May 19, 2011

BoP Pricing Models

Social entrepreneurs face many challenges: finding the right impact investor, working with government regulations in emerging markets (or lack thereof), meeting the needs of citizens at the Base of the Pyramid, designing products and services that are profitable and scalable. Most importantly, social entrepreneurs must make their products and services affordable. The world’s poorest citizens have no savings and little access to formal credit, but that is not to say that they do not have purchasing power. Their individual spending may be small, but combined it is largely powerful. However, the problem for individuals is the large, up-front commitment to a purchase is close to impossible for those who earn an irregular and inadequate income. Even if the purchase will pay for itself after a period of time, it’s simply not feasible for the world’s poorest citizens. This post looks at pricing models that work and serve the BoP in ways that directly meet their needs. It’s not enough to simply have a well-designed product with good intentions. Social entrepreneurs need to create innovative pricing models.

In a report from Monitor, “Emerging Markets, Emerging Models,” Karamchandani et al. introduce the example of an Indian company, Servals. Servals designed a kerosene lamp that was more efficient, safer, and would “pay for itself after about two months.” However, to everyone’s surprise, sales were way below forecasted estimates. Customers at the BoP don’t have disposable income to “invest,” even if it will save them money in the long run. After a redesign of the product that allowed for a lower retail price, sales increased significantly to over one million units by 2008 (p. 11). This is one option for social entrepreneurs: simply redesign the product so it is more affordable. In the Monitor report, the authors outline seven different pricing models that “have the best chances of success,” (p. 7) determined after a multi-year extensive research project in emerging markets.

Serval lowered the price of their product with a cheaper design. But what if the product’s price can’t be lowered any further? The price of solar power, for example, deters many middle-class consumers even here in the US, so how can citizens at the BoP afford it? Simpa Networks developed an innovative pricing model to resolve that exact problem. Simpa designed its pricing model to be the same price as what many would spend on kerosene lamps. Instead of inefficient kerosene lamps, Simpa offers modern, small-scale solar home systems made affordable by allowing consumers to pay-as-they-go. The systems include “a solar panel, battery, charge control, at least 3-4 lighting points, a mobile charging port and power for charging or powering small DC devices.”

A "top up" card

The orange box is Simpa's "Regulator"
Photo from Miguel's Site visit in India

Simpa has designed a built-in “Regulator” that turns off the power until a consumer makes the required payment. Modeling the payments after the ubiquitous “top-ups” offered by mobile phone networks ensures that users are familiar with the process. Once the cost of the solar home system has been fully paid (at the customers’ own pace), the system will deliver electricity at no further cost for “the expected 10-year life of the product” and becomes a true asset.

Simpa's "Radical Affordability" Model

This pricing model is based on “radical affordability,” which Simpa defines across three axes: “the initial purchase price, the total cost of ownership, and the flexibility of expenditures over time.” Simpa’s model of radical affordability is one solution to the pricing model problem that entrepreneurs in emerging markets face. This post is the first of many that will highlight examples of companies that are practicing effective and innovative pricing models that best serve the BoP. For even more examples, check out “Emerging Markets, Emerging Models.”

by: Christina Tamer
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Tuesday, May 17, 2011

Put your innovative idea into action with BETA

We're looking for innovative, social-minded, and forward-thinking innovators with exceptional ideas that will change the lives of the world's poorest citizens in emerging markets. It may seem like a difficult task, but we're confident that innovative technology is the solution.

Our latest initiative is the Boston Emerging Technology Accelerator (BETA). Together with the BSP Fund and the Blue Sky Foundation, we have created BETA to support and commercialize technology focused on alternative energy and mobile technology platforms in emerging markets.

We're looking for exceptional innovators in the Boston area with creative technological solutions for some of the most vexing problems facing these markets. University students especially have the knowledge, capacity, and desire to create real social change and we want to help them make that happen.

