Building Rural Business

It has been a while since my last post and here I am finally inspired by questions that keep me up. Today was an interesting day. I had been to the TiE ISB connect which involved a panel discussion on opportunities in agriculture followed by some very interesting conversations on “social investments”

Time spent at the panel discussion was a reaffirmation that the entrepreneurs knew perceived needs on the ground and I can say this quite confidently after a year and a half of spending time in villages understanding the various stakeholders and the dynamics of how the markets worked from each of their perspective. Discourse on Agriculture has moved away from malthusian gloom to commentaries on entrepreneurship and innovation.

Most entrepreneurs working in the rural space seem to have got their formula right - working with local agents as their last point of delivery, phasing in appropriate technology to address issues of access and scale, developing franchise models etc. Where they seem to face the one big common challenge of course is issues with access to capital. Addressing this would really be key to facilitating entrepreneurship in the rural space. Most of them seem to approach banks, do not seem to have a good idea about the funds they should target - debt or equity and on general seem to struggle with access to a network and therfore referrals requsite for raising funds. Dug through that knowledge commission report that came up with a city wise list of deals made in 2007. Would love to see the break up for the locations of entrepreneurs.

Alright - so what could possible solutions be? building TiE like networks beyond in small towns? Could this be done virtually? Should we look at solutions like Alternative Investment Markets in the long run?

Watch this space for answers - more on creating platforms for small entrepreneurs coming very soon!

p.s: Ripples from the Zambezi is a good read if you have not already read it.

India’s appetite for multiple bottom-line ventures

Recently I had the pleasure of listening to Joe Madiath tell his story at a Social Impact graduation ceremony. It was the story of a young idealist in communistic Kerala who grew into bike-across-the-country, college president and disaster relief organizer and is now an Skoll Award recipient and social entrepreneur extraordinaire.

Stories have a wonderful ability to bring context to places and times that otherwise would never be fully understood. Joe was a wonderful story-teller not only for the delivery of his story but in recognizing the events that seemed to have resonated in his past.

The story of India’s current and emerging business environment is one that no one is ready to tell, but everyone is eager to find out. Sometimes we find ourselves struck by moments of apparent prescience, moments that foreshadow but don’t determine the future precisely. Team IDG seems to be encountering these small moments everywhere we look in the social venture space these days and this blog is where you will find our moments, our pieces of the emerging story.

To share in better detail my moments I’m going to use separate posts, but for now I will say that despite the many problems facing the national and global economy, SMEs and multiple bottom-line sectors are flourishing. In particular, green technology is hot, bubbling hot, quite simply because there’s a demand for energy and ecosystem services that cannot be met any other way, and of course for a multitude of other reasons. Simultaneously, the voracity of India’s social space is remarkable. Mission oriented social enterprises and development programs are at the cutting edge, blending market-based solutions to reach core constituencies with sustainable and structural impact.

The great divide

Hi! I have recently joined team IDG and it has been a fantastic 2 weeks of learning. Prior to joining IDG, I have been working with a range of small businesses from small vendors and hawkers trying to eke out a living despite strong regulations governing them to ICT enabled businesses coming out of an IIT incubator. Regulations and entry level professions apart, coming to small and medium enterprises,the issue is something else.

Since joining team IDG, I have been talking to entrepreneurs and one thought rings loud from my engagement here and my experience from before – access to early stage funds. My opinion on difficulties in access to early stage finance was buoyed by pure anecdotal evidence till I got looking into the Knowledge Commisson report titled “Entrepreneurship” that substantiated this with numbers. The report gives a good overview of various issues challenges in the start up space in India and gives some very interesting suggestions towards the same.

 

According to the report, though banks, angel investors and VCs were options for early stage investing they remain largely unexploited and the angel and VC market remains nascent in India. Total deals in the PE space in India in 2007 amount to 14.2 billion USD (to compare with US’s 26 billion in 4000 ventures and Angel funding amounting to 29 billion USD). Out of the 155 entrepreneurs from all over India interviewed for this report, only 6% of the entrepreneurs were funded by VCs in the early stage compared to 63% who self financed, 22% bank loans and 9% who received funding from state finance corporations. From the entrepreneur’s perspective, the report also quantifies attitudes to PE/VCs. 27% remained indifferent, 16% remained unsatisfied, 16% remained very unsatisfied, and 34% remained satisfied. Only 7% remain very satisfied. Entrepreneur perceptions are compounded by very little understanding of the investor perspective and the investment process itself. All these figures seem to be indicative of the existing gap between entrepreneurs and investors.

