Social investing : A primer for newbie fund managers

[venkata]

With social investing catching the attention the world over, and lot
of interests around Green tech/ Bottom of pyramid engagements, there
is a sudden frenzy in the social sector. Though we welcome this (much
needed) attention, we only hope and pray that this is not just a
temporary fad but a more conscious shift in the global investment and
business outlook.

Lot of the investors had expressed anguish around the inability to
find suitable entrepreneurs and ventures. Also, most of such ventures
seem to mistrust such investors and dont seem to be very open . Having
shifted from corporate life with exposure to various aspects of
conventional business & funding to this social entrepreneurial sector
recently in past few years, we thought we would put together a simple
guidelines & expectations to a newbie Angel/VC/PE interested in the
social sector from the 'entrepreneur's' perspective.

1) Social entrepreneurs are FIRE fighters. Not Flame throwers.

Social entrepreneurs are problem solvers of a very high degree - they
take on issues which are often cannot be handled by even the
government and corporate sector . Their key drivers are a passion to
solve a burning issue , creating better life for the people they serve
and building a business model from the ‘heart’ rather than the ‘bank
balance’.

Typical VCs and angels are often used to the yoyo lifes of dotcom
vapourwares , enron style scamwares and ‘Satyam’ style scandalwares.
Driven by quick exits and “next big bling bling” they often don’t see
eye to eye with the above bunch .

What they need is some real soul searching – before you talk balance
sheets and cash flows and 10x multiples – please look inside and
confirm if you really DO HAVE the BLEEDING HEART to solve problems of
poverty, urban divides etc.,

2) Social entrepreneurs don’t exit . They EXIST .

Again, the passion to serve people is too strong for some
entrepreneurs to see basic realities like ‘profitability’,
‘scalability’ etc., The live with the problem and DIE with the
problem . So the only ‘exit’ option is DEATH ;-)

Are you ready for that Mr. Social Investing Angel ?

3) Social entrepreneurs don’t need money . Atleast not in the millions
of USD range !

Surprised, but true. Most social projects can be setup and made
successful in a few thousands or lakhs of rupees . The real resource
which they need the most is TIME and PEOPLE rather than money.

Again, to use the fire fighting metaphor , often what they need is a
pail of water , at the RIGHT TIME , which is IMMEDIATE. Unfortunately,
most VCs need a due diligence and evidence of capability to fight
fires before they even open their taps !

Mr. Social VC, Don’t be a uncle scrooge … Listen to your heart rather
than your head. If you cant spot a genuine , sincere , honest person
and make a decision in 15 minutes , you wont be able to do so in 15
years !! I don’t say it, the psychologists do !! (Google for ‘How
people make decisions’)

Not to undermine the value of numbers and figures. But we all know
that they can be fudged to fool investors. Ask PWC , Ask Satyam, Ask
Enron ! They had perfect balance sheets once ;-)


4) Social entrepreneurs don’t wear Armani .

Now, that’s a lot of savings. You don’t need your Armani suit, Tissot
watch and Versace glasses for next meeting. And for God’s sake don’t
setup meetings in Five star hotel lobbies. Its become too cliché.

Rather switch to desi cotton, chappals and drive an auto to the spot
where WE work . Often the slums or some god forsaken village . Show
that you are willing to change – because THAT is what we are striving
for – to CHANGE lives . Lets Start with yours first ;-)

5) Think Global, Act Local.

Most social projects are very very localized . Even if they scale, its
often within same country . So talk in LOCAL currency , not US
Dollars. Also ask what WE want rather than bracket us into strange
terminologies like ‘Seed’,’Pregrowth’,’Post revenue’,’early IPO’ and
such BS .

Mr. VC … Lot of these terminologies and valuation norms are remnants
of the Lehmann era. Most people who invented them are either in jail
or on streets now finding a job.

So please, leave your ‘investment’ lingo dictionaries aside and start
talking in PLAIN type - Do you LIKE the project ? Do you WANT to be
involved regardless of the stage or financial requirements?

6) SECTOR agnostic = “I don’t have a F*&^ clue” where to put my money

Yes. We know that all your other investments in tech, real estate,
energy , BPOs have all drawn a naught . But social sector needs lot
more involvement . Please get off the PC , stop reading Gartner’s
reports and case studies … and make your OWN judgement .

Yes, there is GOOD money (as in GOOD KARMA) in social investing. Yes,
there are AMPLE good ventures which are doing well. If you know where
to look , the fortune at bottom of pyramid will reveal itself.

And lastly ,

7) Poverty is RELATIVE .

Often the urban juntha and educated make the mistake of associating
poverty with economic status. But our own experiences have made us
realis that beig poor and having less money are two very different
things .

Confused ? Let me explain .

For a person who makes 150000 USD a year in America, someone who makes
15000USD in India may seem poor . But thats 7 lakhs + per annum !! 10
times national average .

Similarly someone making 7 lakhs pa in an India city , someone making
70000 pa is poor ! But that’s enough money in a village to raise a
family of 10 !!

Also, people at the bottom often have nothing to loose. They are born
survivors. Things cant get any worse . They have learnt to be happy
inspite of their economic misery . Through sheer guts, hard work and
determination several have managed to give good education and
healthcare , with little help from anyone.

Often the so called ‘multimillionaires’ are the ones needing all the
help – divorced, broken kids, wild lifestyles and misguided careers ,
they end up in shrink’s offices ! Poor diets , poor life habits , poor
social connections – several have ended up as nervous junkies.


So, welcome to the world of the REAL poor !

As Morpheus says in Matrix – Do you you want the red pill or the blue
pill ??Do you wish to see how deep the rabbit hole goes ??