Date post: | 04-Apr-2018 |
Category: |
Documents |
Upload: | eric-prenen |
View: | 222 times |
Download: | 0 times |
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 1/68
Produced by Monitor GrouP in collaboration with acuMen Fund
created with FundinG FroM the bill & Melinda Gates Foundation
Monitor
The Case for PhilanThroPyin imPaCT invesTing
by Harvey Koh, Ashish Karamchandani and Robert Katz ap 2012
Scale
From
Bluepinto
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 2/68
How we Arrived Here
This report springs rom a point o view shared by Monitor and Acumen
Fund — that philanthropy is the essential but oten overlooked catalyst that
unlocks the impact potential o inclusive business and impact investing. The re-
port has been created with unding rom the Bill & Melinda Gates Foundation.
The key themes discussed here are based on the sum o Monitor’s extensive
research into more than 700 inclusive businesses in Arica and India, and
Acumen Fund’s decade o experience as a pioneering impact investor. They
also draw together the experiences and observations o dozens o impact
investors, grant unders, academics and other experts who were generous
enough to share their thoughts with us.
In addition, a Monitor team conducted a three-month study o companies
in the Acumen Fund portolio whose development had been signifcantly
aected by grant subsidies, to urther develop our insights and provide
helpul illustrations. Four company case studies are contained in the main
report, and two urther case studies can be ound as an appendix.
Finally, a thoughtul, diverse and generous group o external expert review-
ers helped us to fne-tune the report and its recommendations or clarity
and impact.
This report has ocused on developing an in-depth, demand-side under-
standing o the needs and challenges acing inclusive businesses, ratherthan on studying the drivers and constraints o grantmakers and investors.
However, we acknowledge that the latter is a valuable area or urther study
and action going orward.
Cpyght dsgnatn: Ths k s lcns un a Cat Cmmns cpyght that
alls th cpyng, stbutn, an splay f ths matal — an th ablty t mak
at ks bas n t — f ct s gn t th auths an f ths at
ks a stbut un a smla agmnt. Ths lcns s classf as an
Attbutn-Sha Alk 3.0 Unpt Lcns.
© 2012 Monitor Group
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 3/68
1. The RealiTy of inclusive Business • 2
W a a s a ags fag s w a pg sv
bssss a, a xpa w pap a pa a ssa
sas w vs apa a.
2. The PioneeR GaP • 10
W fw vpm f s pg sv bssss g s
f M’s f-sag bsss f famw, a aw mpas
f apa. W sb pm f ‘p gap’ vsm, a
pa f ‘ps pap’ sabs w sv bsss ms.
3. validaTinG viaBiliTy • 20
W sss w as ss aw fm Am F pf sw w
p fms validate vab f bsss ms. W as sw
w ps pap a pa a pva , a ‘F Ps’ f
ffv pa.
4. PRePaRinG MaRkeTs • 34
W sss w f as ss sw w ps pap a p
fms prepare w mas a Bas f Pam (BP) a vs F Ps.
5. closinG The PioneeR GaP • 44
W s mmas f s fs a f mpa vss.
The enTeRPRise PhilanThRoPy PlayBook • 50
W sa a a s f as f wa f, a paa av w app
F Ps.
fuRTheR case sTudies • 54
GlossaRy of TeRMs • 58
RecoMMended ReadinG • 60acknowledGeMenTs • 62
The Case for PhilanThroPy in imPaCT invesTing
by Harvey Koh, Ashish Karamchandani and Robert Katz
with the assistance of Ravi Swarup, Nidhi Hegde,
Swati Chaudhary and Sahil Shah
Scale
From
to
Bluepin
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 4/68
“Creativity is not thefinding of a thing,but the making
something out of itafter it is found.”
JaMes Russell lowell
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 5/68
ItrctiTimes of great crisis can be times of great opportunity.
At the beginning o 2012, there is no end in sight or the economic malaise
and scal crisis that is gripping many parts o the developed world. Global
growth is slowing, even in emerging economic powerhouses like India,
billions o people remain trapped in poverty. As politicians debate the best
way to reorm the nancial system to prevent uture collapses, protestorsaround the world are questioning the moral oundations o the capitalist
system itsel.
Despite the crisis, shiting attitudes, new technologies and the promise
shown by the micronance revolution have led to new opportunities or
market-based innovations to serve the global poor. These are being pio-
neered by ambitious entrepreneurs who are taking great risks or little
potential nancial reward, but or tremendous potential social value. Such
ideas have elicited a rush to the new eld o ‘impact investing’. Hundreds o unds have been set up in just a ew years and billions o dollars are to be
invested in the next year alone.
But the eld is young and doubts are creeping in as many investors report
that they are struggling to nd good opportunities in which to invest or
impact. Why is that? A ca ipac iss ak h pis ‘h
icfac i’ a h a ia sca?
These are important questions, not just or these new investors but or the
private philanthropists and aid donors who have been working on these
issues or decades. I market-based solutions hold real promise or impact,
how should unders in development engage to catalyze its ull potential?
I ipac isi capia is h k scai hs sis, ha is h
phiahp?
FroM BluePrint to ScAle 1
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 6/68
t s ms xm a ab ‘mpa
vsg’ sv bssss a bf p b
gagg m as sms a spps.
Impact investment is being hailed as an emerging asset class with the
exciting prospect o achieving market-rate returns and social good at the
same time. In November 2010, a new report1 by J.P. Morgan, Rockeeller
Foundation and the Global Impact Investing Network (GIIN) made waves
simultaneously in the worlds o social change and investment. The report
estimated that potential prot or impact investors across just ve sub-
sectors2 o inclusive business could range rom between $183 billion and
$667 billion over the next ten years, with invested capital ranging rom
between $400 billion and $1 trillion.
Attracted by this potential or prot and impact, capital is fowing into
this space. The Aspen Network o Development Entrepreneurs (ANDE)
recently counted no ewer than 199 impact investing unds.3 A survey
by J.P. Morgan and the GIIN in late 2011 ound that the 52 impact inves-tors surveyed intended to deploy $3.8 billion o capital collectively in
the next 12 months.4
In 2011, the Overseas Private Investment Corporation (OPIC) — the US
Government’s development nance institution — attracted more than
80 applicants when they issued a call or impact investment proposals.
1 O’Donohoe, N., Leijonhufvud, C., Saltuk, Y., Bugg-Levine, A. and Brandenburg, M. (2010) Impact Invest-
ments, An Emerging Asset Class, J. P. Morgan Global Research, Rockefeller Foundation and GIIN.
2 The sub-sectors studied were: affordable urban housing; primary education; maternal healthcare; clean
water for rural communities; and microfinance.3 Impact Report, (2010) Aspen Network of Development Entrepreneurs.
4 Saltuk, Y., Bouri, A. and Leung, G. (2011) Insight into the Impact Investment Market, J. P. Morgan and GIIN.
1T Rlit fIcli Bi
Potential profit for impact
investors could range
from between $183 billion
and $667 billion over the
next ten years.
Monitor GrouP2
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 7/68
OPIC committed $285 million to the rst six equity unds, with the aim o mobiliz-
ing up to $875 million or investment. In November 2011, the Indian Government
announced a $1 billion India Inclusive Innovation Fund; more than 80 percent o
the capital or this is expected to be raised rom the private sector. And in December
2011, the Group o 20 (G20) and International Finance Corporation (IFC) launched
the Challenge or Inclusive Business to nd innovative, scalable and commercially
viable inclusive businesses to be showcased at the G20 summit o world leaders in
Mexico City in June 2012.
We believe there are good reasons or this excitement. Inclusive businesses promise
eective models or generating social benets that can become sustainable without
relying on donations, and are scalable through the investment o return-seeking capital.
• For pia phiahpiss a ai s,5 this oers the hope o drawing vastsums o private capital into their eorts to solve entrenched social problems, and
o achieving lasting solutions that do not rely on charitable donations.
• For iss, this oers the prospect o targeting a level o social impact along-
side private nancial return, and o doing this much more actively than the
negative screen approach that is already well established or ethical (or socially
responsible) investing.
• Meanwhile, s recognize this as an additional way o addressing
pressing problems like poverty and inequality in their own countries that har-nesses the power o the private sector at a time when economic uncertainty and
scal pressure are constraining the public sector’s scope o action.
Last but not least, these models hold the promise o involvingfciais as
willing suppliers and customers, and o recognizing their innate drive and ca-
pacity to improve their lives in signicant ways, instead o seeing them as mere
recipients o charity.
reAlity check
While we believe that this potential is real, we also believe that we are a long way
rom realizing it ully. The rosy picture o abundant opportunities to make high re-
turns that many have drawn rom the hype may be obscuring the challenges aced
by investors seeking to deploy capital into inclusive businesses.
In Investing or Social and Environmental Impact ,6 Monitor Institute colleagues
argued that the newly identied impact investing industry was entering a phase
5 Where we have drawn out implications and recommendations for philanthropy, we intend those to apply to both private
philanthropy and aid, unless otherwise stated.
6 Freireich, J. and Fulton, K. (2009) Investing for Social & Environment Impact, Monitor Institute.
We take a close lookat the challengesacing those who arepioneering inclusivebusinesses today, andexplain how philan-
thropy can play anessential role in situ-ations where investorcapital cannot.
Inclusive businesses
promise effective
models for producing
social benefits that
are sustainable
and scalable.
FroM BluePrint to ScAle 3
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 8/68
o ‘marketplace building’ that would likely take ve to ten years. They identied
three key challenges. The rst was the lack o ecient intermediation, with high
search and transaction costs caused by ragmented demand and supply, smalland complex deals, and a lack o understanding o risk. The second was the lack o
enabling inrastructure to help people identiy and unction as part o an industry
since the market was structured around a history o biurcation between philan-
thropy and investment.
The third, and most relevant or this report, is the lack o sucient absorptive ca-
pacity or capital. This means there is an imminent lack o impact investing oppor-
tunities into which large amounts o capital could be placed at investors’ required
rates o return. Monitor’s conversations with numerous impact investors have
conrmed that this remains a major challenge or the industry. This has also beencorroborated by a recent survey7 o more than 50 impact investors conducted by J.P.
Morgan. When asked about the most critical challenges to growth o the impact
investment industry, respondents ranked “shortage o quality investment opportu-
nities” second, right ater “lack o track record o successul investments.”
This shortage o opportunities is particularly acute when it comes to inclusive busi-
nesses whose activities are clearly socially benecial to Base o the Pyramid (BoP)
households, and whose work is thereore credibly part o a market-based approach
to solving some o the problems o poverty.
Acumen Fund’s investing experience refects this reality: it has considered more
than 5,000 companies in the past ten years and has invested in just 65 o those.
Recent Monitor studies o inclusive businesses on the ground paint a similarly chal-
lenging picture. In 2009-10, a team led by Mike Kubzansky conducted an ambitious
16-month study o inclusive businesses across nine countries in sub-Saharan Arica.
Their aim was to gain a better understanding o when, where and how market-
based approaches in Arica succeed.8 The team looked at 439 promising inclusive
businesses and ound that only 32 percent were commercially viable and had po-
tential to achieve signicant scale. Only 13 percent were actually operating at scale.
Many o the companies in Monitor’s Arica study aced not only all the challenges
o small businesses in Arica — such as diculty in accessing nance, attract-
ing and retaining human capital, achieving economies o scale, creating trusted
brands — but also involved urther challenges. They would sell to a hard-to-reach
customer base with severely limited resources. They would engage suppliers with
limited capabilities, high volatility in production and low loyalty due to cash fow
needs. The goods and services oered by these companies were oten in ‘push’
7 Saltuk, Y., Bouri, A. and Leung, G. (2011) Insight into the Impact Investment Market, J. P. Morgan and GIIN.
8 Kubzansky, M., Cooper, A. and Barbary V. (2011) Promise and Progress, Market Based Solutions to Poverty in Africa,
Monitor Group.
Of 439 promising
inclusive firms studied
by Monitor in Africa,
only a third were
commercially viable
and only 13% were
actually at scale.
Monitor GrouP4
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 9/68
Extensive innovation is central to Hsk P
Sss (HPS), a company based in the Indian
state o Bihar that is becoming increasingly
well-known as a model o rural biomass energy
generation. (For more inormation on HPS, see
the ull case study in section 3.)
HPS began by pioneering technology that
transorms rice husk, a readily available agricul-
tural waste product, into gas that in turn gen-
erates electricity. However, HPS is a micro-grid
electrication company seeking to bring power
to villages and districts without any pre-exist-
ing electricity inrastructure. Thereore, innova-
tion had to go ar beyond its core technology,
reaching urther up and down the value chain
relative to a conventional developed-economy
power producer (see Figure 1).
HPS had to devise ways o distributing power,
using low-cost bamboo poles, to the homes o
villagers. It implemented sophisticated power
thet prevention systems to achieve thet rates
below ve percent, compared to the Indian
average o over 30 percent. It could not nd su-
ciently low-cost smart meters and so needed
to develop its own, which the company says
are the lowest cost smart meters in the world.Meanwhile, the company’s target customers
had never bought electricity beore and had ew
appliances, so the company oered a simple
tari based on the number and type o electri-
cal appliances they possessed, and then built an
invoicing and collection system accordingly.
Upstream, HPS encountered diculty sourcing
gas-powered generators, and so it developed
the capability to convert diesel-powered ones
that were much more readily available. The
gasication process itsel produced a waste
product, rice husk char, that had to be dis-
posed o responsibly and this drove up costs.
In response to this, HPS developed a method
o turning this waste into incense sticks, which
has become a signicant side business gen-
erating additional revenues and providing
employment or hundreds o local women.
Unsurprisingly, recruiting skilled sta to build,
operate and maintain this complex web o
activities in many small villages has been a
challenge, especially since there is no existing
electricity industry to speak o in the regions
where it works. HPS is thereore in the process
o setting up ‘Husk University’ to train the
workers it needs now and in the uture as it
moves into aggressive growth.
deMonsTRaTinG
exTensIve InnovaTIon
fiGuRe 1: Husk Power Systems — Innovation Across the Value Chain
SuPPlIerS/InPutS Core ACtIvIty CHAnnelS CuStomerS
•Conversionofgeneratorstogaspower
•HuskUniversityto
trainpersonnel
•Charprocessing–incensesticks
•Powergenerationsolelyfromricehuskgasication
•Physicaldirectdistributioninfrastructure
•Smartmeter/
theftprevention
•Billingandcashcollection
•Simpliedpay-per-usetariff
FroM BluePrint to ScAle 5
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 10/68
categories like preventative healthcare, which required high levels o awareness
building and education, unlike ’pull’ categories like mobile phones that consumers
already desired and demanded. And these challenges would come on top o thepervasive issues o poor inrastructure, and unriendly and inecient regulation.
In response to these myriad challenges, many o these businesses cannot simply
ollow business models that have been established to serve more developed, non-
BoP populations. Instead, they are required to innovate on multiple dimensions
simultaneously, oten pioneering new business models that are tailored to the
particular needs and constraints o the BoP marketplace.
the ProBleM And the oPPortunityInnovation is risky. Innovation across multiple dimensions in order to pioneer new
business models serving the BoP is especially risky. In the emerging eld o inclu-
sive business, there are still many more unproven models than there are proven
ones, so the vast majority o investment opportunities are at the early stage. And
building and scaling new business models takes time: Monitor’s research in India
suggests that new inclusive rms take more than a decade to achieve a reasonable
level o scale.
Meanwhile, the extreme challenges o the BoP environment mean that operating
margins are typically low and volatile. Monitor’s recent analysis o 50 inclusive busi-
nesses in Arica indicated that net operating margins were, at best, between 10 and
15 percent. As an impact-ocused investor, Acumen Fund reports that its portolio
companies have an average prot ater tax o minus 20 percent. Its eight most
protable investees record an average prot ater tax o just six percent. Despite
a highly selective approach, and heavy investment in post-transaction support to
enhance value and manage risk, Acumen Fund only expects a return o just over 1x
invested capital rom its current portolio. This is in line with its stated aims, but is
ar o the expectations o mainstream nancial-rst investors.
Returns rom micronance — by ar the most established and mainstream o in-
clusive business sectors — are higher but still modest. Unitus Capital, or example,
reports that net internal rates o return or debt-based micronance investment
vehicles (MIVs) averaged 4.9 percent through 2008, while riskier equity-based MIVs
achieved 12.5 percent.9
But most models o inclusive business are at a much earlier stage o development
than micronance. Their modest margins and long times to scale combine to
generate low internal rates o return. When this is set against the high risk o these
9 MIV Overview , (2009), Unitus Capital.
Modest margins, long
times to scale and high
risk add up to a tough
proposition for investors.