Please review the BETA Overview and share our BETA flyer with students and other innovators in your community. Let us know your thoughts and questions by commenting on this post or emailing us at beta@investeddevelopment.com. All information is also available on our website at http://bit.ly/IDBETA

Friday, May 13, 2011

Weekly Review May 9-13

"What Investors Want" by Abby Callard of Beyond Profit

Beyond Profit interviewed seed-stage impact investor, Ben Powell of Agora Partnerships. Powell says that the most important thing to look for in a social enterprise is the impact entrepreneur. The entrepreneur, Powell says, is more important than the business model itself. It's much easier to change a business model than it is to change an entrepreneur. Also, the simplest plans can make the biggest difference in emerging markets. According to Powell, the success of a social enterprise is largely based on the entrepreneur’s values and their drive to create measurable and purposeful social impact.

“Igniting the Spark” by Nisha Kumar Kulkarni of Beyond Profit

Social entrepreneurs are the key to real social impact, but there are many additional challenges beyond simply creating an effective business model. Here at ID, we seek to invest in seed stage social enterprises, but what challenges do those social entrepreneurs face? Three successful social entrepreneurs share their insights with Beyond Profit and the three most common problems for new social enterprises. The first major problem is the funding gap: connecting impact investors and social entrepreneurs. Emerging markets are riskier and angel investors or venture capitalists are harder to find. Fortunately, there is a growing number of impact investors (like us, Gray Ghost Ventures, Agora Partnerships, etc) and more ways to connect them (like Sankalp Forum, SOCAP). The next challenge for startup social enterprises is organizational structure, including talent acquisition. Third, a social entrepreneur needs to understand the needs of the BoP and how to meet them. Finally, regulatory issues are a major challenge, especially for the mobile money industry. Some governments embrace innovation, while others make it much more difficult for entrepreneurs to operate. It’s important to know that it is possible to overcome these challenges; the proof is in our portfolio. Read the whole article for examples and experiences from Movirtu, Finestrella, and Juhudi Kilimo.

“Impact Investing Strikes a Chord with Institutions” by Charles Wallace of Institutional Investor

Antony Bugg-Levine, Rockefeller Foundation Managing Director and Institutional Investor discuss the trends in impact investing -- big banks are catching on. JPMorgan Chase & Co. predicts that between $400 billion and $1 trillion will be invested in the social enterprise sector over the next ten years. The article cites that charitable giving was down by 35% last year. Impact investing produces social benefits and a financial return. As we know, the term “impact” investing is a little vague (for our definition, see this post). The article goes on to discuss the initiatives to invest in impact from big companies like Prudential and TIAA-CREF. However, “institutional investors tend to most concerned about returns,” rather than the social good. It’s the age old bottom line dilemma. Lots of different impact measurement tools are appearing, like the Global Impact Investing Rating System. However, the world’s poor have so many different needs, and there are so many ways to address them (from alternative energy to mobile technology and everything in between), to make comparisons in returns is difficult. Overall, it’s still “unclear how impact investors can ensure that their appetite for return doesn’t overtake their desire to improve the world.” On the other hand, there are comparatively smaller impact investors (like us) that exist solely to invest in impact with truly patient capital. Big banks have the financial power, but do they have the social willpower?

“Intellecap Launches Platform for Funding Social Enterprises” by Priyanka Banerjee of VCCircle

We’ve frequently mentioned that one of the biggest challenges in the industry is connecting impact investors and social entrepreneurs. Intellecap is a social sector advisory firm in India launching “Intellecap, Impact Investor Network,” or I-cube N. It’s a new network seeking to partner with impact investors to facilitate 5-6 investments per year in the areas of “agriculture, clean energy, education, healthcare, [and] financial inclusion (without microfinance). I-cube N seeks to mobilize money and create an “ecosystem” to unite impact investors and social entrepreneurs.

Don’t forget, we’re currently seeking innovators for BETA, the Boston Emerging Technology Accelerator. If you have a technological idea, or know someone who does, please check out http://bit.ly/IDBETA. We want to help you bring your technology from innovation to enterprise and prove you with the support you need along the way. Together, we can create a new technology to help the underserved in emerging markets.

