InvestingInvesting at the at the

Base of the Base of the PyramidPyramidWim van der BeekWim van der Beek

AavishkaarAavishkaar GoodwellGoodwell

I n v e s t g o o d. D o w e l l.

ContentsContents1.1. IntroductionIntroduction AavishkaarAavishkaar GoodwellGoodwell

2.2. Case 1: Case 1: ScalingScaling upup microfinancemicrofinance

3.3. Case 2: Case 2: FranchisingFranchising in the BOPin the BOP

4.4. Case 3: Case 3: MicroMicro--ventureventure

5.5. LeasonsLeasons learninglearning

6.6. MainstreamingMainstreaming sustainablesustainable PEPE: : CrossingCrossing the the chasmchasm

IntroductionIntroduction AavishkaarAavishkaar GoodwellGoodwellInvestingInvesting in entrepreneursin entrepreneurs

in the Base of the in the Base of the PyramidPyramid

toto createcreate socialsocial valuevalue and and

generategenerate financialfinancial returnsreturns

““The bottom line is simple: The bottom line is simple:

It is possible to It is possible to

“do well by doing good.”“do well by doing good.”

(CK (CK PrahaladPrahalad) )

BenefitsBenefits of of scalescale: : correlationcorrelation insteadinstead of a of a tradetrade--offoff

betweenbetween socialsocial impact and impact and financialfinancial returns!returns!

IntroductionIntroduction AavishkaarAavishkaar GoodwellGoodwell

!! InvestingInvesting in the BOP in the BOP scalescale effecteffect

!! Private Private equityequity in in microventuresmicroventures and and microfinancemicrofinance, 3 pools, India focus, 3 pools, India focus

!! BlendedBlended valuevalue strategystrategy: : scalingscaling upup, , efficiency, efficiency, leverageleverage, , mainstreamingmainstreaming, , distribution distribution networksnetworks

!! ApproachApproach: risk : risk capitalcapital and handholding, and handholding, financialfinancial discipline, discipline, rigorousrigorous private private equityequity approachapproach in in missionmission drivendriven settingsetting

IntroductionIntroduction AavishkaarAavishkaar GoodwellGoodwell!! Team: expertiseTeam: expertise

and and experienceexperience,,

basedbased in India and NLin India and NL

!! Track record: 1st Track record: 1st fundfund 20012001

AavishkaarAavishkaar India Micro VC India Micro VC FundFund

AwardAward--winnerwinner, case studies, case studies

!! Professional Professional investorsinvestors: : HNWsHNWs,,

foundations, foundations, developmentdevelopment banksbanks,,

commercial commercial banksbanks, , corporationscorporations,,

institutionalinstitutional investorsinvestors, , FoFsFoFs

!! AlliancesAlliances withwith commercial commercial banksbanks, , NGOsNGOs, donors , donors

Mumbai team

Hyderabad team

Case 1: Case 1: ScalingScaling upup microfinancemicrofinance!! MicrofinanceMicrofinance

worksworks!!

!! Commercial MF Commercial MF worksworks betterbetter

!! GrowthGrowth modelmodel

!! IgnitingIgniting the the acceleratoraccelerator

•• EquityEquity fundingfunding

•• CapacityCapacity buildingbuilding

MicrofinanceMicrofinance worksworks forfortypicaltypical microcredit microcredit clientsclients::

MicrofinanceMicrofinance alsoalso worksworksin in otherother formsforms::

Payments

Casualtyinsurance

Life & healthinsurance

Savings

High High repaymentrepayment ratesrates

!! SocialSocial collateralcollateral

!! ClimbingClimbing loanloan ladderladder

!! Short Short loancyclesloancycles

!! RegularRegular meetingsmeetings

CostCost and risk and risk controlcontrol

!! Standard productStandard product

!! DoorstepDoorstep--bankingbanking

!! Group Group processprocess

!! StaffStaff rotationrotation

The The microfinancemicrofinance model model worksworks::