Monitor GrouP6
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 11/68
situations, it paints a decidedly unattractive
proposition or investors, because small gains
on a ew successes could be ar outweighed byheavy losses on many ailures; this is particu-
larly true where businesses are pioneering new
business models or which commercial viability
is unknown. For this reason, the assumption
that investor capital will naturally fow to these
opportunities and catalyze the ull potential o
inclusive business is unduly optimistic.
Investor capital may also be unable to support
the heavy up-ront expenditure that is requiredto stimulate awareness o (and thereore de-
mand or) new push product categories among
customers, or to improve supplier skills to meet
the requirements o the business model. This is
because o both the quantum o expenditure
required and the diculty or the rm (and its in-
vestors) o capturing its exclusive benet. Unless
there are signicant barriers to entry (e.g., well-
protected technological advantage, exclusivetrading rights), a product’s commercial success
will likely spawn copycat competitors that ree-
ride on the rm’s category marketing investment,
thereby diluting the value captured by the rm
and returned to investors.
From a philanthropic under’s perspective, howev-
er, things look very dierent. In a world with vast
and seemingly intractable problems, and limited
philanthropic resources, there is tremendousappetite or innovations to improve eectiveness
and sustainability, including those that seek to
direct the power o private markets (see sidebar).
There is also a growing realization that loty aspi-
rations or social impact will not be achieved by
placing only the sae bets. Moreover, the process
o developing and trying out good impact ideas
typically produces some social good — directly or
the beneciary and sometimes indirectly in the
donoRs and The PRivaTe secToR
Somefunderswillalreadybefamiliarwiththeratio-
naleforengagingwith theprivatesectorto achieve
their program goals, but many will not be. Louis
Boorstin,adeputydirectorattheBill&MelindaGates
Foundationwhohasalsobeenaninvestmentman-
agerattheIFCandaninvestmentbankeratLehman
Brothers,explains:“Donorscanusethepowerofthe
privatesectortodeliverimprovedhealth,sanitation
andotherbenetsforthepoor.Theseinterventions
with theprivatesectorcatalyzechanges intheway
companies,nancialinstitutionsandconsumersop-erate ratherthansimplyprocuringspecicgoodsor
services for beneciaries. However, funding must
alwaysserveasacomplement,notasubstitute,for
marketforces.”
Louisdescribesvepotentialsourcesofsocialvalue
fromprivate-sectorinterventionsbyfunders: 1
• SuStAInAbIlIty —Onceanactivityisshowntobe
commerciallyviable,theprivatesectorislikelyto
sustainitwithoutrequiringsubsidies.
• rePlICAtIon—Asuccessintheprivatesectornatu-rallyleadstoimitationbyotherswhoalsowantto
earnaprot,producingreplicationwithdiminish-
inglevelsoffurtherpublicsupport.
• leverAge—Privatecapitalcanbecatalyzedtosup-
portsocialobjectives,therebyminimizingtheuse
ofscarcedonorfunds.
• InnovAtIon—Engagementwiththe privatesec-
torprovidesdirectaccesstonewtechnologiesand
businessmodels that can meet social objectives
moreeffectively.• eICIenCy—Workingdirectlywiththeprivatesector
offers accesstothe latestmanagement techniques
andsystems,whilealsobenetingfromthefocuson
efcientoperationsdemandedbythemarket.
Louisaddsanoteofcautionthatengagingwiththe
private sector carries a different set of risks from
workingwiththepublicorNGOsectors:“Youhave
lesscontroloverhowaprojectisimplemented,and
youneedtobeawarethatmarketforcescanmovein
unexpectedways.”
1 From a discussion draft prepared by Louis Boorstin for the Workshop
on Private Investment for Social Goals held in Geneva, Switzerland, in
September 2004.
FroM BluePrint to ScAle 7
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 12/68
orm o learning eects or the eld — that is valued by the philanthropist, even when
it does not result in a viable business. In contrast, an investor aces the prospect o an
unmitigated loss o value i a business idea turns out not to be viable.
Funders are also used to committing sizeable resources to such initiatives as ‘social
marketing’ to change behaviors in BoP communities, or training BoP workers and
suppliers in new skills. The existence o a business model that can leverage those
initiatives to drive sustainable improvement or BoP households makes spending on
those programs all the more worthwhile. And unders have little issue with creat-
ing valuable public goods — such as business models, labor skills, inrastructure
and customer awareness that can be used by more than one rm — so long as they
produce the desired social impact. From this perspective, copycat replication that
ends up reaching more o the BoP population while improving value, reducing costand improving choice, is a good thing because it multiplies impact.
It is precisely in these situations that philanthropic support can play a catalytic
role in ways that investor capital cannot. Nowhere can this be seen more clearly
than in the development o the micronance sector. As is now well known, micro-
nance (or, rather, microcredit) is based on a radically dierent business model rom
mainstream bank lending: namely, joint-liability group lending, mobile agents, very
small loan sizes. As micronance is now seen as a commercially attractive sector
with billions o dollars o invested capital, it is easy to orget that the micronance
business model was promising but unprotable or many years, long beore it burst
into the public consciousness. In those unprotable years, subsidies in the orm o
grants, sot loans and guarantees rom philanthropists and aid donors allowed the
early pioneers to rene the model through “thousands o cycles o trial and error”10
until it established its commercial viability and became attractive to investors. It is
estimated that the micronance sector received $20 billion in such subsidies in its
rst two decades o development.11
The pioneers who received these subsidies not only became successul in their
own right, they also paved the way or other players to replicate their model much
more quickly and easily. For instance, Grameen Bank, the pioneer o the microcredit
model in South Asia, took 17 years to break even ater launching in 1976. However,
subsequent replicators achieved the same success over a much shorter time: SKS in
India, launched in 1996, broke even six years later. The pace continued to accelerate,
with Ujjivan (ounded in 2005) achieving break-even ater our years o operation,
and Equitas (ounded in 2007) ater just one year (see Figure 2). The early subsidies
or a pioneer rm such as Grameen did more than just build its own business op-
erations; it also helped to establish the business model or all players in the sector.
10 As the journey of refining the Grameen Bank model was described in Counts, A., (2008), Small Loans, Big Dreams: How
Nobel Prize Winner Muhammed Yunus and Microfinance are Changing the World.
11 As referenced in Mapping of Funding Flows, (2005), CGAP, from the working paper by Hudon, M., On the Efficiency Effects
of Subsidies in Microfinance: An Empirical Enquiry.
The MFI sector received
$ 20 billion in subsidies
from philanthropists and
aid donors to refine its
model over two decades.
Monitor GrouP8
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 13/68
fiGuRe 2: Time rom Start o Operations to Operating Break-evenMicronance Lenders
Today, with interest growing in the potential to prot rom impact investing, buoyed
by the commercial success o the micronance model, we risk overlooking the role o
philanthropic support in developing the inclusive business models that are emerging
today. Without this, ‘the next micronance model’ is unlikely to get very ar, and the
capital that is seeking to invest in such a model will remain on the sidelines.
I we believe that impact-oriented unders can play a crucial role here, this poses some
important questions. What is an appropriate role or such unding to play in a situa-tion where rms are seeking to make prots, albeit modest ones? Where and when in
the journey o a pioneer rm could such grants be deployed or the greatest benet?
What specic needs should be met by these grants, and what should a under be
seeking to achieve as a result? We address these questions in the next section.
0 5 10 15 20
Grameen Bank*(founded 1976)
SKS(founded 1998)
Ujjivan(founded 2005)
Equitas(founded 2007)
17
6
4
1
Note: *Grameen was started in 1976 by Prof. Yunus using the money he
received from a Fulbright scholarship as a project, the bank wasformed in 1983.Source: Mix Market data; Small Loans, Big Dreams by Alex Counts
Inthecontextofcommerciallyviablebusiness,philan-
thropicfundingisasubsidy.Thespecicfocusofthisreportisonthosesubsidiesthatcatalyzethedevelop-
ment of rms pioneering inclusive business models
thatareintendedtobecommerciallyviableandtogrow
toscaleby tappingintotheexpandingpoolofreturn-
seekingimpactcapital.
Thisisnottheonlyroleofsubsidiesinthebroadereldof
market-basedsolutionstopoverty.Notably,on-goingsub-
sidiesfromprivateorpublicsourcescouldsustainmodels
that arenotfullycommercially viable. Examplesof this
approacharedescribedinMonitor’spreviouslypublished
studiesofmarket-basedsolutionsinIndiaandAfrica(see
therecommendedreadinglistattheendofthisreport).
These include grant funding for capital expenditure in
ruralpowergenerationwhereregulatorypricecapspre-
vent such expenditure from being recouped fully fromusercharges,andthepracticeof‘buyingdown’theprice
ofcommerciallysuppliedproductstoenableaccessbythe
poorestcustomers.
Theintuitivelogicof thisapproachhasbeendeveloped
into a robust theoretical argument by economists An-
dreasNilsson andDavidT. Robinson. In a forthcoming
paper,1theyexplainhowon-goingsubsidiesofthiskind,
essentiallyhybridizingcharitable andprotable invest-
ment, can produce optimal solutions that would be
excludedbyastrictbifurcationoftheworldintopurely
charitableandpurelyprotablemodels.
1 Nilsson, A. and Robinson, D. T. (2012) What is the Business of Business?
(unpublished).
Buoyed by the
commercial success
of the microfinance
model, we risk
overlooking the roleof philanthropic
support in developing
the inclusive business
models that are
emerging today.
whaT aBouT on-GoinG suBsidies?
FroM BluePrint to ScAle 9
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 14/68
2T Pr Gp
“Pioneering don’t pay.” AndreW cArneGie
Fms a a pg w bsss ms s
a av b, paa BP vm. B
f, s fms a bazg w as a a
fwg w-w pas sabs b s.
They must develop and rene their models the hard way, by trying them
out in an unorgiving, low-margin marketplace. Inevitably they suer
ailures and setbacks on the road to viability. Oten they also have to invest
heavily in educating customers about the possibilities o new ‘push’ solu-
tions, and in developing unskilled suppliers and ragmented distribution
channels to serve their requirements. Although excited by their novelty,
investors are oten rattled by these rms’ risk proles and are unimpressed
by their nancial returns, all the while suspecting that they might actually
be savvy nonprots masquerading as commercially viable models.
These are tough challenges that call or strong support. However, know-ing how best to support a pioneer rm requires a rm understanding o
its needs, which change as the rm evolves over the course o its journey
rom start-up to eventual scale.
10 Monitor GrouP
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 15/68
Monitor’s research has identied the ollowing our stages o pioneer frm develop-
ment that are distinct both rom the rm’s experience and the investor’s perspective:
B
First o all, pioneers need to blueprint their designs or the uture business. This is
oten driven by not much more than a strong sense o ‘moral imagination’, striv-
ing or radically better solutions to meet the needs o the poor. This stage involvesconnecting the capability or business and oten technical innovation to address the
needs o customers or suppliers in the BoP. This is no trivial matter, as the requisite
capabilities or technology, product and business innovation are not as common-
place in the BoP population as they are in more afuent populations. The gul in
experience, understanding and skills that separates these groups o people is a
signicant barrier to the origination o high-potential inclusive business ideas.
Even so, an idea or concept on its own is not a blueprint. There needs to be a clear
sense o what the business will oer, what it will do and how it will do it. In other
words, there needs to be a compelling initial business plan. At the end o this rst
stage, we would also expect product prototypes and any critical novel technologies
to have been demonstrated successully, resulting in what some might call a prod-
uct or technical ‘proo o concept’.
Vd
However, having a product that works is not enough. In the second stage, pioneers
need to validate the commercial viability and scalability o the business model
described in the blueprint. This involves running market trials in which business
plan assumptions are tested. Will customers want this product? Will they be will-
ing to pay or it rom their small and hard-earned incomes? Will this be enough to
cover the costs o the business, not just the direct cost o the product itsel? These
are crucial questions, and the process or answering them is almost always itera-
tive. Market trials oten reveal issues and weaknesses in the blueprint, leading to
renements in the product, technology and business model, and urther trials. The
greater the degree o model innovation involved, the more time and resources need
to be invested in this stage.
Models o inclusive business call or particular eort and rigor at this stage be-
cause motives are almost always a blend o the social and the nancial, which can
weaken the ocus on commercial viability. Moreover, unlike a mainstream business
1. Blueprint 2. Validate 4. Scale3. Prepare
Having a product that
works is not enough;
pioneers need to
validate the commercial
viability and scalability
of the business model.
We follow the de-velopment of thesepioneering inclusivebusinesses through
the lens of Monitor’sfour-stage businesslifecycle framework,and draw out theimplications forcapital. We describethe phenomenon of the ‘pioneer gap’ ininvestment, and thepotential for ‘enter-
prise philanthropy’ toestablish new inclu-sive business models.
From Blueprint to Scale 11
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 16/68
pioneer at the same stage, it is important to discern whether a particular social im-
pact model might be able to develop and scale through a non-market-based route,
as traditional nonprot organizations have done.
Ppa
Successul validation sets the stage or pioneer rms to launch their products ully
into the marketplace. However, alongside this initial period o commercial activity
and growth, pioneer rms need to prepare the conditions in the market and within
the rm in order to support sustainable scaling. This is especially true where the rm
is, in eect, attempting to create a new market, by virtue o establishing a new cat-
egory o product or a new value chain model. On the demand side, the rm may need
to pay or customer education and category marketing to drive awareness o and de-sire or ‘push’ product categories that BoP customers do not actively demand at pres-
ent, such as preventative healthcare, low-cost drip irrigation or insurance products.
On the supply side, the rm may need to improve the capabilities o suppliers, such as
the skills and knowledge o smallholder armers, or build new distribution networks
to reach widely dispersed customer populations in rural villages.
There might also be internal needs that have to be addressed and these oten pres-
ent particular challenges or innovative models in the BoP. Take the need to hire
skilled personnel as the rm grows: educated personnel may be in limited supply in
the areas where the rm is operating, and the business may require new skills thathave not historically been needed in those areas and are thereore not readily avail-
able in the labor orce.
Sa
I the pioneer rm can successully surmount these challenges, it emerges in a
strong position to scale activities in order to reach many more customers or sup-
pliers in the BoP. During this stage, rms ace new challenges as they enter new
geographies, control costs, exploit eciencies, and manage a more diverse and so-
phisticated group o investors and stakeholders. They will oten also be respondingto competitors, as new entrants are attracted by the success o the pioneer rm and
see a way to benet rom the investment that it has made in preparing the market.
the Pioneer GAP
The pioneer rm, like any other rm, needs support and unding at each stage o its
journey. In the blueprint stage, there is a need to connect more sophisticated capa-
bilities or business innovation to unmet customer needs in the BoP, when the two
are normally separated by a vast gul, socially, culturally and oten geographically.
Pioneer firms may
need to stimulate new
demand for ‘push’
products, or cultivate
new value chains.
Monitor GrouP12
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 17/68
TaBle 1: Four Stages o the Pioneer Firm’s Journey
StAge
Developing the blue-print or the uturebusiness
Testing and refningthe business model
Enhancing theconditions required or scaling
Rolling out the model toreach large numberso customers and/or suppliers
Key
ACtIvItIeS
• Understandcustomer needs
• Develop initial
customerproposition
• Develop businessplan
• Develop coretechnologies and/orproduct prototypes
• Conduct markettrials
• Test business
modelassumptions
• Rene businessmodel,technologies and/or product asrequired
• Stimulate customerawareness anddemand
•
Develop supplychains, upstream anddownstream
• Build organizationalcapability to scale:systems, talent,plant, etc.
• Move into newgeographies andsegments
•
Invest in assets andtalent
• Enhance systems andprocesses
• Exploit scaleeciencies
• Respond tocompetitors
Key needS • Innovation capability
• Strategydevelopment and
business planning• Talent networks
• Seed unding
• Operationalizingthe model
• Focus on cost,
value and pricing• Learning
orientation andfexibility
• Innovationcapability
• Funds to acilitatemarket trials andrenement
• Marketing strategyand execution
• Supply chain design
and implementation• Systems and
processes
• Talent and networks
• Funds or marketing,supply chain, xedassets, inventory
• Competitive strategy
• Realizing scaleeciencies
• Risk management• Formalization o
impact standardsand expectations
• Stakeholdermanagement
• Funds to supportexpansion
end mIle-
StoneS
• Compelling initialbusiness plan
•
Demonstrated coretechnologies and/orproduct prototype
• Renedbusiness model,
technologies,product
• Validation o viability andscalability
• Indication o customer demand
• Strong customerawareness and
demand• Eective supply
chains
• Organizationalsystems, talent,assets in place tosupport scaling
• Sustainably reachingall BoP customers
and/or suppliers
3. Prepare
FroM BluePrint to ScAle 13
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 18/68
Asanimpact-focusedfunderandtheninvestor,Acumen
Fundhasseenagradualshiftinitsdealproletowards
thelaterstage.Intherstthreeyearsofitslife,Acumen
Fundmade78percentofitscapitalandfundingdeploy-
ment in theblueprint and validate stages, compared
with39percentinthelastthreeyears(seeFigure3).