Friday, May 6, 2011

Weekly Review May 2 - 6

This week’s Weekly Review contains articles on mobile technology in emerging markets. Articles include mobile money success stories, challenges, and ways to develop the industry by offering more services, addressing key issues, and expanding access to Internet.

Before the articles, we’d like to acknowledge the Sankalp Forum in Mumbai, India that ended today. Working to enable the flow of capital between impact investors and social entrepreneurs, Sankalp Forum focuses on five high impact sectors. We’re especially interested in the Technology for Development sector, where they touch on our focus areas of mobile technology and alternative energy. Beyond Profit, whose articles regularly make the Weekly Review, is live tweeting from the conference. Two of our favorite tweets from @beyondprofit are: “'The rural economy will be run by renewable energy.' #SankalpForum” and “Fact: There are over 5 billion phones in the world. #SankalpForum.” Check out the hashtag for more tweets straight from Mumbai.

“From walkie-talkies to mobile banking” by Annalise Briggs

In addition to M-Pesa’s mobile money success in Kenya, we see successful mobile money applications in Latin America and throughout Africa from our portfolio companies Frogtek and SlimTrader, respectively. Now, there are mobile money success stories in Haiti, too, a place that so desperately needs investment in development. Mercy Corps has partnered with mobile operator Viola and the Haitian bank Unibank to offer mobile wallets to Haitians. Mercy Corps provided 20,000 Haitian families with stipends and delivered the cash via mobile phones. Like a debit card, the money is deposited securely via SMS to their account number. This technology revolutionizes the way Haitians do business. Now entrepreneurs like Morse Alexis can take payments in their local shops via mobile phone. This means that Haitians can save and transfer money securely.

“Happy Days at G-Ghana” by Ben Cole, Google Africa

The Google Africa team held their second annual G-Ghana event in Accra, the capital of Ghana. Google hosts the event, allowing local attendants to “learn, innovate and meet others to create applications and businesses that help build a vibrant relevant Internet ecosystem in Africa.” The potential for adoption is there, and will be realized with help from the exponentially fast adoption of mobile phones and the increasing efforts to electrify rural Africa. Google answers questions about its products, like the App Engine, to help local technology enthusiasts provide products and services in the area. Another impressive move from Google is their new platform, Google Trader, that can provide “Africa-centric classifieds” on mobile web and, more importantly, over SMS.

“100% Broadband for Africa” by Alan Knott-Craig

Africans have embraced mobile technology; just consider the record high adoption rates. The adoption of mobile phones has made life more efficient and productive in Africa, especially through the use of mobile money for both individuals and small businesses. To go one step further and “make the Internet universally accessible” by way of wireless, mobile access, or even private servers, will stimulate further economic growth creating more jobs and more opportunity for citizens. Internet will allow entrepreneurs to access resources like Google’s App Engine to create more goods and services for the BoP. Furthermore, universal Internet will also increase the accessibility of basic services and political governance. Interestingly, the Knott-Craig points out: “It is no coincidence that four of the top five African countries ranked according to broadband penetration have recently experienced political revolution: Tunisia, Egypt, Algeria, and Morocco.”

“Beyond Payments -- Experiences from Mobile Money Pilots” by Martin Herrndorf

Despite the mobile money success stories, there are challenges and complexities for mobile payment systems. A report from PlaNet Finance and Oliver Wyman studied two pilot mobile money programs, and presented what business models worked for the projects. However, to ensure the continued success and growth of the mobile money industry, Next Billion proposes three issues that must be addressed: regulation, competition, and interoperability. First, banks and consumers alike will be seeking regulatory oversight to guarantee deposits. Second, we know that there is growing competition in the industry: an example is SlimTrader, the newest addition to our portfolio. Finally, interoperability means that mobile payment systems must be compatible and transferable. Just like you want to be able to call your friends on different mobile phone networks, you need to be able to pay people on different mobile payment networks as well. If we can address these three issues, then mobile payment systems will continue to grow in their success.

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