MFI

Branch 1 Branch 80

Staff # 1 Staff # 6

Center 1 Center 20

Group 1 Group 5

80 branches80 branches

450 field 450 field staffstaff

8000 centers8000 centers

40.000 40.000 groupsgroups

200.000 200.000 clientsclients

Microbank: a Microbank: a scalablescalable modelmodel

The microfinance (r)The microfinance (r)evolutionevolution

3.0 BOP financial services

2.0 Development tool

1.0 Poverty alleviation

!!!Banks and investment funds

!!!!!Philanthropists and social investors

!!!!!!!NGOs, networks, Dev agencies

Capacitybuilding

Growthcapital

Loans

MicrofinanceMicrofinance growthgrowth constraintsconstraints

Commercial Commercial growthgrowth model model worksworks::

-200

0

200

400

600

800

1.000

2005 2006 2007 2008 2009 2010

0

50

100

150

200

250

300

350

400

Net Profit/Loss, !k Clients

Microfinance start-up growth model

Source: Goodwell

Economist 5 november 2005 Business plan MFI startup

ScalingScaling upup: : investinginvesting in in growthgrowth

-200

0

200

400

600

800

1.000

2005 2006 2007 2008 2009 2010

0

50

100

150

200

250

300

350

400

Net Profit/Loss, !k Clients

Microfinance start-up growth model

Source: Goodwell

Business plan MFI startup

EntrepreneurialEntrepreneurial MFIsMFIs

!! EarlyEarly stage and stage and growthgrowth phasephase

!! New New generationgeneration

GrowthGrowth capitalcapital

!! WorkingWorking capitalcapital

!! Cap Cap requirementsrequirements

!! => => leverageleverage

SupportSupport

!! CapitalCapital structuringstructuring

!! GovernanceGovernance and and transparancytransparancy

!! MIS and planningMIS and planning

!! TechnologyTechnology

!! InnovationInnovation in in productsproducts and and distribution models distribution models ((franchisingfranchising))

Handheld device for remotemicrofinance transactions, www.sevaksolutions.org

ScalingScaling upup: : investinginvesting in efficiencyin efficiency

Case 2: Case 2: FranchisingFranchising in the BOPin the BOP!! Distribution is the major Distribution is the major growthgrowth

constraintconstraint forfor product/service product/service deliverydelivery in the BOPin the BOP

!! Traditional distribution: Traditional distribution: concentricconcentricorganicorganic growthgrowth model, partnering model, partnering withwith NGOsNGOs, , wholesalewholesale pushpush

!! AlternativeAlternative: : franchisingfranchising, , mainstreammainstreamkiller killer appapp

WhyWhy franchisingfranchising in the BOP ?in the BOP ?!! Parallel Parallel rollroll--outout of distribution of distribution outletsoutlets

!! StandardizationStandardization, , endend--toto--endend solutionsolution, , fit in fit in supplysupply chainchain

!! BundlingBundling of of processprocess, systems, , systems, training and training and fundingfunding

!! Branding and Branding and qualityquality assuranceassurance

!! Risk managementRisk management

!! CreatingCreating a a newnew generationgeneration of of entrepreneurs in BOPentrepreneurs in BOP

FranchisingFranchising model in the BOPmodel in the BOP

Training, systems, etc

Equityinvestor

BankFranchisor

Entrepreneur(Franchisee)

Case 3: Case 3: MicroventuresMicroventuresCraftsbridgeCraftsbridge: : !! Handicrafts design and Handicrafts design and

marketingmarketing!! Corporate gifts marketing Corporate gifts marketing

strategystrategy!! Production outsourced to Production outsourced to

micromicro--entrepreneurs, entrepreneurs, talented Indian artisanstalented Indian artisans

!! InvestmentInvestment $ 100k in 2003$ 100k in 2003!! Rigorous handholding by Rigorous handholding by

AavishkaarAavishkaar Micro VC FundMicro VC Fund!! 400% 400% growthgrowth in 2 in 2 yearsyears!! Outreach with 13 NGOs Outreach with 13 NGOs

and 100+ craftsmenand 100+ craftsmen!! www.craftsbridge.comwww.craftsbridge.com

LessonsLessons learninglearning!! SmallSmall deal deal sizessizes, high engagement:, high engagement:

manage manage costscosts, , increaseincrease benefitsbenefits byby::

•• StandardizingStandardizing processprocess (e.g. (e.g. franchisingfranchising))

•• Support Support withinwithin portfolio portfolio networknetwork

•• AlliancesAlliances withwith donors, donors, capacitycapacity buildersbuilders

!! OperatingOperating in a in a missionmission--drivendriven settingsetting

•• ScaleScale = = socialsocial impact = impact = financialfinancial returnsreturns