Launchedin2001,AcumenFundinitiallymadeacombina-
tionofgrantsandinvestmentsmostlyinthehigh-riskearly
stages:theseincludedgrantstotheAravindEyeHospital,
ProjectImpactandInternationalDevelopmentEnterprisesIndia,aswellasinvestmentsinKashfMicronanceBank,
AtoZTextileMillsandWaterHealthInternational.In2004,
AcumenFund tomoved its approach away fromgrant-
making and towards providing exclusively investment
capital—debtandequity—tohigh-potentialsocialven-
tures,resultinginadramaticshiftindealactivityfromthe
blueprinttothevalidatestage.
The nextstepchangecamein2009asAcumenFund
beganfundingsomeofitsdealsoutofareturn-capital
fund(knownasAcumenCapitalMarketsI)inadditiontophilanthropicfunds,specicallytargetingsecond-and
third-round investments in early investees aswellas
otherlater-stageopportunities.Thisevolutionininvest-
ingstyle andchange innancialreturn requirements
contributedtothefurthershiftincapitaldeployment
towardsthelaterstages.
fiGuRe 3: Acumen’s Investment Over Time
In the validate stage, the rm requires up-ront investment to enable multiple
rounds o market trials as it tests and renes its core business model, and good
counsel to help it stay ocused on the key questions it must address. In the prepare stage, heavy investment is oten required to improve the tough conditions o the
BoP business environment and to pave the way or growth.
Unortunately or the pioneer rm, ew impact investors seem prepared to provide
money and technical assistance in these earlier stages. Monitor’s Arica research
ound that only six o the 84 unds investing in Arica or across regions oered early-
stage capital. This has been reinorced by the interviews we conducted as part o this
study: the overwhelming majority o impact investing unds and advisors we spoke to
expressed a strong preerence or investing in the later stage, certainly ater commer-
cial viability had been established and preerably once market conditions were wellprepared or sustainable scaling.
This is an entirely rational approach. In the blueprint and validate stages here, unlike
in the case o angel or venture capital investing in mainstream business ventures,
there is limited potential or outsized nancial returns within a timerame that is
acuMen fund’s deal PRofile evoluTion
Source: Acumen Fund, Monitor Analysis
2001-2004 2005-2008 2009-20110%
20%
40%
60%
80%
100%
64%
42%
21%
8%
22%
39%
28%
11%
14%
0%
29%
22%
Scale
Prepare
Validate
Blueprint
Few impact investors
are prepared to provide
money in the earlier
stages, and this is
entirely rational.
Monitor GrouP14
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 19/68
acceptable to investors (typically ve to seven years) in order to compensate or
greater early-stage risk and small deal sizes. In the prepare stage, where new prod-
uct categories or value chain models are being created, there is a high likelihoodthat initial spending on market preparation may not be recouped by the rm and its
investors because much o the benet accrues to others, such as new entrants, or to
the rm’s customers or suppliers.
This poses the question: how will promising inclusive business models get to
these later stages where they become investable without support earlier on in
their journey? We call this critical gap in support the ‘Pioneer Gap’, and we believe
that this is a key actor constraining the availability o investment opportunities
or impact investors.
Unless we address this pioneer gap, much impact capital will continue to sit on
the sidelines or be deployed into sub-optimal opportunities or impact, and ail to
achieve its potential in driving powerul new market-based solutions to the prob-
lems o poverty.
hoW PhilAnthroPy cAn cloSe the GAP
We believe that philanthropic unding can play a critical role in closing this pio-
neer gap. The right grant support can help pioneer rms to develop, validate and
establish new business models, and even build entirely new markets to serve the
BoP. Grants represent the ultimate ‘risk capital’ or these businesses because they
are not predicated on the likelihood o nancial return, and so can tolerate uncer-
tainty around commercial viability. They also lend themselves well to the creation
o a public good where heavy investment is required to prepare market conditions,
such as building supply chains or stimulating customer awareness. The benets o
this investment accrue not just to the pioneer rm but to the copycat competitors
that spring up in its wake. Moreover, the time horizons o private philanthropists
in particular can be much longer than that o investors or governments, and so can
support the long gestation periods associated with new inclusive business models.
M-PeSA — uk dpam f iaa dvpm (dFid)
a Vaf
We have already described the role o grants and similar subsidies in the develop-
mental journey o the micronance sector. Another example is that o M-PESA, a
small‐value electronic payment system accessed using ordinary mobile phones in
Arica. Developed by a team at mobile phone giant Vodaone in London, England,
and introduced by its aliate Saaricom in Kenya in 2007, the service has seen
dramatic growth in users and is now used by some nine million customers, repre-
Grants represent theultimate ‘risk capital’
because they can
tolerate uncertainty
around commercial
viability and can seek
to create public goods.
How will promising
inclusive business
models get to these
later stages where they
become investable
without support earlier
on in their journey?
We call this critical
gap in support the
‘Pioneer Gap’.
FroM BluePrint to ScAle 15
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 20/68
senting 40 percent o Kenya’s adult population. BoP customers who previously had
to use slow, expensive and unreliable methods o sending money to riends, amily,
colleagues and business partners can now use the M-PESA service to help meet lieneeds, do business and save regularly.
As in the case o micronance, M-PESA has achieved considerable public acclaim
as a commercially viable model that delivers signicant benets or the poor. It is
also too easy in this case to overlook the role that grants played in getting M-PESA
to where it is today. The UK’s Department or International Development (DFID)
provided critical unding to Vodaone in the blueprint and validate stages, in order
to develop the initial idea into a product and to conduct market trials to establish
its viability. DFID also unded organizations such as the Financial Sector Deepening
Trust, whose FinAccess survey data helped the central bank o Kenya to realize theopportunity presented by this new product and lend its support as a regulator.
More recently, M-PESA’s growth in newer geographies has also been supported
by grant unding. In 2010, the Bill & Melinda Gates Foundation committed a $4.8
million grant to Vodacom in Tanzania to help it prepare the market or broader M-
PESA adoption, by raising awareness about the benets o the service, particularly
among unbanked communities in remote parts o the country.
S Fa a a-bg svs
Another example comes rom the clean-burning cookstoves sector. Billions o
people in the developing world cook using indoor stoves uelled by wood, coal or
biomass such as dung. According to the World Health Organization, the indoor air
pollution produced by these uels kills almost two million people every year. More
than hal o those are children under the age o ve. The scale o this problem has
motivated a range o governments and aid donors to develop and promote alterna-
tives over the past our decades, but many o the initiatives ailed to be sustained.
Learning rom these past ailures, Shell Foundation12 began to work on identiy-
ing nancially sustainable solutions that could be taken to scale and replicatedto achieve global impact. The oundation took a variety o approaches spanning
the blueprint , validate and prepare stages. For instance, the oundation partnered
with the United States Agency or International Development (USAID) to und
EnterpriseWorks/VITA to train 78 entrepreneurs in Ghana to develop improved
cookstoves and to conduct a category campaign to encourage consumers to switch
12 Shell Foundation is an independent UK charity established by the Shell Group in 2000 to promote enterprise-based solu-
tions to the challenges arising from the impact of energy and globalization on poverty and the environment.
The UK’s Department
for International
Development (DFID)
provided critical funding
to Vodafone in theblueprint and validate
stages to develop M-PESA
Monitor GrouP16
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 21/68
to energy-ecient cook stoves. Out o this program came a
company called Toyola Energy that went on to secure $270,000
in investment rom impact investor E+Co and has now sold morethan 100,000 stoves, with loty ambitions or urther growth
across West Arica.
Between 2002 and 2007, Shell Foundation also committed more
than $10 million in seven countries to und nine cookstove pilot
schemes. The realization that better-perorming stoves were
required, together with a more commercial approach to sales and
distribution, led Shell Foundation to partner with a single com-
pany, Envirot, that has now sold more than 300,000 clean cook-
stoves beneting over a million people. With a loan guaranteerom Shell Foundation, Envirot is now seeking to lever in debt
nance to enable continued growth and market expansion.
Building on its work with individual enterprises, the Foundation
has begun to invest in preparing the global market or clean-burn-
ing cookstoves. In 2010, Shell Foundation — in partnership with
the United Nations — spearheaded the creation o the Global Al-
liance or Clean Cookstoves with some 270 partner organizations,
$130 million o additional unding levered in and strong support
rom world leaders like US Secretary o State Hillary Clinton. The
Alliance aims to strengthen supply, enhance demand and pro-
mote an enabling environment to oster the adoption o clean
cookstoves and uels, and hopes to impact 100 million house-
holds by 2020.
M isv Mas a lw-im
hsg ia
Grant support can also help to catalyze entire market ecosystems. This is important
because sometimes a wide range o innovation is needed across the value chain, as
we described in the previous section, and a single rm or type o rm may not be
able to achieve this on its own. One example o this is a grant-unded initiative in
low-income ownership housing at Monitor Inclusive Markets (MIM) in India, which
has successully established new models or both housing supply and mortgage
lending. This is providing an unprecedented opportunity or those living on less
than $3 a day — many o whom live in slums and work in the inormal sector with
little documented proo o income — to buy and move into high-quality housing,
whaT aBouT ThedeveloPed woRld?
Whilethisreportfocusesonthepioneergap
for inclusive businesses serving the poor
inthe less-developedworld,our conversa-
tions with funders and impact investors
thatoperateinthedevelopedworldsuggest
that thereis a similarneed for early-stage
philanthropicsupportformodelsthatmay
later attract investor capital. For example,
theanti-recidivisminterventions thatnowplay a central role in the groundbreaking
private-sector social nancing pilot of the
SocialImpactBond(SIB)inPeterboroughin
theUnited Kingdom,weredevelopedover
manyyearsbycharitableorganizationsus-
inggrantfunding.Impact-focusedinvestors
inthe developedworldalso report similar
difculties in sourcing good investment
opportunities,andinachievingsufcientre-
turnfromsuccessfuldealstooffsetlosseson
failuresinahigh-riskenvironment.
Grant support canhelp catalyze entire
market ecosystems
that generate
sustainable and
meaningful impact.
FroM BluePrint to ScAle 17
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 22/68
nanced by ‘micromortgages’ and delivered on a ully commercial basis. In the past
two years, more than 50,000 units have already been sold, and there is growing
interest in the model in India and elsewhere.
In the blueprint stage o this ecosystem’s development, MIM ocused on under-
standing the target customer and developing tailored business models, working
closely with the regulator, the National Housing Bank. In the validate stage, MIM
provided implementation support and, in one case, incubation support, to the
rst-mover companies in this new industry, the majority o whom were small en-
trepreneurs with limited resources. In both o these early stages, substantial grant
unding rom the World Bank, IFC, Michael & Susan Dell Foundation, the Rockeeller
Foundation and other donors made it possible or MIM to play a catalytic role in
developing solutions or a market segment that mainstream housing players hadnot historically viewed as being commercially viable.
enter enterPriSe PhilAnthroPy
What we are describing is not philanthropic unding in a conventional sense. Its im-
mediate beneciaries are typically businesses with a prot objective — albeit only
modest prots in many cases — rather than nonprot organizations. The ocus is
still on impact, but instead o paying or specic social goods or services, it aims to
establish models or inclusive business enterprise into which return-seeking capital
can be invested to drive scale. It supports and develops rms pioneering these new
models in the interest o the impact created by those pioneer rms themselves and
by those that ollow in their wake i they are successul. Because o these character-
istics, we have called this emerging practice ‘enterprise philanthropy’.
How, then, should enterprise philanthropy be carried out? How can grant unding
help pioneer rms to move towards — not away rom — being investable? How
should existing unders think about approaching this practice o enterprise philan-
thropy vis-à-vis the established work o giving grants to nonprots?
In the next two sections, we will use a number o cases taken rom the Acumen
Fund portolio to draw out some key learnings rom the work o unders and inter-
mediaries in this area, such as the Bill & Melinda Gates Foundation, Shell Founda-
tion and Acumen Fund itsel. Our aim is to provide some early answers to these
questions, ocusing in particular on the validate and prepare stages o the pioneer
rm’s journey.13
13 The blueprint stage has not been a focus for this report as the challenges in that stage often relate more to the develop-
ment of impact-creating interventions and their supporting technical innovations, than to the challenges of building an
enterprise. Perhaps in accordance with this, the practice of providing charitable funding for this stage is more established
than for later stages. That said, we believe that grant funding for the blueprint stage continues to be a priority need givenits high early-stage risk and consequent unattractiveness to investors.
Enterprise
philanthropy aims
to establish models
for inclusive business
into which return-
seeking capital can be
invested to drive scale.
Monitor GrouP18
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 23/68
While our case study approach will necessarily ocus on a small number o compa-
nies, the themes refected in these cases are drawn rom Monitor’s accumulated
research knowledge in this space, Acumen Fund’s investing experience, and thereported observations o the investors, unders and other experts interviewed or
this study.
O course, these cases are narratives about rms, their challenges and their oppor-
tunities, their successes and their ailures, with all the complexity that that implies.
It would be unrealistic to suggest that grants were wholly responsible or the busi-
ness outcomes, good or bad, described in these cases. The many variables relating
to leadership, strategy, organizational capability and market conditions are the real
actors driving success or ailure. It is thereore the potential or grants to aect this
complex interplay o people and organizations that is our ocus as we delve into thecase studies in the ollowing sections.
FroM BluePrint to ScAle 19
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 24/68
3vlitig vibilit
Every new business model needs to be validated. Nowhere is
this more critical than for businesses that are trying to create
social benefit and operate in challenging BoP conditions.
In this section, we discuss two case studies drawn rom
the Acumen Fund portolio where signicant grant sup-
port has been applied to the validate stage: one with a
positive trajectory that has been reinorced by grant support, and an-other with a negative trajectory, where grant support could have played
a more eective role. We then summarize our key themes o eective
enterprise philanthropy practice that are drawn rom our broader eld
observations and are exemplied by these case studies.
case sTudy: lifTinG The foG of daRkness
In spite o a booming economy in India that recorded growth rates o
nearly 10 percent per year in late 2011, more than 400 million Indian
hs Pw Ssms as p a w wa f pvg a ia
g gasfa f s.
20 Monitor GrouP
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 25/68
citizens14 — or a third o the population — still have no access to electricity. In rural
areas, 45 percent o poor households currently lack access to an electric power
source. The Central Electricity Authority (CEA), the main advisory body to the Gov-ernment, has said that a massive 100,000 megawatts o additional power genera-
tion capacity will be needed between 2012 and 2017 to satisy India’s energy needs,
a target that is unlikely to be met due to the acute shortage o coal and growing
concern about ecological impact. Even i power generation capacity targets were
to be met, the country would still ace the considerable challenge o distributing
electricity to rural areas.
The third o the population that does not have access to electricity live a very
dierent, literally darker lie compared to the rest o the country. Their primary
access to light is rom unsae and inecient kerosene lamps and candles, whichare more expensive than the equivalent electric lighting. Their enterprises are less
productive because work is limited to daylight hours; their children are unable
to study in the evenings; they have very limited access to modern inormation
technology; and they suer rom a signicant rate o respiratory illnesses related
to indoor air pollution.
It was against this backdrop that, in 2007, Gyanesh Pandey and Ratnesh Yadav
made a breakthrough. Working through a nonprot called Samta Samriddhi Foun-
dation, the ambitious entrepreneurs succeeded in producing gas rom rice husk, a
readily available agricultural waste product. From this gas, they generated electric-
ity, bringing power and light or the rst time to the remote and run-down village
o Tamkuha (which means ‘Fog o Darkness’).
The company that sprang rom that breakthrough, Husk Power Systems (HPS), now
provides electricity to 25,000 households in 250 hamlets and villages across the ru-
ral state o Bihar. The company has 75 operational mini power plants. Each o these
achieves operating break-even15 on average within six months o starting opera-
tions. HPS has raised $1.65m o investor capital rom Acumen Fund, Draper Fisher
Jurvetson, LGT Venture Philanthropy, Bamboo Finance and IFC, and has very recently
secured unding to take its model to Arica.
In section 1, we laid out the impressive scale and scope o innovation achieved by
HPS in order to serve its target customer. However, back in 2007, very little o this was
in place. Personal savings and winnings rom business plan competitions allowed
HPS to build two working power plants and demonstrate that its core technologies
14 Article published on IEA website, Energy poverty: The missing Millennium Development Goal?, (March 1 2011), http://www.
iea.org/index_info.asp?id=1847.