This is food for thought and would like your thoughts on the same as to why this gap exists. I hope to highlight a few perceptions regarding this gap in the following days. Needless to add, watch this space for news and updates on Sankalp and India Development Gateway.

Back to the Blog

The last several months have been quiet on the blog front, but I’m happy to say we’re still here and excited to increase the frequency of our broadcasts as the pace of our online and offline events accelerate and our team grows.

Concerning the site itself, much of the work we’ve done on the platform has been the quiet, behind-the-scenes type but pay attention because we’re getting closer to a market ready, beta version of IDG. What does that mean? It means, soon you’ll start seeing quite a difference in the look and feel of the site. Users will also notice far more stability and new functionality like improved investor interfaces and mentoring tools.

Far more exciting than web development is our upcoming MSME challenge “Sankalp 2009.” This nation-wide competition is targeting high-potential enterprises in India’s fast growing industries like Health Care, Education and Vocational Training, Sustainable Energy and more.

You’ll be hearing all about Sankalp 2009 here on this blog but please don’t hesitate to share your good ideas with us. Tell us in the comments what incentives will motivate high-quality, investment-worthy entrepreneurs to spend time entering a competition?

Stay tuned!

Alphatastic

Dear Visitors,

As of May 3rd you will now find that our site is redirected to our live, early alpha version which we are quite excited to share with you, so please sign up and have a look.

As with all sites in development there remain bugs and coming feature editions and we ask not only for your patience but your participation. Is something not working? are there additional features you would like to see? Please email us: info [at] indiadevelopmentgateway [dot] org

We are in the midst of continuous updates and will share the significant ones here on our blog.

timeline

for those of you who can’t wait an update on what is happening behind the scenes…

We are in the final stages of creating an IDG alpha version. The launch date for this has been pushed back once because of illnesses on the team.

We’re now set for an INTERNAL alpha launch in the coming week, releasing to a slightly wider audience of invited individuals towards week 3 or 4 of April.

A wider beta release open to the public is not yet planned but should be part of our efforts to launch competitions in the near future. Stay tuned to the blog to find out more.

reckless?

Apologies for the silence at our end. We’ve been busy working towards Alpha… which takes more effort than anybody thought. More on that another time, i’m sure!

For the moment, i just wanted to comment on the image above, found on the xigi.net website. It shows the funding options open to social ventures. Obviously most of us take a mix of the above, but that is not what struck me. Instead the graph shows me again (as though I needed reminding) how recklessness the venture really is! I mean, we are aiming here for the second most agressive method of finance, international equity. If you follow the equation aggressiveness = risk = less people willing to go in for it, you have to follow that IDG will have a very small customer base.

One conclusion, of many, is that we remain reliant on philanthropic capital, or at least philanthropic “patience” as it is being called these days. That helps us take some of the bite out of the aggressiveness-equation for potential investors. But is it sustainable in the way we advocate?

Blackout

Seems like all the problems have been solved, if that’s what you take the silence to mean. In comparison to the deserved news barrage on microfinance (especially since Yunnus’ winning the Nobel Peace Prize) that certainly what it seems like. Mesofinance is dead, or done, or stillborn? To be honest, I don’t even know where the term originated. Al Hammond seems to make a start in his 2005 comment on a Nextbillion blog entry, just as Microfinance was hitting the capital markets. Although the term accurately describes a very urgent need, it has not yet developed the momentum that could help shift things for sure. That despite the fact that the benefits are large and obvious.

As Hammond and Kramer point out in a follow up piece published Value Magazine, also the victim of cot-death, “Small enterprises have been the dominant job creation in virtually every economy, advanced or developing, and entrepreneurship has been the path to wealth-creation, at the individual and nation-state level alike.” The International Labour Organisation (ILO) estimates that more than 70% of the workforce in developing countries operates in the informal or underground economy. These are enterprises that operate at ground level with a keen eye towards applicable technology. They know their market best, crucial particularly in developing countries. And yet it is particularly in developing countries that they lack the support network they need to overcome managerial, talent and financial barriers.

