Presentation on theme: "Einstitute.worldbank.org Social Entrepreneurs: Ready to Share Center Stage with the Public and Private Sectors in Producing Growth with Equity October."— Presentation transcript:
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 2 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.
Vision Spring 3 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
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. 4 SEs need growth capital and non-financial services to scale via… Replication Expansion
Social Enterprise Investments: Three Elements 5 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
The Challenge 6 + 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
Where we need to add value. 7 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
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
Social Investing Ecosystem 10 Early/”idea” stage –“Seed capital” Established market viability – “investment phase” Proof of concept stage –“venture capital”
Current Environment for Social Entrepreneurship 11... 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
The Financial Conveyor Belt 12 Experiment CatalyzeScale Grant Capital from Donors and Philanthropies (Current DM) Targeted capacity building, patient capital Missing portion of financial conveyor belt Equity and Debt Many investment funds operate at this stage
Our Objectives: Mobilize Capital + 13 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 SEs
New DM Focus 14 Experiment Catalyze Scale Grant Capital from Donors and Philanthropies (Past DM) Targeted capacity building, patient capital Missing portion of financial conveyor belt ---- NEW DM 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
New Development Marketplace Strategy 15 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 FromTo
Program Objectives 16 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.
Types of Impact Investors 17 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
Evaluation Criteria 18 CriteriaDescription 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.
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
22 13 winners Awards: $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
India DM Assessment Process 23 264 Proposals received in Open Call 187 Eligible for being Assessed Assessment 30 Finalists to Marketplace Event 2011 India DM Event April 6 13 Winners Eligibility Screening 4 “screeners” on eligibility Marketplace Event 8 jurors interviewing 30 proposals Assessment Process 36 Assessors