15 The Indian Ministry of New and Renewable Energy (MNRE) provides on-going sector subsidies to power-generating projectsusing biomass and wind sources. This contributes significantly to the break-even economics of the HPS model in India.
Husk Power Systems
has 75 operational
mini-power plants, each
achieving break-even
within six months.
We discuss two casestudies drawn romthe Acumen Fundportolio to showhow pioneer frms
need to validate theviability o their busi-ness models. We alsoshow how enterprisephilanthropy can playa pivotal role, andintroduce the ‘Four Ps’o eective practice.
FroM BluePrint to ScAle 21
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 26/68
worked. However, that was hardly sucient or either social impact or commercial
success in serving the o-grid villagers o Bihar. Relating this back to the our-stage
ramework we introduced earlier, HPS had made good progress in the blueprint stage(see Figure 4). However, it had yet to validate the commercial potential or the whole
business model, which involved the signicant challenge o actually getting power
into o-grid village homes and generating revenues rom those households.
fiGuRe 4: Stages o Development o Husk Power Systems
In 2008, HPS entered into a unding relationship with Shell Foundation, which had
been seeking to back promising ventures delivering energy to low-income commu-
nities, especially those based on ‘bio-energy’ technologies. Shell Foundation made
grants rather than investments in the conventional sense, but took an enterprise-
based approach and intended to develop businesses that could then attract
investment capital in order to achieve signicant scale; in other words, it was an
enterprise philanthropist .
Simon Desjardins, who manages Shell Foundation’s Access to Energy Program,
explains, “We started by asking the question: what will investors need to be able to
back this business? We then designed our support in order to help the business move
towards ultimately receiving commercial investment and scaling. I we had to do this
all over again, the one thing I would change is that we would start the conversation
with investors right at the beginning, so that their input is taken into account ar in
advance o them actually investing. In act, this is a process we have since adopted.”
Note: *HSSE – Health Safety Security and EnvironmentSource: Acumen Fund, Primary research interviews, Monitor Analysis
2007 2008 2009 2010 POST 2011
1. Blueprint 2. Validate 3. Prepare 4. Scale
» Savings and winningsfrom business plancompetitions used toexperiment and create2 working power plants
» Shell Foundation grantfor capex of 8 plantsto test scalability
» Focus on achievingunit breakeven andnot on achievingpremature scale
» Leveraged ShellFoundation’s expertiseto build managementcapacity
» Grant funded R&D toreduce operationalcosts and for HSSE*
Grant Funding
Investment
Founder’s savingsBusiness plan competitions
Shell Foundation made
grants rather than
investments in the
conventional sense,
but took an enterprise-
based approach to
develop businesses
that could then attract
investment capital.
Monitor GrouP22
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 27/68
Table 2: Shell Foundation Grants to Husk Power Systems
PerIod SPeCIIed uSAge And CondItIonS Key outComeS
nov 2008 –
Jun 2009
• Research and development
• Build 3 new plants to test scalability
• Demonstrated ability toreplicate plants at acceleratedpace and with consistentperormance outcomes
Jun 2009 –
JAn 2010
• Build 5 new plants
• Trial new energy payment system
• Initiate carbon credit conversionwith the assistance o a specialistconsultant
• Hire senior management
• Further R&D to enable tar reduction,assisted by Shell Global Solutions
• Further R&D to reduce plant cost
• Complete intellectual property legalwork
• Establish Husk Power University,a centralized training acility orpersonnel
• 20 percent reduction in tar
• 10 percent reduction in cost o engine development
• IP ormally protected in Indiaand USA
• Training acility established
APr 2010 –
deC 2010
• Pre-paid metering system tested andinstalled at pilot
• Further R&D on operationaleciency
• Explore options to monetize wastestreams
• Hire key senior sta, includingdirector o operations, with partialsubsidy support
• Conduct an external HSSE audit
• $1.3 million capital raised
• Pre-paid meter systemdeveloped
• Key sta hired and on-boarded
• Progress on implementationo recommendations undersaety audit report
JAn 2011 –
Jun 2012
• External consultancy to assist withbuilding Husk Power University
• Continued implementation o HSSEaudit recommendations
• Rolling out o pre-paid meters
• Establishment o Husk PowerUniversity
• HR Subsidy or senior management
• Disbursement o nal trancheconditional upon successul raisingo commercial Series A unding
• Initial training curriculumand scale-up plan or HPSUniversity developed
• Existing plants retrotted toHSSE standards refecting
audit recommendations, andnew plants being installed tothe new standard
• New meters rolled out
• Training acility establishedand in use as the primarytraining site or new HPSemployees
• New senior manager (COO)hired
• Series A unding secured
“If we had to do this all
over again, we would
start the conversation
with investors right at
the beginning.”
SiMon deSjArdinS,Shell FoundAtion
FroM BluePrint to ScAle 23
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 28/68
Shell Foundation provided a series o targeted grants aligned with key business step
changes, complemented by business and technical expertise drawn rom the Shell
Group as well as rom external consultants where appropriate. All in all, the Founda-tion has made grants totaling $2.3 million to HPS. It also helped to acilitate the en-
try o investors that led to the successul close o pre-Series-A investment16 in 2009.
This range o support was provided in the context o a close, collaborative working
relationship between HPS management and Simon Desjardins, who spent a third o
his time working with HPS on the ground in India. This support proved to be invalu-
able to HPS as it proceeded to validate its business model between 2008 and 2010,
and then to prepare the business or greater scale through 2010 and 2011.
Each tranche o the grant was targeted and designed to help the business main-
tain its ocus as it progressed towards ull investability and scalability. Meanwhile,the specic, time-bound nature o the grants minimized any perception that grant
unding might be available to und any expenditure on a permanent basis within
the business. Figure 5 shows how dierently the Shell Foundation grants were used
in the validating and preparing stages.
fiGuRe 5: Usage o Grants rom Shell Foundation
From the outset, the premise was that HPS would sustain itsel rom its customer
revenues, as any mainstream business would. The typical HPS customer paid Rs.
16 Early-stage investment.
Source: Shell Foundation, Acumen Fund, Monitor Analysis
Other
HR Subsidy
Training
HSSE
R&D
Capex
Validate
$442K Grant $1.88M Grant
Prepare0%
20%
40%
60%
80%
100%
24%
53%
36%
12%
31%
20%
1%
0%
13%
4%6%0%
Each tranche of the
grant was targeted and
designed to help the
business maintain its
focus as it progressed.
Monitor GrouP24
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 29/68
100 ($2) per month, covering the requirements o two light bulbs and a mobile
charging point. This ocus on charging a ‘commercial price’ and achieving a cost
structure that enabled protability at that price, was critical to building a busi-ness that could scale up commercially. The Shell Foundation grants were careully
designed so as not to compromise this discipline. Furthermore, the Foundation also
required HPS to contribute its own unds towards activities that were grant-unded:
or example, the Foundation’s grant o over hal a million dollars or training is be-
ing matched by $950,000 rom HPS.
The risk with highly targeted and prescriptive grants is that they run counter to
the actual needs o the business, and interere with the competent decision-mak-
ing o management. HPS and Shell Foundation managed this risk by ensuring
joint prioritization o key needs and grant objectives. Gyanesh and his teamhelped to ormulate the objectives, targets and conditions attached to each grant,
as they were closest to the business. There were some exceptions to this, notably
the Health Saety Security Environment (HSSE) improvement program in 2009.
The primary impetus or this came rom Shell Foundation, which saw the critical
need or robust saety standards and systems, based on the extensive experience
o their Shell Group colleagues.
Gyanesh, who is CEO o HPS, says o the relationship: “We
have a very open, collaborative working relationship with
Shell Foundation. Yes, each o the grants is given or a specic
purpose — none o it is just ree money or us to spend as we
wish — but I have never been asked to do something that I didn’t
think was important or the business.”
It is critical to charge
a commercial price
and achieve a coststructure allowing
profitability at
that price.
FroM BluePrint to ScAle 25
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 30/68
case sTudy: PRoTecTinG The PooR fRoM financial shocks
The economic development o low-income communities is vulnerable to the
nancial shock o adverse events such as crop ailure, serious illness, death and
natural disasters; such shocks can wipe out years o steady progress by a household
in a matter o months. These communities also have minimal access to insurance
products that could help them to manage these risks more eectively. However,
selling insurance in the BoP is dicult as it involves customers sacricing some
cash today (when they have very little as it is) to receive a uture benet that is notonly uncertain but also perceived to be unlikely, as most people underestimate their
vulnerability to these events.
In 2005, the Geneva-based Aga Khan Agency or Micronance (AKAM)17 launched
an initiative to test new micro-insurance18 products to help the poor mitigate the
risk caused by severe adverse events. This was unded by a $5.5 million grant rom
the Bill & Melinda Gates Foundation. The initiative ocused on mitigating two key
risks — death o a amily breadwinner and hospitalization due to severe illness or
maternity complications — which were ‘high-severity, low-requency’ events a-
ecting BoP households. By 2005, credit lie micro-insurance was well establishedinternationally, but there were no successul precedents or commercially viable
health micro-insurance products and so it ell to a new company created by AKAM,
First Microinsurance Agency (FMiA), to pioneer a new model in Pakistan.19
17 The Aga Khan Agency for Microfinance (AKAM) was established in 2005 in order to provide a professional dedicated
platform for the microfinance activities, programs and banks that had been administered by sister agencies within the
Aga Khan Development Network (AKDN) for 25 years.
18 ‘Micro-insurance’ is the term used to describe a range of insurance products aimed at low-income groups not served
by mainstream commercial insurance schemes, typically with low premiums and accordingly low caps compared with
mainstream products.
19 While the initiative launched in both Pakistan and Tanzania, the Tanzanian company only offered a credit life product, not
a health product, and did not develop its business as much as its sister company in Pakistan. Much of the data used in this
case study comes from a detailed report prepared by Aga Khan Foundation USA and AKAM, “The AKAM Microinsurance
Initiative: Case Study and Lessons Learnt,” supplemented by interviews with individuals who had been involved with FMiA.
We are grateful to AKAM for sharing their report with us and allowing us to draw on it in preparing our case study.
FMA’s s awass amps, sgs a sas w pa a
xsg ps Pasa.
In 2005, AKAM
launched an initiative to
test new micro-insurance
products to help the
poor in which Acumen
Fund invested $384,000
of equity, with the
expectation that the
firm would grow
rapidly and break-even
within 3 years.
Monitor GrouP26
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 31/68
fiGuRe 6: Stages o Business Development o FMiA
Following an initial period o research and design — the blueprint stage — with
work conducted both at AKAM in Geneva and on the ground in Pakistan, FMiA
Pakistan was created in January 2008 (see Figure 6). Ten months later, Acumen
Fund invested $384,000 o equity in the new business, with the expectation that
it would grow rapidly, just as microcredit had done in Pakistan, and achieve break-
even within three years. AKAM and Acumen Fund injected a urther $1.8 million
into a stop loss acility that would bear 90 percent o the company’s cumulative
underwriting losses (i.e., the shortall o premium income over claims payments)
in order to encourage a mainstream commercial insurer to underwrite FMiA’s
policies. Because o the low premiums associated with micro-insurance, FMiA
decided to ocus on group rather than individual sales in order to gain distribution
and administration cost eciencies. Its health insurance products were to be sold
to households on a voluntary basis in the rural northern areas o Pakistan, and
bundled mandatorily by micronance institutions (MFIs) with microcredit in cities
such as Lahore and Karachi.
In 2008, FMiA Pakistan moved into the validate stage with its health insurance
product. The city pilot launched in Lahore as a mandatory product or all new bor-
rowers and enrolled some 10,000 persons in 2008. However, by the end o that year
the company’s MFI distribution partner had run into broader business diculties
and ound itsel unable to continue. Undeterred, FMiA struck up a partnership with
another MFI to run a pilot in Karachi along similar lines. By the end o 2009, close to
Source: Acumen Fund, Primary and secondary research, Monitor Analysis
2005 2006 2007 2008 2009 2010 2011
» $5.4M Gates Foundation grant toAKAM to create life and healthmicro-insurance products
» Products developed in AKAM HQin Geneva in consultation withlocal staff in Pakistan
» Mixed results in the initial pilots
— High claim ratios for healthinsurance product reflecting adverseselection and limited uptake
— High sales of credit life insurance of over 370,000 policies sold throughKhushali – an MFI partner
Grant Funding
Investment
1. Blueprint 2. Validate
FroM BluePrint to ScAle 27
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 32/68
21,000 people were insured, but the claims ratio20 was high at approximately 285
percent. Under pressure rom its partner, the company introduced a lower-price
‘amily package’ in October 2009 or a three-month trial, but once launched, theseconcessionary terms proved dicult to retract and this in turn made it dicult to
bring down the claims ratio.
The challenges in the rural northern areas were even greater. To begin with, the
population was generally in poorer health than those in the cities. FMiA also very
likely experienced the phenomenon o adverse selection: those who were already
ill or pregnant were more likely to get insured. The company had tried to prevent
this by requiring that sales were made only to pre-existing ‘natural groups’ such as
Village Organizations or Women’s Organizations, and that at least hal o all house-
holds in a group should take up the product. However, it transpired that householdscould easily join such groups in order to buy the product, and the 50 percent take-
up minimum was too low to protect against adverse selection.
The other part o the challenge was claims management. FMiA implemented a
smart card system or patient authentication, but the lack o computer connectivity
in many acilities rendered this unusable. And despite the company’s close links to
the healthcare provider, Aga Khan Hospital Services, it is likely that treatment proto-
cols were not ully enorced and that hospitals sometimes recommended treatment
and hospitalization in cases where FMiA doctors would not.
As a result, the northern areas health product registered a high claims ratio o
almost 270 percent in 2008. AKAM and FMiA knew that they had to assess the
situation in detail, and make the necessary changes to the product and distribution
model. However, because o the armed insurgency in the neighbouring Swat region,
the AKAM expert team based in Geneva was unable to visit the northern areas until
late 2009. Meanwhile, total enrollment tripled to over 23,000 in 2009 without any
reduction in claims ratios, with the district o Gilgit-Baltistan registering a peak o
415 percent in that year. Eventually, the expert team was able to assess the situa-
tion and make substantial modications to the health product, to bring down the
claims ratio through 2011.
20 The ratio of claims payments to net premium income in any given period. Insurance models must have claims ratios
significantly below 100 percent in order to be sustainable. New insurance schemes often show high claims ratios in the
initial period; sometimes these decline automatically through growth and diversification of the risk pool, but at othertimes these reflect underlying problems with product design or distribution that require rectification.
FMiA introduced a lower-
price ‘family package’
for a three-month trial,
but once launched these
concessionary terms
proved difficult to retract.
Monitor GrouP28
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 33/68
FIGURE 7: FMiA Northern Areas Health Product —Persons Insured and Claims Ratio
By the end o 2011, there had been heavy underwriting losses rom the health
product, borne mostly by the stop loss guarantee acility. Meanwhile, even though
the more conventional credit lie product had grown to cover 370,000 lives and
stabilized at an acceptable claims ratio o 60 percent, it did not generate a sucient
income contribution to cover the high xed costs o the FMiA business, and the
company could not see a clear path to independent nancial sustainability.
AKAM thereore agreed with the Gates Foundation to end the grant, and FMiA was
closed down. Acumen Fund wrote o its equity investment in the company and
withdrew its share o remaining unds in the stop loss acility. New Jubilee LieInsurance (NJLI), which had been underwriting FMiA’s policies and was considering
a move into micro-insurance at the time, decided to acquire the ailed company’s
sta and assets, encouraged by AKAM’s decision to continue providing the stop loss
acility. AKAM is condent that the work o pioneering a viable micro-insurance
model will continue developing within NJLI and a new business plan or the ormer
FMiA unit projects nancial break-even in 2016.
Source: AKAM Microinsurance Initiative Case Studyand Lessons Learnt, Annex 3, Monitor Analysis
2008 2009 2010(2 months
claims data)
0
5,000
10,000
15,000
20,000
25,000
6,044
19,51823,260
195%
156%
133%
Claims Ratio
Lives Insured
0%
100%
200%
L i v e s I n s u r e d
C l a i m s R a t i o
Heavy underwriting
losses from the health
product and insufficient
income from clients led
to FMiA closing down.