•• ManagingManaging different different expectationsexpectations

MainstreamingMainstreaming sustainablesustainable PEPE““CrossingCrossing the the chasmchasm” (Moore)” (Moore)

!! EarlyEarly adoptersadopters: enthousiasts and : enthousiasts and visionariesvisionaries, “, “storiesstories”, ”, customizationcustomization

!! EarlyEarly majoritymajority: : pragmatistspragmatists, “, “evidenceevidence”, ”, standardizationstandardization, user , user friendlyfriendly

!! BeachheadBeachhead: “: “wholewhole product”, product”, compatibilitycompatibility: high impact, high return: high impact, high return

!! Bowling Bowling alleyalley: product/: product/marketmarketsegmentationsegmentation (eg (eg HNWHNW, , institutionalinstitutional))

ThankThank youyouAavishkaarAavishkaar Goodwell IndiaGoodwell India

VineetVineet RaiRai

AavishkaarAavishkaar IndiaIndia

Micro Venture Micro Venture FundFund

201 & 221, Atlanta 201 & 221, Atlanta EstateEstate,,

Dr. Dr. AmbedkarAmbedkar ChowkChowk,,

OffOff western Express western Express HighwayHighwayGoregaonGoregaon East, East, MumbaiMumbai 400101400101

PhonePhone 9191--2222--39535292, 2877825539535292, 28778255MobileMobile 9191--98206457369820645736www.aavishkaar.orgwww.aavishkaar.orgwww.intellecap.netwww.intellecap.net

AavishkaarAavishkaar Goodwell Goodwell NetherlandsNetherlands

Wim van Wim van derder BeekBeekGoodwell Investments B.V.Goodwell Investments B.V.MediacentrumMediacentrum 341341SumatralaanSumatralaan 45451217 GP 1217 GP HilversumHilversumThe NetherlandsThe Netherlands

TelTel +31.35.6772661+31.35.6772661MobMob +31.6.46080801+31.6.46080801www.goodwell.nlwww.goodwell.nl

InvestingInvesting at the at the

Base of the Base of the PyramidPyramidWim van der BeekWim van der Beek

AavishkaarAavishkaar GoodwellGoodwell

I n v e s t g o o d. D o w e l l.

ContentsContents1.1. IntroductionIntroduction AavishkaarAavishkaar GoodwellGoodwell

2.2. Case 1: Case 1: ScalingScaling upup microfinancemicrofinance

3.3. Case 2: Case 2: FranchisingFranchising in the BOPin the BOP

4.4. Case 3: Case 3: MicroMicro--ventureventure

5.5. LeasonsLeasons learninglearning

6.6. MainstreamingMainstreaming sustainablesustainable PEPE: : CrossingCrossing the the chasmchasm

IntroductionIntroduction AavishkaarAavishkaar GoodwellGoodwellInvestingInvesting in entrepreneursin entrepreneurs

in the Base of the in the Base of the PyramidPyramid

toto createcreate socialsocial valuevalue and and

generategenerate financialfinancial returnsreturns

““The bottom line is simple: The bottom line is simple:

It is possible to It is possible to

“do well by doing good.”“do well by doing good.”

(CK (CK PrahaladPrahalad) )

BenefitsBenefits of of scalescale: : correlationcorrelation insteadinstead of a of a tradetrade--offoff

betweenbetween socialsocial impact and impact and financialfinancial returns!returns!

IntroductionIntroduction AavishkaarAavishkaar GoodwellGoodwell

!! InvestingInvesting in the BOP in the BOP scalescale effecteffect

!! Private Private equityequity in in microventuresmicroventures and and microfinancemicrofinance, 3 pools, India focus, 3 pools, India focus

!! BlendedBlended valuevalue strategystrategy: : scalingscaling upup, , efficiency, efficiency, leverageleverage, , mainstreamingmainstreaming, , distribution distribution networksnetworks

!! ApproachApproach: risk : risk capitalcapital and handholding, and handholding, financialfinancial discipline, discipline, rigorousrigorous private private equityequity approachapproach in in missionmission drivendriven settingsetting