In the West a diverse but tight web of supporters made up of Angels, friends, family, government agencies, foundations and the Crowd help enterprises with a capital requirement of under $1m with their struggles. In places like India, where there are only 2 known Angel networks even less people able or willing to support their peers in an innovative venture, this system does not find an equal. The government and foundations help in some ways, most notably by forcing banks to lend a considerable percentage of their total Small & Medium Enterprises (SME’s). But debt, as Vineet pointed out in a report for the International Fund for Agriculture Development (IFAD) is not enough for start-ups in a cash crunch, and may even lead to an even more dramatic situation for the entrepreneurs. Instead they need long-term, committed equity partners to bear part of the risk with them. Solutions for this are thin on the ground.

India Development Gateway is one of them. By reducing the transaction cost of investing in such small deals, enabling a new class of investors, and ensuring smooth and successful transactions along the life of the company, IDG brings some solutions to the table. If entrepreneurs can’t find help in their immediate vicinity, why shouldn’t they benefit from technology to sharpen their ideas and reach out to others? Good question not often asked! Although some answers are emerging, and have done for a while, they are not nearly an adequate response to the size of the problem. In fact, so small is the number of voices that speak eloquently about the problem that one might be forgiven for seeing a conspiracy - The Small Cap Blackout!

Multiple Bottom-Line Value Proposition (part 2)

Derek Newberry captures the multiple bottom-line value proposition beautifully in his recent Nextbillion post. Building off a previous post focusing on the rift that has arisen over Tata’s 21st century take on Ford’s Model-T between socioeconomic development advocates and environmentalists, he brings us to China to look at a similar problem regarding rural energy needs and delivery.

Describing New Ventures‘ approach to this dilemma he writes,

“we get past the nearly paralyzing complexity of the poverty-environment nexus by focusing our efforts where environmental and social goals meet, essentially working to promote the Zhenghong oven-type models of the world rather than the Nano models.

Some might think this is a cop-out – I would disagree”

He continues by making a case for New Ventures’ focus on combining these hybrid, eco-social innovations with sustainable business models to effectively distribute them. Whether or not this is the best way forward he argues, New Ventures,

“aim(s) to discuss transparently and honestly the prospects and realities for sustainable and social entrepreneurship, about how realistically scalable companies like Hao’s are and the tensions between environmental and social impacts in the private sector.”

This discussion is absolutely necessary and IDG’s approach is to offer the most options, information and the clearest metrics about various the impacts of these businesses. Furthermore, the IDG platform will facilitate dialogue on several different levels so those achieving and supporting these new model businesses can work together on these issues.

So is this a cop out? No, it’s a bid to create buy-in (pun intended) from those who maybe aren’t involved as they should be, and even those who are. We agree with New Ventures that the best way we can achieve fully sustainable development is by supporting true hybrid value/multi-bottom line businesses. Furthermore, IDG’s biggest contribution is to give others enough information to make and act on these decisions for themselves.

What is the multiple bottom-line value proposition?

I’d like to share a blog my friend Jake recently passed along, in particular, two posts relevant to IDG and the entire multiple bottom-line sector. Like true professors, it’s a thorough conversation, longer than most internet reading but correspondingly it offers more substance.

The first post I read was on Bill Gate’s recent “creative capitalism” speech on the blog. It’s been creating quite a stir especially since William Easterly wrote his op-ed “Why Bill Gates hates my book” in the Wall Street Journal responding to Gate’s recent speech.

The second post “On Corporate Altruism” contained perhaps the wisest sentence I read and perhaps the most self evident one too. While considering the need for creative capitalism, whether it’s practical, possible or perhaps even a bad idea, Becker writes,

“The real test is how viable such motives are in a competitive market environment where the competition also includes companies motivated only by profits.”

In a nutshell, this is IDG’s operating philosophy towards the social impact and multiple bottom-line businesses. Social and environmental impacts are terrifically important and should be defined by both entrepreneurs and investors. Using IDG to communicate impacts , both desired and offered, will drive this growing market for competitive social enterprise in India.