FroM BluePrint to ScAle 29
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 34/68
the Four Ps oF enterPriSe PhilAnthroPy
These two case studies underscore the importance o validating the viability o in-
novative business models, and highlight the pivotal role that unders such as Shell
Foundation and the Gates Foundation, and intermediaries such as AKAM, can play
at that critical juncture. We believe there are our general themes — Four Ps — o e-
ective enterprise philanthropy practice that are exemplied by these case studies:
Pps
It is essential that management, unders, intermediaries and investors are
well-aligned on their goals and expectations or the business. We see this
alignment o purpose clearly in the case o HPS: Shell Foundation shared
the management team’s vision o achieving scale by way o commercial
capital and helped to bring in investors, including Acumen Fund, to rein-
orce this trajectory.
In the case o FMiA, this alignment was not as strong. While there was a
shared interest in both impact and viability across the company and its
backers, the Gates Foundation and AKAM were ocused on testing and
learning rom an experimental model o health micro-insurance, while
Acumen Fund was more ocused on building a successul inclusive busi-
ness that would reach nancial break-even within three years. AKAM was
also more interested in developing a product that was targeted at the rural,
hard-to-reach population to have maximum impact while Acumen expect-
ed that the ocus would be more on urban growth through MFI partners.
Pfab Pps
When validating the business model, the customer proposition that is
oered in the marketplace must be one that is protable or the rm long
term, at prices that customers are actually willing to pay. Market trials are
unreliable i they are run with short-term concessionary prices and oer-
ings that are signicantly dierent rom those that can be sustained over
the longer term, as market conditions in the BoP are so stringent. For much
the same reason, businesses in the validate stage need to have a robust
understanding o unit cost and a tight ocus on achieving an ecient cost
position. Any investor, under or intermediary involved in the rm’s devel-
opment at that stage should be aware and supportive o that ocus.
From the outset, HPS charged the long-term sustainable price or electric-
ity, using a simplied tari tailored to its target segment o low-income,
low-usage households who were new to buying electricity. In line with this,
P
P
Monitor GrouP30
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 35/68
HPS and Shell Foundation went to great lengths to reduce the unit cost o
electricity, including designing proprietary smart meters (as existing ones
were too expensive), urther R&D to reduce the cost o plants by 25 per-cent, and the processing o char into incense sticks to avoid the high cost
o disposing o this waste product. At no time was the Shell Foundation
grant used to enable provision o the product or ree or at a short-term
concessionary price.
Meanwhile, FMiA struggled to achieve a protable proposition in health
insurance, in part because it launched products with terms that were too
generous (both in the northern areas and in Karachi) and were then di-
cult to scale back. This refected an understandable concern that custom-
ers would not buy the product because it was not suciently attractive.Refecting on the experience, AKAM now believes that it would have been
wiser to start with a less generous product that had a high likelihood o
protability, and then assess the scope or adding cost to deliver more ben-
ets. Another contributing actor identied by AKAM was the low burden
o risk borne by NJLI — just 10 percent o losses, compared with 90 percent
borne by AKAM (supported by the Gates Foundation grant) and Acumen
Fund through the stop loss acility — which may have led to them not
pressing more strongly or decisive and eective action on protability.
Pgss
In the validate stage, investors, unders and intermediaries should help the
pioneer rm progress towards greater viability. A key part o this is helping
management to maintain discipline at each step-change milestone and
honestly assessing progress towards validation.
The specicity and discipline o the Shell Foundation grants to HPS are
a good illustration o this. Contrary to the perception o grants as ‘ree
money’, grants can be more prescriptive at an operational level than equity
or debt, through a combination o restriction, disbursement conditionality
and reporting requirements. Shell Foundation used this quality o grants in
designing its instruments, thereby helping HPS to stay ocused on the key
step changes it was seeking to achieve. The key to this working in prac-
tice was Shell Foundation’s highly engaged approach, allowing aims and
milestones to be developed jointly by both parties so that they were ap-
propriate to the business and thus more likely to be achieved. HPS and Shell
Foundation also did not rush into bringing in investors beore the model
had demonstrated its viability.
P
FroM BluePrint to ScAle 31
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 36/68
The story o FMiA shows how dicult this can be in practice, especially
when complicated by external events. The insurgency in Swat prevented
the rapid-cycle learning and adjustment that was critical to the renemento the health insurance product in the remote northern areas, in contrast to
the quicker and more eective modications made in the rst six months
o the Karachi pilot. Lack o adjustment, combined with accelerating enrol-
ment in the northern areas, led to the escalation o underwriting losses.
The Gates Foundation could have instituted stronger measures in its grant
to support disciplined progression at FMiA through AKAM; or instance,
this could have required the company to restrain continuing growth in
enrollment where claims ratio data pointed to serious issues with product
design, distribution model or gate-keeping. Acumen Fund could also have
used its infuence as a major investor to help the business maintain disci-
pline. Evelyn Stark rom the Gates Foundation, says: “The grant was made
in the early days o the Financial Services or the Poor program when the
team was in a more exploratory phase. Our strategic goals and grant-making
practices have been signifcantly tightened since that time.”
Pss
Persistence is critical because it is not easy to develop new business models
that work. As we have explained, the pioneers o the microcredit model
spent decades developing and rening the model beore they demonstrat-
ed viability and became investable.
Shell Foundation took a realistic view o this when it began working with
HPS. Instead o rushing to scale, HPS and Shell Foundation worked over a
number o years to test key assumptions and build out the model, think-
ing about each step in the value chain. HPS and Shell Foundation also took
time to build the capabilities required to operate eciently and saely at
scale, beore pushing ahead with Series A commercial investment and a
concerted eort to scale up.
Whether persistence in validating the FMiA business model, within NJLI,
will eventually pay o is not certain — it never is, with any new model.
However, given the inherent challenges o micro-insurance and the ex-
perimental nature o health micro-insurance in particular, many cycles o
trial and error were likely necessary. It was highly unlikely that the model
would break even within three years o Acumen Fund’s investment. Brian
Trelstad, the ormer Chie Investment Ocer o Acumen Fund, says: “The
expectation that FMiA would break even in three years was unrealistic. Even
in developed markets a new insurance product can take ve to seven years to
P
Monitor GrouP32
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 37/68
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 38/68
4Prprg Mrt
BP mas a awas a f vas a
a b p fms, a s s f a ba
sssf gw f sv bsss ms.
Customers in the BoP do not always readily desire and
demand the products that could be highly benecial to
them, such as preventative healthcare or insurance. We
call these ‘push’ product categories, in contrast to ‘pull’ categories, such
as housing and mobile phones. Distribution channels in the BoP do not
always have the ability to get products to customers, especially in rural
areas. And suppliers in the BoP sometimes do not have the ability to de-
liver the products that they should ideally produce. In these situations,
markets need to be prepared in order to create the right conditions or
activity. Enterprise philanthropy can play a vital role here.
In this section, we will discuss two grant-related case studies rom the
Acumen Fund portolio, both drawn rom the same sector but in two
dierent countries and with dierent trajectories. We will also revisit andbuild on the Four Ps that we introduced in the previous section.
3. Prepare
34 Monitor GrouP
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 39/68
case sTudy: easy waTeR, BeTTeR livelihoods
In 2002, International Development Enterprise India (IDEI), a nonprot organization
seeking to improve the productivity o the smallholder armer, invented a promis-
ing product. The product looked unassuming — a thin but strong plastic tape with
holes punched in it . However, it promised to bring drip irrigation, a valuable tech-
nology that had been previously available only at high cost to large arms, withinreach o the smallholder armer. Amitabha Sadangi, the head o IDEI, knew that this
could have a dramatic impact on rural BoP livelihoods. By bringing water directly to
the stalks o plants instead o fooding channels, crop yields could be increased by
50 percent and signicant reductions could be achieved in water and energy use,
leading to both cost savings and environmental benets.
But how would he get the product to the smallholder armer, and to as many as
possible? While IDEI had always relied on grant unding rom donors such as Swiss
Agency or Development and Cooperation (SDC), Skoll Foundation and Lemelson
Foundation or its R&D activities, Amitabha believed that the best route to scaleor a strong product was a commercial one. He wished to avoid relying on on-going
subsidies, which he viewed as distorting markets and encouraging corruption. He
had already tried once beore to commercialize a product — a treadle pump or ir-
rigation — and saw no reason to proceed any dierently with this new product.
usg w-s p ga, ramasa Maaa as pw s a as s
fm sx as f a vgabs s Aagaba, ia.
GEWP’s promise was
to bring drip irrigation
within reach of the
smallholder farmer with
a dramatic impact on
rural BoP livelihoods.
We discuss twourther case stud-ies to show howenterprise philan-thropy can helpfrms to prepare new markets atthe Base o thePyramid (BoP) andrevisit the Four Ps.
FroM BluePrint to ScAle 35
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 40/68
fiGuRe 8: Stages o Business Development o GEWP
Intrigued by the product’s potential, Acumen Fund stepped in as under, giving IDEI
$100,000 and technical assistance rom Adrien Couton, an Acumen Fellow. This
helped IDEI to urther invest in product development, leading to the creation o two
new product variants and to develop a business plan or a new company, Global
Easy Water Products (GEWP), that would take the new KB Drip low-cost drip irriga-
tion solution to scale. GEWP received investment rom Acumen Fund and proceed-
ed with validating its business model: developing its product oering, beginningcontract manuacturing, conguring its distribution model, and, most importantly,
proving that it could sell products at a commercial price to smallholder armers.
However, it aced a tough problem. Smallholder armers in India had no previous
experience with drip irrigation and thereore had no appreciation o its benets.
IDEI and GEWP aced an uphill struggle trying to convince armers that they should
spend some o their scarce money on this new product that neither they nor any-
one they knew had ever used beore. The eager early adopters taken or granted in
upper-income markets were nowhere to be ound in this one. Meanwhile, the small
agricultural dealerships that were distributing KB Drip were used to responding tocustomer requests, not to actively promoting specic products.
IDEI had been using donor and commercial unds since 2002 to create this new mar-
ket, but the breakthrough came in November 2007, when the Bill & Melinda Gates
Foundation committed $16 million o unding to IDEI to specically support the
development o the low-cost drip irrigation program with a particular ocus on pre-
paring the market. Approximately $11.5 million o the grant went towards increased
demand stimulation activity, designed to make armers more aware o the benets
o drip irrigation. Using this money, IDEI showed Bollywood-style lms in villages,
conducted product demonstrations, and installed demonstration plots in the elds o the most receptive armers, which then generated word-o-mouth publicity about the
Source:Acumen Fund, GEWP/ IDEI Website, Secondary research, Interviews with IDEI/ GEWP Personnel
1009080706050403020100999897 POST
11
» Funding from various donors utilized primarilyfor R&D activities and business expansion
» Low-cost drip irrigation system developed andrefined by 2004
» Building supplychain and marketingstrategy
» Pilots done with aimto set-up a for-profit
» ~$16M BMGF grantfor demand genera-tion in 2008
» Targeted R&D toreduce cost, enhanceproducts and build /enhance supply chain
» Further expansion
Grant Funding
Investment
Donors to IDE-I
Rajiv Gandhi Foundation
1. Blueprint 2. Validate 3. Prepare 4. Scale
The problem was that
smallholder farmers in
India had no previous
experience with drip
irrigation and therefore
had no appreciation of
its benefits.
Monitor GrouP36
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 41/68
product’s benets. The remainder o the grant unded urther research and develop-
ment to improve the product oering, and development o the supply chain.
The investment in generating customer awareness and demand resulted in accelera-tion o sales. The annual growth rate in sales increased rom 40 percent in the years
beore the grant to 73 percent in subsequent years (see Figure 9).
fiGuRe 9: Grant-Enabled Market Creation
GEWP’s current trajectory is highly promising. In 2011, some 65,000 armers pur-
chased KB Drip products. With penetration in the ‘prepared’ districts still relatively
low at ve percent, there is considerable headroom or urther growth and impact.
However, despite the undamental alignment in strategic intent between IDEI and
GEWP, there are usual dierences between them in day-to-day operations that one
would expect between a mission-driven organization and a or-prot company. As
such, it is encouraging that GEWP has now achieved ull operational independencewith the transer o the remaining drip irrigation units rom IDEI. The company has
also hired a new managing director, O.P. Singh, who has a commercial background
in rural and agricultural nancial services, to strengthen the capabilities that the
company will need as it pushes orward into scaling.
Perhaps the clearest sign o IDEI and GEWP’s early success is the emergence o
competitors in this market. Most o these are small local copycat producers, but one
notable recent entrant is an American startup called Driptech, which has launched
operations in India and China. In India, Driptech is headed by Pratyush Pandey, the
ormer managing director o GEWP, and is targeting villages in districts where the
Gates Foundation-unded demand stimulation activities have been conducted but
penetration o low-cost drip irrigation is still minimal.
Note: 1 USD = 45 INRSource:Acumen Fund,
Monitor Analysis
2006 2007 2008 2009 2010 2011(11 months)
0.330.43
0.65
1.39
2.95
3.37
+40%
0
1
2
3
4
Gates Foundation Grant for Market Creation
77%
14%
9% USAGE OF ~ 16M GRANT
Demand Generation
Technology Development
Supply Chain Enhancement
+73%
The clearest sign of
IDEI and GEWP’s
early success is
the emergence of
competitors in
the market.
FroM BluePrint to ScAle 37
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 42/68
“All the players in the market have beneted rom the Gates grant, because the
market is now aware o the product. But armers also now have a range o options in-
stead o just one supplier, which has to be a good thing ultimately,” says Pratyush. Ineect, the Gates Foundation grant has helped to create a public good in the orm o
greater smallholder armer awareness and receptiveness to drip irrigation products.
Whether this grant achieves greater impact directly through GEWP or indirectly
through players such as Driptech makes no dierence to a philanthropic under
such as the Gates Foundation, whose interest in this situation is the benet o the
armer rather than a private return on investment.
case sTudy: The sToRy conTinues… in PakisTan
The story o IDEI’s invention extends beyond India’s borders. In Pakistan, Thardeep
Rural Development Program (TRDP) — led by Dr. Sono Khangharani, a passionate
and charismatic non-governmental organization (NGO) leader — had been working
with armers in the Tharparkar desert and other arid areas o southern Pakistan.Since 2005, TRDP had been exploring ways to make drip irrigation accessible to the
smallholder armer, including early discussions with Unilever about bringing appro-
priate technology to Pakistan.
When Dr Sono heard rom Acumen Fund about the promising work o IDEI and
GEWP in India, he was intrigued by the prospect o replicating their model and their
impact in Pakistan. Talks ensued and, in 2007, MicroDrip was incorporated to bring
low-cost drip irrigation to Pakistan with TRDP and Acumen Fund as shareholders.21
21 While the company was incorporated in 2007, Acumen Fund’s investment in MicroDrip was made in 2008.
Zfqa A fams f as vag f dab, Pab pv, ga b Mdp
ga s.
Monitor GrouP38
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 43/68
The opportunity seemed straightorward. MicroDrip would begin its operations in
the arid regions o Sindh, an area with a high degree o water scarcity and a large
number o smallholder armers, and thereore a clear need or drip irrigation solu-tions. The company would import the KB Drip tape and accessories rom GEWP in
India, and would then leverage connections with TRDP and other similar organiza-
tions (known as Rural Support Programs, or RSPs) to get those products into the
hands o the smallholder armer. By doing so, it also aimed to tap into the large pool
o donor subsidies available to the RSPs and signifcantly reduce the price o the
product to encourage adoption.
Figure 10: Stages o Business Development o MicroDrip
Such was the level o confdence ollowing initial product trials in the blueprint
stage that MicroDrip moved quickly through the prepare stage and into the scale stage (see Figure 10). Our research indicates that there was minimal work done on
market research or testing in the validate stage. Neither was there much work done
on preparing either the market (e.g., stimulating demand) or the supply chain (e.g.,
training distribution partner personnel).
It soon became apparent that this confdence had been misplaced. Even though
Sindh was an area o high need, there was no ready demand or its products. Being
an arid region, Sindh had never developed agriculture to the levels o more ertile
regions like Punjab. Farmers were highly risk-averse and drip irrigation was even less
amiliar to them than it was to Indian armers, which meant that MicroDrip had a
real challenge on its hands trying to convince them to buy its new product.
Source: Acumen Fund, Monitor Analysis, Primary research
2005 2006 2007 2008 2009 2010 POST2011
» TRDP and Unilever in talks tocollaborate on bringing driptechnology to Pakistan
» In 2007, company set up withinvestment by Acumen tomarket drip irrigation systemssourced from IDEI
» Explored andbuilt partnershipswith RSPs whoacted as interme-diate buyers anddistributors of the product
» Expanded into Punjab, regionwith highest concentration of smallholder farmers
Grant Funding
Investment
1. Blueprint 3. Prepare 4. Scale
Rural Support Programs
MicroDrip aimed to tap
donor subsidies to the
RSPs to reduce price and
encourage adoption.