IntroductionIntroduction AavishkaarAavishkaar GoodwellGoodwell!! Team: expertiseTeam: expertise

and and experienceexperience,,

basedbased in India and NLin India and NL

!! Track record: 1st Track record: 1st fundfund 20012001

AavishkaarAavishkaar India Micro VC India Micro VC FundFund

AwardAward--winnerwinner, case studies, case studies

!! Professional Professional investorsinvestors: : HNWsHNWs,,

foundations, foundations, developmentdevelopment banksbanks,,

commercial commercial banksbanks, , corporationscorporations,,

institutionalinstitutional investorsinvestors, , FoFsFoFs

!! AlliancesAlliances withwith commercial commercial banksbanks, , NGOsNGOs, donors , donors

Mumbai team

Hyderabad team

Case 1: Case 1: ScalingScaling upup microfinancemicrofinance!! MicrofinanceMicrofinance

worksworks!!

!! Commercial MF Commercial MF worksworks betterbetter

!! GrowthGrowth modelmodel

!! IgnitingIgniting the the acceleratoraccelerator

•• EquityEquity fundingfunding

•• CapacityCapacity buildingbuilding

MicrofinanceMicrofinance worksworks forfortypicaltypical microcredit microcredit clientsclients::

MicrofinanceMicrofinance alsoalso worksworksin in otherother formsforms::

Payments

Casualtyinsurance

Life & healthinsurance

Savings

High High repaymentrepayment ratesrates

!! SocialSocial collateralcollateral

!! ClimbingClimbing loanloan ladderladder

!! Short Short loancyclesloancycles

!! RegularRegular meetingsmeetings

CostCost and risk and risk controlcontrol

!! Standard productStandard product

!! DoorstepDoorstep--bankingbanking

!! Group Group processprocess

!! StaffStaff rotationrotation

The The microfinancemicrofinance model model worksworks::

MFI

Branch 1 Branch 80

Staff # 1 Staff # 6

Center 1 Center 20

Group 1 Group 5

80 branches80 branches

450 field 450 field staffstaff

8000 centers8000 centers

40.000 40.000 groupsgroups

200.000 200.000 clientsclients

Microbank: a Microbank: a scalablescalable modelmodel

The microfinance (r)The microfinance (r)evolutionevolution

3.0 BOP financial services

2.0 Development tool

1.0 Poverty alleviation

!!!Banks and investment funds

!!!!!Philanthropists and social investors

!!!!!!!NGOs, networks, Dev agencies

Capacitybuilding

Growthcapital

Loans

MicrofinanceMicrofinance growthgrowth constraintsconstraints

Commercial Commercial growthgrowth model model worksworks::

-200

0

200

400

600

800

1.000

2005 2006 2007 2008 2009 2010

0

50

100

150

200

250

300

350

400

Net Profit/Loss, !k Clients

Microfinance start-up growth model

Source: Goodwell

Economist 5 november 2005 Business plan MFI startup

ScalingScaling upup: : investinginvesting in in growthgrowth

-200

0

200

400

600

800

1.000

2005 2006 2007 2008 2009 2010

0

50

100

150

200

250

300

350

400

Net Profit/Loss, !k Clients

Microfinance start-up growth model

Source: Goodwell

Business plan MFI startup

EntrepreneurialEntrepreneurial MFIsMFIs

!! EarlyEarly stage and stage and growthgrowth phasephase

!! New New generationgeneration

GrowthGrowth capitalcapital

!! WorkingWorking capitalcapital

!! Cap Cap requirementsrequirements

!! => => leverageleverage

SupportSupport

!! CapitalCapital structuringstructuring

!! GovernanceGovernance and and transparancytransparancy

!! MIS and planningMIS and planning

!! TechnologyTechnology

!! InnovationInnovation in in productsproducts and and distribution models distribution models ((franchisingfranchising))

Handheld device for remotemicrofinance transactions, www.sevaksolutions.org

ScalingScaling upup: : investinginvesting in efficiencyin efficiency

Case 2: Case 2: FranchisingFranchising in the BOPin the BOP!! Distribution is the major Distribution is the major growthgrowth

constraintconstraint forfor product/service product/service deliverydelivery in the BOPin the BOP

!! Traditional distribution: Traditional distribution: concentricconcentricorganicorganic growthgrowth model, partnering model, partnering withwith NGOsNGOs, , wholesalewholesale pushpush