From Blueprint to Scale 39
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 44/68
Acumen Fund believed that the new business needed to be separated rom TRDP so
that it could develop a more independent, commercial culture while leveraging its
vast rural network or marketing and distribution. Supercially, this was achieved:many o the MicroDrip team were hired rom outside TRDP, and the new company
was housed in a separate building. In reality, however, the ties between the parent
not-or-prot and new or-prot were close and deep. In the short prepare stage o
just over a year, TRDP was closely involved in every aspect o MicroDrip operations
as the new organization was being assembled. Going orward, the active support o
TRDP was essential to help MicroDrip promote and distribute the product to armers.
Compared to IDEI in India, which had prior experience o selling products such as
treadle pumps to armers, TRDP had a more traditional nonprot orientation, accus-
tomed to providing ree support to rural communities. Unsurprisingly, this shaped itsapproach to distributing MicroDrip’s product. TRDP and the other donor-unded RSPs
that distributed the product subsidized the price o the product by up to 80 percent in
order to encourage armers to take the product. They would oten accept the armer’s
labor in digging trenches and laying the pipes as in-kind payment or the remainder,
such that in many cases there was no cash cost to the armer. An estimated PKR 3.5
million ($39,400) has been provided in price subsidies through TRDP alone.
At rst glance, this approach appeared to be bearing ruit. By 2009, MicroDrip sales
had grown to nearly PKR 9 million ($100,000). However, the picture on the ground
was less positive, as reports came in that armers were not using the products they
had bought. One o the problems was that smallholder armers in Sindh typically
had no access to tubewells or canal water, so they needed to run diesel pumps to
draw water or irrigation. The MicroDrip system required pumps to be run daily or
short durations rather than once a week or a longer time in order to food the eld,
as armers were used to doing. This required signicantly greater eort rom the
armer, both in running the pump multiple times a day and in the additional main-
tenance required o the KB drip system.
Many armers received the product without sucient training in how maintain it,
and thereore did not see the benets o the product. There were reports o instal-
lations ailing ater a period because pipes would become clogged up with miner-
als due to the harder groundwater, exacerbated by poor system maintenance. The
ormer chie operating ocer o MicroDrip says, “I have had rst-hand experience
o these problems. I had a MicroDrip system that ailed to work, and ater several
attempts to get it xed, such as manually repairing tears and regularly fushing the
laterals, I just gave up and pulled it all out. It now just sits there outside our house,
unused. I ear that’s what happened with many armers who see too much eort and
too little value o the product, and will probably never buy it again.”
The lack o training o both MicroDrip and RSP personnel has been identied as one
cause o these problems. Another was the lack o market-specic customer research
Usage of the subsidized
product by farmers was
limited as they were not
used to the increased
effort in running and maintaining the product.
Monitor GrouP40
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 45/68
and R&D to develop oerings tailored to the needs and conditions o the Pakistani
smallholder armer. More undamentally, it now seems likely that MicroDrip and
its distribution partners suered rom a misguided ocus on selling the hardware(i.e., drip irrigation tape and accessories) into as many smallholder arms as pos-
sible through deep price subsidies, instead o on delivering value to the customer
through a complete proposition that delivered satisactory levels o perormance
and was backed up by strong service elements.22 The act that it chose to ocus on
the tougher, albeit needier, region o Sindh rather than Punjab made matters worse.
In 2010, MicroDrip nally accepted the commercial logic o ocusing on the more
ertile and developed province o Punjab, which also has the highest density o
smallholder armers, moving its base to Lahore, the capital o Punjab. Signicant
investment has also been made into market research and product R&D, and thecompany now oers a revised range o products that are more tailored to local
preerences and aordability constraints, including product options with motorized
accessories to help draw water.
The problem o the rm’s reliance on RSP partners and their subsidies has also
proven to be a weak point in 2011, as massive foods in Pakistan caused the part-
ners to redirect a signicant portion o their unding to relie, rescue and rehabilita-
tion work, rather than to subsidizing MicroDrip’s products. This has caused sales or
the year to all signicantly below expectations. Sales growth rates in recent years
have been in the low single digits, a ar cry rom the dramatic growth rates posted
by GEWP in India.
the 4Ps reViSited
These case studies illustrate the critical dierence that can be made by appropriate
grant support in preparing the market or new ‘push’ product categories. We have
identied some key learnings or unders and intermediaries: these recap the Four
Ps we introduced in the previous section — Purpose, Protable Proposition, Progres-
sion and Persistence.
Pps
Alignment between under, investor and company is critical to the un-
damental aim o creating an investable business that sells products to
customers with a specic social benet, rather than one that gives things
away to beneciaries. The Bill & Melinda Gates Foundation and IDEI not
only shared a ocus on impact on smallholder armers in the BoP, they also
shared a vision o scale or GEWP that was based on sustainability without
22 Our discussions with GEWP in India suggest that some 40 percent of the product’s direct cost relates to the service
rather than hardware elements.
P
MicroDrip focused on
selling the hardware
through deep price
subsidies, instead of
delivering value to the
customer through a
complete proposition.
FroM BluePrint to ScAle 41
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 46/68
on-going subsidy and the potential to attract investor capital in time. Past
activity can be a good guide to uture expectations: a market-based, rather
than charitable, approach had been refected in IDEI’s track record on thetreadle pump product that preceded its innovation in drip irrigation.
In contrast, TRDP was a traditional nonprot that was more accustomed
to responding directly to the social need o beneciaries, rather than to
creating a commercial business that could grow without subsidies, as Acu-
men Fund intended. Despite the steps taken to separate MicroDrip rom
TRDP and set it on a commercial trajectory, the critical decision to launch
in Sindh rather than Punjab indicates a primary concern with social need
rather than commercial actors, and one that was ultimately not sustain-
able in business terms.
Pfab Pps
From the outset, GEWP charged a price or its products that it expected to
be able to sustain on a commercial basis over the longer term; meanwhile,
its parent organization, IDEI, invested heavily in building customer aware-
ness and cultivating demand. This was accompanied by a signicant R&D
eort to enhance its product oering.
MicroDrip took a dierent approach, relying on deep price concessions
through TRDP and other RSP channels, instead o stimulating genuine
customer demand. This was eective in terms o driving hardware sales
but resulted in insucient attention being paid to delivering a proposi-
tion that customers really valued. This was refected in problems across
a range o areas including product design, installation, maintenance and
customer training. This practice also established price points in the market
that would not be possible to maintain without increasing the amount o
subsidy proportionally in line with sales.
Pgss
It is clear that GEWP progressed distinctly through the blueprint, validate
and prepare stages, and with each step the rm moved closer towards
the eventual goal o sustainable scale. In the prepare stage in particular,
the substantial investment in the market and the rm enabled by Gates
Foundation led to marked improvements in sales and have likely created a
strong oundation or urther scaling.
On the other hand, MicroDrip relied too heavily on the Indian precedent
and ailed to validate the assumptions supporting its business model inPakistan. MicroDrip then ailed to invest in demand stimulation, R&D and
P
P
Monitor GrouP42
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 47/68
supply chain development in the prepare stage, which were precisely the
areas that had received investment in India. As a result, MicroDrip aces
an even harder challenge going orward than it did when it started, as thecompany seeks to overcome negative customer perceptions due to poor
product perormance and lack o perceived value.
The case o MicroDrip also holds a cautionary lesson or those interested
in porting products or business models rom one country to another: just
because it works in one country does not mean it will work in another, or
even in a dierent part o the country. The rigorous testing and renement
o the validate stage is skipped at one’s peril, as is the investment in the
market and the rm at the prepare stage i the target customer is not yet
amiliar with the value o the product one is selling.
Pss
The work o educating potential customers and building supply chains in
the BoP in the prepare stage cannot be accomplished overnight; instead, it
requires persistent ocus and resources over time. In the case o IDEI-GEWP,
each district required targeted and sustained eort over three to six years
in order to build genuine customer understanding and demand; only then
could GEWP generate a reasonable return on its sales eorts in those areas.
Conversely, the story o MicroDrip to date shows that, while direct pricesubsidies can give businesses a more immediate boost in getting products
into the hands o the target customer, such subsidies do not create the
conditions or — and might even hinder — longer-term success in both
nancial and impact terms.
Because the work o preparing market demand and supply may not produce su-
cient private nancial return within ve to ten years, i ever, a dependence on
return-seeking capital alone may come up short. This is particularly true in situa-
tions with ‘push’ categories that are novel in the BoP market and do not enjoy ready
eective demand rom customers, and where suppliers and distributors are under-
developed and inadequate or the requirements o the new business model.
In situations like these, where investor capital is unlikely to meet business needs,
enterprise philanthropy can have critical and lasting impact. Enterprise philanthro-
py can take a broad view o impact beyond the individual rm to encompass whole
markets, and provide unding to build the right demand- and supply-side conditions
in these markets so that pioneer rms — and those that ollow them — can truly
scale their activities and impact.
P
FroM BluePrint to ScAle 43
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 48/68
For PhilAnthroPic FunderS:
1. cs mvg ps pap g a
ag f appas
More enterprise philanthropy is needed to unlock the potential o
inclusive business, and interested unders can consider a spectrum o
approaches as described in Table 3. One route is what we have called
‘classic’ enterprise philanthropy as exemplied by the work o Shell
Foundation (described in section 3). Another is to give grants to non-
prots that are already engaged in inclusive business development as
the Bill & Melinda Gates Foundation does (described in sections 3 and4). Across the spectrum collaboration with established players or with
networks such as Toniic (a global impact angel investing network) could
help seek out promising opportunities to und.
Philanthropic unding does not have to be deployed in isolation rom
investment capital. In act, two o the approaches in Table 3 blend or
‘layer’ grants with capital to create hybrid models that target high-risk
situations. Another uses grants to deliver much-needed capacity build-
ing (or technical assistance) to overcome the inherent disadvantages
Interested funders
can consider a range
of approaches, and
potentially in tandem
with investing strategies.
5cg T Pr Gp
eps pap a pa a mpa
sg p gap bw Blueprint a Scale,
g pms f sv bsss mpa
a. W s sx a mmas f fs
a vss p vp s as pa.
44 Monitor GrouP
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 49/68
W s
mmas f
s fs a
f mpa vss.
We set out our keyrecommendationsor interestedunders and orimpact investors.
TaBle 3: The Enterprise Philanthropy Spectrum —Potential Approaches or Interested Funders
APProACH deSCrIPtIonoPtIonS or
new underSexAmPleS
1 Grants to rms,including or-prots
‘Classic’ enterprisephilanthropy direct toinclusive businesses inless-developed coun-tries
• Build owncapability
• Collaborate/co-und withestablishedplayers
Shell Foundation
Lemelson Foundation
Arica EnterpriseChallenge Fund
KL Felicitas Foundation
2 Grants tononprot hosts orintermediaries
Grantmaking to non-prots incubating orotherwise developinginclusivebusinesses
• Seek ownopportunities
• Collaborate/
co-und withestablishedplayers
Bill & Melinda Gates Founda-tion — AKAM, IDEI(see sections 3 and 4)
3 Philanthropicunds deployed asequity or debt
Investing debt or eq-uity into businesses inhigher-risk situations,aiming or 1x return
• Build owncapability
• Fund or co-undwith establishedplayers
Acumen Fund
4 Early-stageaccelerators
Layering grant undingwith investment capitalto pursue high-risk,early-stage situations,with signicant capacitybuilding support orinvestees
• Build owncapability
• Fund establishedplayers
First Light Accelerator
Village Capital
ACCION Venture Lab
5 Technicalassistance/capacity buildingadjunct
Grant unding toenable investee capac-ity building, alongsidereturn-capital invest-ment operation
• Build owncapability
• Fund establishedplayers
Grassroots Business Fund
6 Market/ecosystemdevelopment
Grant unding todevelop a range o com-plementary businessmodels and promotewider conditions (e.g.
standards, regulation)needed or sustainableimpact at scale — o-cused on a given sector
• Build owncapability
• Fund or co-undwith establishedplayers
Shell Foundation— clean burningcookstoves
Omidyar Network —micronance
Michael & Susan DellFoundation — clean water
Gatsby Foundation —agriculture
FroM BluePrint to ScAle 45
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 50/68
o the BoP business environment, alongside a return-capital investment model.
Even where unding ultimately fows through as a grant to the pioneer rm or a
nonprot, unders could deploy complementary mission investing strategies.23
However, moving to enterprise philanthropy will be challenging or most unders. It
aims to shape the working o market orces that may be unamiliar, and in contexts
that are not only less-developed but physically and culturally remote. It requires the
blending o a resolute ocus on impact with the ability to adopt an investor’s perspec-
tive on business models, management teams and perormance. Some unders will
be condent in building their own capabilities, but many others will preer to und or
co-und with established players who already have such capabilities.
2. ca a ba w spas mas
We believe that more players with specialist enterprise philanthropy capabilities
need to emerge. In particular, we see a critical lack o specialist intermediaries to
connect mainstream philanthropic resources to the practice o ‘classic’ enterprise
philanthropy, in contrast to the 200 impact investing unds that have emerged.
We believe that unders interested in this emerging eld should support the
creation o new specialist intermediaries or enterprise philanthropy, in much the
same way as leading unders interested in impact investing, such as The Rock-
eeller Foundation, helped to create Acumen Fund over ten years ago. These new
intermediaries would accept unding rom a wide range o oundations and aid
donors, and develop strong in-market capabilities in order to deploy grant unding
and capacity building into the pioneer gap.
O course, these new intermediaries will ace tough questions and challenges.
Enterprise philanthropy is not a amiliar concept, and these new unds will need
to clearly distinguish themselves rom impact investors and venture philanthropy
unds. They will need to develop strong on-the-ground capabilities in less-devel-
oped countries — hiring sta, building networks, nding opportunities, delivering
technical assistance, managing portolios and measuring impact — and maintaina strong connection to unders that are predominantly based in more-developed
countries. The good news is that they will be entering at a time when groups such
as the Aspen Network o Development Entrepreneurs and the Global Impact Invest-
ing Network are beginning to invest signicantly in building the eld inrastructure
and skills on which to scale up their operations.
23 Discussion of the practice of ‘mission investing’ by foundations is beyond the scope of this report. We refer funders based
in the United States to Stetson A. and Kramer M. (2008), Risk, Return and Social Impact: Demystifying the Law of Mis-
sion Investing by U.S. Foundations, FSG Social Impact Advisors. Funders in Europe could read Bolton M. (2006), Founda-tions and Social Investment in Europe, European Foundation Centre, and consult the directory of resources prepared by
the European Foundation Centre’s Social Investment Group http://www.efc.be/Networking/InterestGroupsAndFora/
SocialInvestment/Pages/KnowledgeResources.aspx.
Funders should support
the creation of new
specialist intermediaries
for enterprise
philanthropy, in much
the same way as
leading funders helped
to create Acumen Fund
over ten years ago.
Monitor GrouP46
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 51/68
3. emba s a awg fas
Working at the rontier o inclusive business in the hope o breakthrough impact
is an inherently risky endeavor that will see signicant, i not high, rates o setback
and ailure: we need to acknowledge and accept this. Much o the support that is
utilized in these situations will not result in business success, which mirrors the ex-
perience o venture capital (VC) investors in developed markets. However — unlike
VCs who expect a high rate o ailure and sometime even preer to invest in entre-
preneurs only ater they have tried and ailed — unders may struggle to reconcile
this with the traditional concept o accountability and good stewardship in philan-
thropy. We encourage enterprise philanthropists to take risks with new models and
new markets, and to be open about their experiences o ailure as well as o success
so that learning can be maximized or the eld.
4. expa pspv mpass mas a ssms
Experienced philanthropic unders may nd the entire approach o this report
somewhat strange: why are we so ocused on the individual rm? History does not
suggest that successul individual ventures, either or-prot or non-prot, are su-
cient or driving large-scale social impact, because o the complex and systemic na-
ture o entrenched problems. What we have observed is the powerul change that
can result rom the aligned activity o many players, on issues such as civil rights in
the United States and the immunization o children in poor countries.
Meanwhile, we have also observed that vibrant and increasingly global markets in
goods and services (and talent and capital) are infuencing the way we live, work
and relate to others. Markets do this in ways that cannot be attributed entirely
to individual companies; even companies like Apple and Facebook, which are
exerting signicant infuence on both popular culture and the evolution o their
industries, have relied on — and been shaped by — their suppliers, customers,
competitors and precursors.
In the same way, the impact o any market-based solution, at its ullest potential,
will be achieved by a multiplicity o actors working in a given market, and not just
within the private sector. The micronance sector illustrates this well: in addition to
a competitive array o micronance institutions lending to end customers, there is a
wider ecosystem o unders, investors, investment unds, ratings agencies, research
bodies, conveners, regulators and policymakers that is shaping the evolution o the
market and, ultimately, its impact on poor households.
Philanthropic unders are uniquely placed to take this perspective and work
at a range o points across the market and ecosystem in order to enhance theconditions or eventual impact at scale. Investors, even impact-ocused inves-
Philanthropic funders
are uniquely placed
to take a broader
perspective and work
at a range of points
across the market
and ecosystem.
FroM BluePrint to ScAle 47
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 52/68
tors, must keep their eye trained on the perormance o their own companies
irst and oremost, and their interest in the broader issues will be shaped
largely by this lens. We believe that this perspective is vital and that is why wehave included market and ecosystem approaches in the spectrum o enterprise
philanthropy in Table 3. In particular, we believe there is an opportunity to take
the emerging lessons o microinance24 to shape the market-based solutions o
tomorrow or the greatest possible impact.
For iMPAct inVeStorS:
5. caba w fs w bsss ms
Impact investors, particularly those seeking innovative solutions to the problems o
poverty, will continue to ace serious challenges with deal fow. It is imperative that
investors recognize the crucial role that unders can play in building the pipeline in
these situations by cultivating pioneer rms and ecosystems. Investors could en-
gage more with those unders working upstream o or alongside them, and explore
the potential or collaboration in order to establish new models and markets. Some
investors, particularly those investing in the early stage, may even pursue layered
capital approaches as described in Table 3. At the very least, impact investors should
clearly and proactively communicate their requirements and criteria or investment
so that active enterprise philanthropists are ully aware o them and can guide
early-stage pioneer rms towards true investability.
6. Ag vsm sags w ams a xpas
More undamentally, impact investors need to realistically appraise their own
investing strategies and ensure that there is alignment with their expectations or
risk, return and impact. Pursuing new business models to tackle the toughest social
problems aecting the poorest communities will not generate high risk-adjusted
returns, and in act may not even generate 1x return. On the other hand, investingin proven business models (such as microcredit), or in businesses that serve both
BoP and non-BoP populations, could potentially allow the achievement o higher
risk-adjusted returns. We strongly encourage investors to be consistent in making
these choices, and to be honest in the way that these choices are communicated
and expectations set with investors and partners.
24 For an excellent summary of this, see Cheng P., Hodgkinson R., and Lord C., Ed. (2011) The Impact Investor’s Handbook:
Lessons from Microfinance, CAF Venturesome: Market Insights Series.
Investors should engage
more with those funders
working upstream of
or alongside them to
establish new models
and markets.
Monitor GrouP48
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 53/68
cloSinG the GAP
Inclusive business has the potential to transorm the lives and livelihoods o the
poor, but the eld is young and many models are as yet unproven. The long road to
establishing any new model begins with the audacious eorts o the lonely pioneer
rm: without the right unding and support in bridging the pioneer gap, the excit-
ing promise o this eld will remain just that. The good news is that there is already
a small group o enterprise philanthropists that are leading the way. However, many
more need to join them, to create a truly vibrant ecosystem that can oer the ull
range o capital, unding and support that inclusive business pioneers need. Many
pioneers will ail, but some will succeed and establish, in time, eective market-
based models into which billions o dollars o impact capital can be directed to
improve the health, education, livelihoods and security o our poorest and mostvulnerable communities.
In doing this, enterprise philanthropy draws ully on the best o philanthropy as it
has already been practised or decades: the bold and persistent support o radical
innovations and visionary leaders over long time horizons, oten building whole
elds not just single organizations, and with the ultimate goal o achieving pro-
ound and lasting change or millions o people. I is his sa ciai
phiahpic sih, aii a ca ha i h k aizi
h ‘ipac’ i ipac isi, hpi a icsi siss pis
pi sca.
Ourworkhaspointedtoanumberofareasthat
requiredfurtherstudybutfelloutsidethescope
ofthisreport.
• Ananalysisof supply-sidebarriers and con-straints for enterprise philanthropy, andrecommendations for interested funders,including detailed consideration of how ef-fectiveandsustainableintermediariesmightbeestablished.
• Anin-depthreviewofwholemarketandeco-systemapproachestoenterprisephilanthropytodrawouttheemerginglessonsfromthosepracticesandprovideconcreterecommenda-tionsforinterestedfunders.
• A collaborative, data-driven review of theenterprise grant experience basetodate toprovide more granular best-practice guid-ancetointerestedfundersinareasincludingentrepreneur due diligence/selection, de-sign of grants (and other instruments) and
performance management, and as well asbenchmarks for fundingand time scales bygeographyandsector.
FuRTheR sTudy
FroM BluePrint to ScAle 49
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 54/68
T etrprPtrp Pb
W sg f gamag pgams s b sp f s p, w
av a mb f as mgg fm sa.
funding ideas
In the validate stage, unders could:
• Support testing and renement o inclu-
sive business models, both in nonprots
and or-prots
•
Support nonprots in hosting andincubating early-stage enterprises with
commercial potential
• Provide targeted technical assistance,
particularly to new ventures with ew
resources and enterprises ounded by
nonprots, ocused on validating busi-
ness model viability
In the prepare stage, unders could:
• Support category marketing and edu-
cation campaigns to drive awareness
among BoP customers and create desire
or new benecial products
• Upgrade BoP supplier or labor orce
capabilities through training programs,
inormation provision, certication and/
or xed asset building
• Upgrade inrastructure or distributing
products to the BoP customer
• Strengthen management teams and
systems within enterprises
As this shows, unders who are only able to give grants to organizations that are ocially recognized
as nonprots or charities, need not eel excluded rom participation in this eld. As illustrated by the
example o the Bill & Melinda Gates Foundation and IDEI in section 4, nonprot organizations can oten
be a key player in helping to pioneer inclusive business models.
Important questions should always be asked up-ront to ensure that enterprise grants fow to the right
opportunities and minimize the risk o merely providing a cheap substitute or impact capital.
3. Prepare2. Validate
50 Monitor GrouP
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 55/68
Questions to ask
In the validate stage, ask:
• Is this an inclusive business model
that will help better address the
problems o poverty? Does it gener-
ate greater social benet in the BoP
than established businesses that
also engage the BoP as customers
or suppliers?
• Is there a need to validate this new
business model because there is
high uncertainty as to its viability?
• Does this uncertainty seem to be a
barrier to generating sucient in-
vestor interest in the pioneer rm?
In the prepare stage, ask:
• Is this a push product without sucient ready de-
mand rom BoP customers despite producing clearly
superior social benets while staying within aord-
ability constraints? Is there a requirement or a large
one-time investment in stimulating demand?
• Are supplier, labor orce, distribution channel or other
inrastructure constraints a critical (but addressable)
barrier to the rm’s sustainable growth? Is there a
requirement or a one-time investment in improving
these conditions?
• Is any required investment so large, or the benet
rom that investment so likely to be diused across
multiple parties, or both, that investor capital is un-likely to adequately meet that need?
Where the answers to these questions are in the armative, unders can have
greater condence that their grants are playing an important, value-adding role
that is distinct rom that played by investor capital.
We share an ini-tial set o ideas orwhat to und, andpractical advice onhow to apply theFour Ps.
While not the focus for this report, the Blueprint
stagealsoprovidesopportunitiesforgrantmakersto
stimulatethecreationofpromisinginclusivebusiness
models.Specically,funderscould:
• SupportfoundationalresearchintocustomerorsupplierneedsintheBoPwhichcouldthenbereleasedintothepublicdomainasabasisforbusinessinnovation
• Encourageestablishedcorporationstoexploreinclusiveextensionstotheircurrentbusiness
• Encouragenonprotorganizationstodevelopcommercializableimpactideasandsupportingtechnologies
• BuildstrongerinnovationcapabilitieswithinorganizationsthathavegoodunderstandingofBoPneedsandpotentialtogeneratesolutions
• Strengthenthepipelineforentrepreneurialtalentwiththerightperspective,motivationandskillstocreateandscaleinclusivebusinessmodels
BluePRinT foR iMPacT
3. Prepare2. Validate
1. Blueprint
FroM BluePrint to ScAle 51
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 56/68
APPlyinG the Four Ps in PrActice
But this is not just about what we und, it’s about how we und. In previous sec-
tions, we described the Four Ps that characterize eective enterprise philanthropy
practice. How should we put them into practice? Here are some suggestions.
1. Prp: Ensuring aligned purpose towards building investable businesses
that produce specific social impact
Speak to management and key investors and unders: ask them about how
they dene as success or the business and what metrics or milestones
they would use to track success by their denition.
Look at their past track record: past behavior is a good predictor o uture intent.
Discuss ‘what-i’ scenarios: ‘What i the product loses money? What i cus-
tomers don’t buy the product? What i a better product comes along rom a
competitor?’ These discussions can tease out signicant dierences in aims
and expectations between the parties. Ater all, it is when things go wrong,
or serious challenges (or opportunities) arise, that alignment o purpose is
really tested.
2. Prtb Prpt: Driving a focus on profitable propositions for
customers and suppliers
Push or rigorous testing o protability: because many inclusive business
promoters come rom non-BoP backgrounds, there is a tendency to ‘over-
eature’ or just ‘over-cost’ products, in the hope that some combination o
customer preerence, scale economies and on-going subsidies will make
the product viable in the long run.
Invest eort up-ront to clearly dene the standards or protability, and
help the rm design and run valid market trials. It is not always easy to
agree the conditions or viability, and test or them, in the early stages o a
new business model. For instance, companies commonly expect signicant
scale economies which would bring down unit cost as production increas-
es, which could make it dicult to determine the long-term sustainable
unit price at which to run market trials, especially because there are no
benchmarks rom similar companies already operating at scale.
Invest in helping the company track and analyze their unit protability:
many early-stage businesses do not have well-developed capabilities in
this respect.
P
P
Monitor GrouP52
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 57/68
Avoid constraining the set o customers the business is allowed to serve.
Monitor’s research suggests that many viable models serve a range o cus-
tomers at various income levels in the BoP or even outside the BoP.
3. Prgr: Encouraging progression through key stage gates
towards investability
Develop a team with the right skills and experience to help the rm navi-
gate its progression, identiy the critical step changes ahead, and support
management in achieving those. Not all o these people need to be on
your sta; in act, given the range o challenges the rm will ace, it is a
good idea to develop a strong network o capable, trusted advisors who
can be called on to assist as needs arise.
Design eatures into the grant to help the rm maintain discipline on
achieving key step changes in its business. This needs to be done with the
company, not to it, because grants can only be an enhancer o discipline,
not a substitute or it. And these design eatures should allow some fex-
ibility, in terms o timing or instance. Where there are multiple enterprise
philanthropists engaged with one company, these design eatures should
be aligned across all relationships, in the same way that all key investors
in a business should be aligned on the rm’s business plan and objectives
going orward.
Be disciplined yoursel. The temptation to orgive business model issues
when we see clear potential or impact is strong indeed.
Encourage honest and open consideration o the paths orward. Many
interesting impact models will not turn out to be great business ideas but
they may well have strong potential to develop and grow as nonprots.
4. Prt: Expecting and supporting persistence in overcoming the chal-
lenges inherent in pioneering new models and new markets
Plan or multiple cycles o business model testing, learning and renement.
The world’s toughest development challenges are unlikely to be solved on
the rst attempt. Looking to previous attempts to solve similar problems or
meet similar needs can provide some guidance on how much time, money
and eort will be required.
Be realistic about time rames. Monitor’s research suggests that it is not
uncommon or the rm’s journey to viability and scale to take ve to ten
years. Pushing a pioneer rm to scale beore the model is worked out or the
distribution inrastructure developed is a recipe or disaster.
P
P
FroM BluePrint to ScAle 53
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 58/68
VisionSpring is a pioneering inclusive business
ounded in New York in 2001 by Dr. Jordan
Kassalow and Scott Berrie to manuacture and
sell aordable eyeglasses to BoP communities
in the less-developed world. Jordan, a qualied
optometrist, had seen rst-hand the wide-
spread lack o access by the rural poor to eye-
sight correction during his year volunteering at
the Aravind Eye Hospital in India. By bringing
reading glasses to the rural poor where they
lived, he hoped to improve their lives through
better eyesight. 1
Jordan explained: “The idea was to reach tens
o millions o people, using philanthropic capital
to kick start the business but ultimately scal-
ing through market orces.” VisionSpring was
1 A study by the University of Michigan showed that the improved
vision enabled by VisionSpring products increased customer
incomes by 20 percent and their productivity by 35 percent.
established using grants rom unders such
as the Open Society Institute, Draper Richards
Kaplan Foundation and Skoll Foundation, but
the model had always been intended to be
commercially sustainable rom sales revenues.
It also aimed to deliver dual social impact:
through the improved vision o rural low-
income customers, and through the improved
livelihoods o Vision Entrepreneurs (VE), who
are typically women drawn rom the same
rural poor communities, specially trained to sell
VisionSpring glasses.
When Monitor rst studied VisionSpring in In-
dia in 2007, it was clear that there was a prob-
lem with VE channel economics. The approach
was door-to-door, raising awareness among
customers, conducting spot eye tests andselling reading glasses priced at Rs. 150–200
($3–4) each. Typically, the rst ew months o a
t a ompaas’s vs a b ag, x a as p was s bas v
saw ss a w avagg fs. Af vg vs sgs g VsSpg, a
bg a pa f gasss. S m s aga a g a f ga a w av a
a p a a f avs.
PHOTO: TOTI AND OMPRAKASH , (CREDIT: ESTHER HAVENS PHOTOGRAPHY)
Monitor GrouP54
case sTudy:
Model vision
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 59/68
VE’s career would go well as she sold to amily
and riends in her home village. As the local
pool o customers was tapped out, with little
prospect o repeat sales, the VE would have to
venture arther aeld to make additional sales.
This required greater eort and incurred travelcosts, and yet sales were unlikely to reach
the levels achieved initially; as a result, ew
VEs made this their primary livelihood. More
importantly, it did not seem easible to scale
the VE approach into a model with break-even
economics that would be sustainable in the
long term, so VisionSpring management knew
something needed to change with the product
oering or the go-to-market strategy.
In response to these issues, VisionSpring devel-oped new channel models with improved eco-
nomics. In El Salvador, unded by a grant rom
the Inter-American Development Bank, the
company expanded their pilot hub-and-spoke
model, which was centered on a village store
carrying a wider range o products including
prescription eyewear. This new approach led to
an eightold increase in revenue rom 2010 to
2011, with ve stores at the end o the period
running at over 90 percent o costs covered bysales. Thanks to the catalytic eect o the IDB
grant o validating the business model, the
company is now looking to scale the model
across the country.
In India, VisionSpring created a new channel in
which mobile vans visit villages to run commu-
nication activities, conduct eye camps, and sell
glasses. This has been enabled by grant und-
ing rom Mulago Foundation and the Jasmine
Charitable Trust, among others. Results romthe initial feet o 20 vans have been positive,
with a doubling o sales rom 30,000 eyeglass-
es in 2010 to 65,000 in 2011, and there are
plans to grow the mobile van network substan-
tially in 2012.
These examples o what VisionSpring calls
‘strategic philanthropy’ are now helping the
company to validate its business model and
move closer towards ull commercial viabil-
ity. It estimates that 55 percent o revenues
will be rom sales (as opposed to grant sub-
sidies) in 2011, compared to 23 percent two
years beore.
Over the years, VisionSpring has also sought to
consolidate and align the support coming rom
grant unders towards their long-term goals.Jordan explains: “The Foundation side o the
organization was consumed with undraising,
oten in painully small increments. Given our
small team, in the early years, this distracted
rom the critical business mechanics that
needed to be hammered out. To make mat-
ters worse, many unders were only interested
in unding programs, not in building a robust
organization with the capacity to provide those
programs in perpetuity.”
In an eort to get some control back, Vision-
Spring issued an ‘investor prospectus’ in 2007
to gather a small group o key grant unders
who would provide growth capital and have
standardized reporting requirements. Within a
12 month period, VisionSpring attracted over
$3 million in philanthropic capital rom lead
investors including the Skoll Foundation, The
Lavelle Fund or the Blind and The Peery Foun-
dation. In 2011, the company reported that ithad already exceeded all o its 2012 goals.
FroM BluePrint to ScAle 55
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 60/68Monitor GrouP56
Founded in 2009 by South Arican entrepre-
neur Bruce Robertson, Gulu Agricultural Devel-opment Company (GADC) is a or-prot cotton
ginnery operating in the war-torn districts o
Gulu and Amuru in Uganda. By the time he
started GADC, Bruce was already an experi-
enced cotton entrepreneur, having run similar
businesses in Uganda since 1995, as well as in
Zimbabwe, Mozambique and Malawi.