!! AlternativeAlternative: : franchisingfranchising, , mainstreammainstreamkiller killer appapp

WhyWhy franchisingfranchising in the BOP ?in the BOP ?!! Parallel Parallel rollroll--outout of distribution of distribution outletsoutlets

!! StandardizationStandardization, , endend--toto--endend solutionsolution, , fit in fit in supplysupply chainchain

!! BundlingBundling of of processprocess, systems, , systems, training and training and fundingfunding

!! Branding and Branding and qualityquality assuranceassurance

!! Risk managementRisk management

!! CreatingCreating a a newnew generationgeneration of of entrepreneurs in BOPentrepreneurs in BOP

FranchisingFranchising model in the BOPmodel in the BOP

Training, systems, etc

Equityinvestor

BankFranchisor

Entrepreneur(Franchisee)

Case 3: Case 3: MicroventuresMicroventuresCraftsbridgeCraftsbridge: : !! Handicrafts design and Handicrafts design and

marketingmarketing!! Corporate gifts marketing Corporate gifts marketing

strategystrategy!! Production outsourced to Production outsourced to

micromicro--entrepreneurs, entrepreneurs, talented Indian artisanstalented Indian artisans

!! InvestmentInvestment $ 100k in 2003$ 100k in 2003!! Rigorous handholding by Rigorous handholding by

AavishkaarAavishkaar Micro VC FundMicro VC Fund!! 400% 400% growthgrowth in 2 in 2 yearsyears!! Outreach with 13 NGOs Outreach with 13 NGOs

and 100+ craftsmenand 100+ craftsmen!! www.craftsbridge.comwww.craftsbridge.com

LessonsLessons learninglearning!! SmallSmall deal deal sizessizes, high engagement:, high engagement:

manage manage costscosts, , increaseincrease benefitsbenefits byby::

•• StandardizingStandardizing processprocess (e.g. (e.g. franchisingfranchising))

•• Support Support withinwithin portfolio portfolio networknetwork

•• AlliancesAlliances withwith donors, donors, capacitycapacity buildersbuilders

!! OperatingOperating in a in a missionmission--drivendriven settingsetting

•• ScaleScale = = socialsocial impact = impact = financialfinancial returnsreturns

•• ManagingManaging different different expectationsexpectations

MainstreamingMainstreaming sustainablesustainable PEPE““CrossingCrossing the the chasmchasm” (Moore)” (Moore)

!! EarlyEarly adoptersadopters: enthousiasts and : enthousiasts and visionariesvisionaries, “, “storiesstories”, ”, customizationcustomization

!! EarlyEarly majoritymajority: : pragmatistspragmatists, “, “evidenceevidence”, ”, standardizationstandardization, user , user friendlyfriendly

!! BeachheadBeachhead: “: “wholewhole product”, product”, compatibilitycompatibility: high impact, high return: high impact, high return

!! Bowling Bowling alleyalley: product/: product/marketmarketsegmentationsegmentation (eg (eg HNWHNW, , institutionalinstitutional))

ThankThank youyouAavishkaarAavishkaar Goodwell IndiaGoodwell India

VineetVineet RaiRai

AavishkaarAavishkaar IndiaIndia

Micro Venture Micro Venture FundFund

201 & 221, Atlanta 201 & 221, Atlanta EstateEstate,,

Dr. Dr. AmbedkarAmbedkar ChowkChowk,,

OffOff western Express western Express HighwayHighwayGoregaonGoregaon East, East, MumbaiMumbai 400101400101

PhonePhone 9191--2222--39535292, 2877825539535292, 28778255MobileMobile 9191--98206457369820645736www.aavishkaar.orgwww.aavishkaar.orgwww.intellecap.netwww.intellecap.net

AavishkaarAavishkaar Goodwell Goodwell NetherlandsNetherlands

Wim van Wim van derder BeekBeekGoodwell Investments B.V.Goodwell Investments B.V.MediacentrumMediacentrum 341341SumatralaanSumatralaan 45451217 GP 1217 GP HilversumHilversumThe NetherlandsThe Netherlands

TelTel +31.35.6772661+31.35.6772661MobMob +31.6.46080801+31.6.46080801www.goodwell.nlwww.goodwell.nl