GADC is a commercial business that has enjoyed
a strong start, achieving positive net incomeand cashfow in its rst year o operations. It has
also substantially improved the economic situ-
ation o more than 30,000 smallholder armersin Gulu and Amuru by rebuilding a local cotton
industry that had been destroyed by 25 years o
armed rebel confict in the area.
The Danish International Development
Agency (DANIDA) quickly saw an opportunity
in GADC to urther improve armers’ liveli-
hoods. Many o the cotton armers around
Gulu were already arming without chemical
inputs and, because the land had been allowor many years, the soil was ree o contami-
case sTudy:
PosT-conflicT oRGanic
Af 20 as a spa pss amps ugaa, Bas s w mag a vg fm a ssam
w spp f GAdc
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 61/68FroM BluePrint to ScAle 57
nants. However, because they were not part o
a certied-organic program linked to a or-
eign buyer, they were not able to capture the
signicant premium o up to 30 percent paid
or organic cotton. Farmers also lacked some o
the required practices: or instance, they werenot documenting their usage o inputs nor had
they adopted rigorous measures to prevent
cross-contamination.
Eager to acilitate a move to certied organic
production, DANIDA oered an $800,000 grant
to GADC to und extension services that would
provide training to armers to help them make
the switch. DANIDA also oered to link GADC
with a Danish business partner, Illuminati Noir.They could assist with organic certication,
and also be a ready buyer or the company’s
organic cotton output.
GADC decided to take up the oer. Bruce says,
“GADC is a commercial company that also
produces a social benet. We need to make
money, so that is how we make our decisions.
We could see that moving to organic would be
good or the armer, but without the DANIDA
grant, we couldn’t run the extension services
as we wouldn’t make enough additional
money rom the business to justiy the up-
ront investment.”
Since then, the grant-unded extension servic-
es have helped more than 7,000 armers move
to certied organic production o cotton, as
well as to begin planting an additional organic
crop—sesame. This has resulted in average
crop yield rom a two-acre plot increasing rom$500 a year to around $1,200 a year, an im-
provement o 140 percent. By the end o 2012,
GADC expects that the extension services will
have helped 10,000 armers move to certied
organic production and consequently enjoy
dramatically improved livelihoods.
The support rom DANIDA alls in the prepare
stage, as it ocuses on improving the capabili-
ties o suppliers in order that GADC can scale
up production o a more socially benecial
product line. We saw in the case o IDEI-GEWP
that the level o investment required to pre-
pare the market in this stage could be pro-
hibitively high rom the rm’s perspective, but
could be very attractive rom the perspective o
the aid donor, and so it is in this case: guresshow that the overall income uplit or GADC
organic armers due to the DANIDA grant in
just one season is $2.4m, our times the value
o the grant (see Figure 11).
S o u r c e : G A D C ,
M o n i t o r A n a l y s i s
Grant $ /Farmer
OrganicFarmer2 CropsIncome
OrganicFarmer1 CropIncome
0
200
400
600
800
80 100
700US $
Spending and Income per Farmer
fiGuRe 11: Grant Expenditure vs AdditionalIncome Earned per Participating Farmer
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 62/68
Gr Trm• BP: The term ‘Base (or Bottom) o the Pyramid’ (BoP) popularized by the late Proessor C. K.
Prahalad1 in his book is widely used to reer to low-income communities that have historically
been excluded rom ormal markets. The World Resources Institute reports that there are 4 bil-
lion people in the BoP, with incomes below $3,000 in local purchasing power. Their incomes in
2002 PPP dollars are less than $3.35 a day in Brazil, $2.11 in China, $1.89 in Ghana, and $1.56 in
India. BoP markets are oten rural, poorly served, dominated by the inormal economy, and are
thereore relatively inecient and uncompetitive. Despite this, the BoP constitutes a $5 trillion
global consumer market in aggregate. 2
• inclusive Business: A business that provides a product or service that is clearly socially ben-
ecial to the BoP, based on a business model that is commercially viable and ideally scalable.
• iMPacT invesTinG: Actively placing capital in businesses and unds that generate social
and/or environmental good and at least return nominal principal to the investor. This report
is particularly interested in the placement o capital in inclusive businesses and unds that
invest in them.
• GRanT: A monetary or in-kind award provided to an organization, typically to achieve a
dened social or environmental benet, with no expectation o nancial return.
• caPaciTy BuildinG/Technical assisTance: An in-kind award to an organization tosupport the building o organizational capability and capacity, and/or enable project delivery.
This might take the orm o business advisory services, technical advisory services, research
services, organization-building activities or acilitation o linkages with partners, among others.
• PhilanThRoPic fundeR/donoR: An organization that provides grants and/or capac-
ity building to achieve social or environmental impact objectives. This would include private
or public philanthropic oundations, aid donors (bilateral or multilateral) and development
nance institutions.
• coMMeRcial viaBiliTy: A commercially viable rm or business model is one that is able
to sustain itsel and attract investment because earned revenues rom sales to customers
exceed costs, over time.
• oPeRaTinG aT scale: Serving a large number o target customers or suppliers within a
given geographic context. Previous Monitor reports on inclusive business have considered a
rm serving BoP customers to be at scale in Arica i it has reached 100,000 customers per
year, and in India, i it has reached 1 million customers per year. Likewise, a rm engaging
with BoP suppliers is considered to be at scale in Arica i it is serving 10,000 suppliers per
year in Arica, and in India, i it is serving 30,000 suppliers per year.
1 Prahalad C. K. (2004), The Fortune at the Bottom of the Pyramid, Wharton School Publishing
2 Hammond, A., Kramer W. J., Tran J., Katz R., Walker C. (2007), The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid,
World Resources Institute/International Finance Corporation
Monitor GrouP58
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 63/68
GENERAL
•AbbySarmac,Lemelson Foundation
•AjitKanitkar,Ford Foundation
•AmitBouri,Global Impact Investing Network
•AndresRico,TechnoServe
•AndrewFarnum,Bill & Melinda Gates Foundation
•AnilSinha,International Finance Corporation
•AntonyBugg-Levine,Nonproft Finance Fund
•AudreySelian,Rianta Capital •CharlyKleissner,KL Felicitas Foundation
•ChrisWest,Shell Foundation
•DavidPorteous,Bankable Frontier Associates
•DavidRobinson,Fuqua School o Business,Duke University
•DurreenShahnaz,Impact Investment Exchange Asia
•ErikSimanis,Center or Sustainable Global Enterprise, Cornell University
•FredOgana,TechnoServe
•GeetaGoel,Michael and Susan Dell Foundation
•GuyStallworthy,Bill & Melinda Gates Foundation
•HaroldRosen,Grassroots Business Fund
•HomiKharas,Brookings Institution
•KellyClark,Marmanie Consulting Ltd.
•LesterCoutinho,Packard Foundation
•LouisBoorstin,Bill & Melinda Gates Foundation
•MattBannick,Omidyar Network
•MonaKachhwaha,Caspian Advisors
•NeeraNundy,Dasra
•OliverKarius,LGT Venture Philanthropy
•PatrickMaloney, Imprint Capital
•PuneetJhaharia,Grassroots Business Fund •ReubenAbraham,Indian School o Business
•RobertKraybill,Impact Investment Exchange Asia
•SandeepFarias,Elevar Equity Advisors
•SimonBishop,Shell Foundation
•VarunSahni,Impact Investment Partners
•VijayMahajan,BASIX India
•VineetRai, Aavishkaar
•VishalMehta,Lok Capital
•WolfgangHafenmeyer,LGT Venture Philanthropy
COMPANY ANALYSIS
•AlDoerksen,International Development Enterprises
•AmitabhaSadangi,IDEI and GEWP
•SureshSubramanian,IDEI and GEWP
•OmPrakashSingh,GEWP
•PradipNawale,GEWP
•KarthikJanakiraman,ex-Acumen Fellow at GEWP
•KathyLombardo,Bill & Melinda Gates Foundation•BruceRobertson,Gulu Agricultural
Development Company
•WarwickThomson,DANIDA
•Dr.JordonKassalow,VisionSpring
•PeterEliassen,VisionSpring
•PritpalMarjara,VisionSpring
•VikramRaman,ex-Acumen Fund Health Manager
•LauraHattendorf,Mulago Foundation
•Dr.SonoKhangarani,MicroDrip
•SaqibKhan,ex-COO MicroDrip
•JoelMontgomery,ex-Acumen Fellow at MicroDrip
•TariqKhanBaluch,ex-FMiA CEO
•MichaelMcCord,MicroInsurance Centre
•MarianneVermeer,ex-Senior AcumenFellow at FMiA
•EvelynStark,Bill & Melinda Gates Foundation
•JohnPott,Former Project Director at Aga Khan Agency or MicroInsurance
•PeterWrede, International Labour Organization
•GyaneshPandey,Husk Power Systems
•SimonDesjardins,Shell Foundation
•MarioFerro,ex-Acumen Fellow at Husk
Power Systems•NatRobinson, Juhudi Kilimo
•RashidBajwa,National Rural Support Program(Pakistan)
•PratyushPandey, DripTech
•DavidKuria,Ecotact
•KhurramHussain,ex-Acumen Fellow at Ecotact
•SaleemIsmail,Western Seed Company
•ShaneHeywood,ex-Acumen Fellow at Western Seed Company
•SatyanMishra,Drishtee
•JustinDeKoszmovszky,SC Johnson
•ChuckSlaughter,Living Goods
•LaurieThomsen,KickStart
Individuals & Organizations
Interviewed for this Study
FROM BLuEPRINt tO SCALE 59
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 64/68
Recommended Reading
Investing for Social and Environmental Impact:
A Design for Catalyzing an Emerging Industry
Jessica Freireich, Katherine Fulton (January 2009)
Tis t xis it isti xs s
u t t iusty’s uti is its utitit i t . It xs it isti s
it it , iui fs i i-
t ists. T t s is uit iititis t
tyz t iusty.
Emerging Markets, Emerging Models
Ashish Karamchandani, Mike Kubzansky,
Paul Frandano (March 2009)
Tis t uss t tu is, is, usiss
s sussu ‘kt-s sutis’ i Ii. Fiis
s t 600 i-s itis it -i us-
ts s suis, ti itis it s
270 si tiss.
Promise and Progress:
Market-Based Solutions to Poverty in Africa
Mike Kubzansky, Ansulie Cooper, Victoria Barbary (May 2011)Tis t is si ysis fiy susti-
tiss tt ss s ty. It is t sut
16-t s jt t tis 439 tis-
s ss 14 sts, i i su-S tis. T us is
usti t is, is, usiss s
sussu iusi tiss.
To download The above reporTS, go To www.mIm.monITor.com
MONITOR PUBLICATIONS
MONITOR GROUP60
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 65/68
th a h b h Pai
C.K. Prahalad
(WhartonSchoolPublishing,2004)
th n 4 bii:mak Siz a bsiss Sa a h bas h Pai
Allen Hammond, William J Kramer, Julia Tran, Robert Katz, Courtland Walker
(WorldResourcesInstitute/IFC,2007)
Ipac Isi:
tasi H w mak m whi maki a dic
Antony Bugg-Levine, Jed Emerson
(Jossey-Bass,2011)
Ciai Ipac Capia:
A n Appach Isi i Sa a gi bsisss
John Kohler, Thane Kreiner, Jessica Sawhney
(SantaClaraUniversity,2011)
Iais, Sp 2011 –
SoCAP11 Ipac Isi Spcia eii
Philip E. Auerswald, Iqbal Z. Quadir (Editors)
(MITPress,2011)
th Ipac Is’s Hak:
lsss h w micfac
Paul Cheng (Editor)
(CAFVenturesome,2011)
other PuBlicAtionS
FroM BluePrint to ScAle 61
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 66/68
The auThors wish To express Their hearTfelT graTiTude To:
The Bill & Melinda GaTes FoundaTion, r mkg t ty pb trg
tr g, r tr r rg tr xpr rgrg t m-
p w v t
The acuMen Fund tm r tr grty rg tr prptv
gvg t tr prt mp r -pt ty, r tr
prg prt vpg t v b mpt vtg p
T xprt prttr, vr, rrr mmttr w trbt
vb brvt, p t, p t p r tkg
or vry grp Br Trt, Ktr Ft Mk Kbzky, w
prv w r t vry tg
or rvwr amy Kmt, a W, cr d Br, d Bgg,
dv crrgt, drr Mrt, l Brt, Mtt Bk, M abrg-
sbr, nt lr, nt lw, Ptr c s dtr r tr
tmy gt mmtry
or tr Vky ag, J Frk ly Rb rm t g tm t
op dg llc.
Kmr Rj Prm Bmj r vt mtrtv pprt
Mt , t prg frm, r vtr w r ry ggg
t pr v b—w t tm r wg t wy wt tr
mgt, rg trmt.
MONITOR GROUP62
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 67/68
ashish karaMchandani is a Partner at Monitor Group based in Mumbai. Ater seven
years o leading Monitor’s consulting business in India, Ashish ounded Monitor Inclusive
Markets (MIM) to catalyze market-based solutions to create social change. He has led
MIM’s extensive eorts over fve years to kick start the low-income ownership housing
market representing untapped commercial potential o over $220 billion, working with
entrepreneurs, developers, fnance companies and major corporates. In 2008, Ashish co-
led a oundational study o inclusive business models in India, looking at over 300 enter-
prises across sectors including healthcare, water, education and livelihoods, culminating
in the groundbreaking Emerging Markets, Emerging Models report. Ashish has a B.Tech
rom IIT Bombay, a M.S. rom Berkeley and a PhD. rom Stanord University. With his wie
Vibha Krishnamurthy, Ashish also runs Ummeed, a nonproft organization or childrenwith developmental disabilities.
harvey koh is an Associate Partner at Monitor Group based in Mumbai. Harvey is
a leader in the Monitor Inclusive Markets (MIM) India unit with responsibilities in the
low-income housing and clean drinking water programs. Previously at Monitor, Harvey
was a senior manager based in London ocusing on competitive and growth strategy or
corporate clients across a range o industries. He also worked on public policy issues in
the UK and elsewhere. For our years, Harvey was the ounding head o programs at Pri-
vate Equity Foundation, a venture philanthropy and social investment und established
in London by leading U.S. and European private equity frms. Harvey has also worked with
The One Foundation, a pioneering European venture philanthropy und, and social sectoradvisors New Philanthropy Capital. Harvey was born and raised in Malaysia, and edu-
cated at Cambridge University.
robert katz is Knowledge Manager at Acumen Fund based in Mumbai (until Febru-
ary 2012). Rob leads Acumen’s eorts to understand where markets work—and where
they don’t—in helping to solve the problems o poverty. In practice, Rob is responsible or
applied research and writing eorts across the frm, and also oversees Acumen’s knowl-
edge management systems. Beore Acumen Fund, Rob worked with the Markets and
Enterprise Program o the World Resources Institute (WRI), where he began his work on
‘Base o the Pyramid’ business approaches to poverty alleviation. At WRI, he co-authored
The Next 4 Billion: Market Size and Business Strategy at the Base o the Pyramid, andco-ounded www.NextBillion.net, a web site and blog about enterprise and development.
Rob earned his B.A. in Political Economy rom Georgetown University.
This report is based on research funded by the Bill & Melinda Gates Foundation. The findings and conclusions contained within are those of the authors and do not necessarily reflect positions or
policies of the Bill & Melinda Gates Foundation.
7/31/2019 From Blueprint to Scale - Case for Philanthropy in Impact Investing
http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 68/68
Monitor Group has more than 25 years o experience working with leading corporations,
governments and social sector organizations to drive transormative growth. The frm
oers a portolio o strategic advisory, capability building and capital services or clients.
WWW.MONITOR.COM
Monitor Inclusive Markets (MIM) is a specialized unit within Monitor Group. Since 2006,
MIM has ocused on identiying, understanding, developing and catalyzing investment in
business models that engage the poor in socially benefcial markets.
WWW.MIM.MONITOR.COM
Acumen Fund is working to create a world beyond poverty by investing in social enterprises,
emerging leaders and breakthrough ideas. We invest patient capital in business models
that deliver critical, aordable goods and services to the world’s poor, improving the lives o millions. Since 2001, Acumen Fund has invested more than $70 million in enterprises that
provide access to water, health, energy, housing, education and agricultural services to low-
income customers in South Asia, East Arica and West Arica. We are building a network o
emerging leaders who are equipped to create a more inclusive world through the tools o
both business and philanthropy, and we actively share our insights - gained in more than
Monitor