A Dummies Guide to Funding Social Change

The world of funders has acquired several new inhabitants creating diversity in charity. Historically, institutional and high net-worth donors represented the biggest fund raising sources. They are now matched by philanthropists, crowdfunders, impact investors, venture capitalists and other kinds of supporters. How do you make sense of this dynamic, new world? Our guide will help you decode it!

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The spectrum of funding social change

Technology entrepreneur Vishy Kuruganti, a close follower of the social entrepreneurship space, provides a simple, no-nonsense guide to distinguishing various categories of funders. He calls impact investing “the type of investing that lies between venture investing and philanthropy…Philanthropists write cheques purely for social impact while venture capitalists invest in companies primarily for financial returns – any resulting social impact is incidental and considered a ‘bonus’.[1]

Famous last names

By tradition, wealthy families who desire to give back to society follow the model of philanthropy. In India, the Tata group has been giving money to charity through various Trusts like The Dorabji Tata Trust, The Sir Ratan Tata Trust and other related programmes. Funding is typically given to specific sectors that benefit the disadvantaged and alter their condition without any expectation of return or gain on the money given. Sir Dorabji Tata, for example, put his own money into the trust, including shareholdings in his companies, personal effects, properties and other commodities of value[2]. More recently, Wipro founder,  Azim Premji donated more than 25 per cent of his wealth to set up the Azim Premji Foundation that will work in the health and education sectors.

For the larger good

Impact investors look for financial returns on their investments while also effecting social change.They work with those unreached by government or larger private service providers.  Impact investing in India has not been traditionally popular, but is on the rise and accounted for 23% of private equity investing in 2013.[3]  Kuruganti has listed over 30 institutional impact investors in India, including global firms like Gray Ghost Ventures, Ennovent, and the Omidyar Network[4]. Intellecap's report on impact investment in India found that in 2014, 70% of all impact investment happened in the microfinance and financial inclusion space.

All boats will rise

Venture capitalists tend to be more sceptical of the ‘investing for social good’. Instead, they believe that market innovations and disruptions will provide solutions to social problems. Mahesh Murthy of Seedfund argues that “the digital innovations that have had the most impact on our planet, including bringing down governments and saving lives are Google, Twitter and Facebook. But these are regular investments and not “impact investments” by any yardstick.[5]” Aavishkar invests in early stage entrepreneurial companies in health, education, energy, microfinance and financial inclusion. They look for social relevance and rural focus as part of their “promise of multiple bottom line returns.[6]” Other firms like VenturEast also invest in seed- and incubation-stage businesses in life sciences and healthcare businesses that benefit those unreached by such services and provide financial returns.

The power of the crowd: Crowdfunding has often been described as old wine in a new bottle. These organisations gather funds from individuals and sponsors to fund specific projects that organisations may have. Their funding capacity may not be as large as the first three entities, but they provide much-needed gap funding to realise existing projects. In India, organisations like Ketto, HopeMonkey, BitGiving and Orangestreet use crowdfunding and corporate sponsorship to raise money. Milaap Social Ventures Private Limited connects borrowers in need and lenders on their website. Individuals can lend to those in need, and expect to have their money returned later.

Value for money

Philanthropists lend a helping hand while impact investors and venture capitalists try to change social and economic environments through their work. For each of these supporters, their money is a way to effect some change in the world. As Winston Churchill said, “We make a living by what we get, but we make a life but what we give.”

 

 


[1]Kuruganti, Vishy, Impact Investing Landscape in India, October 2, 2011, http://www.techsangam.com/2011/10/02/impact-investing-landscape-in-india/, accessed on 20th June 2014

[2] Dorabji Tata Trust website, http://bit.ly/1pVHSmk, accessed on 20th June 2014

[3]Murali, Anand, ‘Impact Investing in India: 80 Deals, $390 mn in 2013!’, February 18th, 2014,  http://www.nextbigwhat.com/impact-investment-in-india-2013-297/, accessed on 20th June, 2014

[4] Kuruganti, Vishy, Impact Investing Landscape in India, October 2, 2011, http://www.techsangam.com/2011/10/02/impact-investing-landscape-in-india/, accessed on 20th June 2014

[5]Chhabra, Esha, ‘Does India Need Its Own Impact Investors?’ , 3rd May 2014, http://www.forbes.com/sites/eshachhabra/2014/03/05/does-india-need-its-own-impact-investors/

Going Where None Have Gone Before

Social entrepreneurs go where few have gone before.
Social entrepreneurs go where few have gone before.

A new breed of social entrepreneurs (‘socents’) are exploring ideas to change the world through the social business space. Socents establish ventures with the primary aim of addressing social problems with innovative and new solutions. The social enterprise operates in a manner that benefits underprivileged groups who are underserved by government or other private service providers.

Traditionally, India is a risk-averse society. Few individuals stray from conventional business ventures and explore risky and financially unrewarding areas like social entrepreneurship. However, an evolving social environment and improved economic conditions following the reforms of the 1990s have made it possible for more people to create products and services that benefit neglected populations.

The emphasis is on ‘social’ as well as ‘entrepreneurship’. These organisations are not just revenue driven, but aim at achieving a change in attitude and perceptions through their work. Socents’ low-cost solutions generate jobs for marginalised groups, give them livelihood skills and bring them in to the job market. Inclusivity is an important value for these organisations.

Follow your heart

To paraphrase Plato, taking the socent route to develop your idea is a happy marriage of your talents and the needs of the world. Many socents came to this work after a personal epiphany or after leaving unsatisfying careers in other sectors. Arunachalam Muruganantham, India’s ‘sanitary napkin man’ has been voted one of Time magazine’s 100 Most Influential People in the World in 2014 for his inventive innovation. Arunachalam did not have an engineering degree from an elite university, but was fond of engineering and tinkering around with designs since his youth. His interest in manufacturing sanitary pads came after realising that his wife depended on rags and newspapers to tide her over her menstrual cycle. The rest is history. Arunachalam’s low cost sanitary pad machine manufactures products at significantly lower costs than commercially manufactured pads. Women who cannot afford recognised brands can easily access Arunachalam’s products. His invention is significant for its price but also because it adds value to a sector that most people view as taboo. Aakar Innovations, another social entrepreneurship firm that manufactures low-cost sanitary napkins wants to give women more solutions, but also “create economic values for all their (sic) stakeholders, including investors, village entrepreneurs and underprivileged women[1].”

Silicon Valley hears a common lament – “The best minds of my generation are thinking about how to make people click ads” – as bright college students choose jobs in engineering, technology or financial services at the cost of their interest in changing the world.

Sameer Segal echoes the earlier sentiment, which is prevalent in India as well. As an engineering student, Segal thought that “there was a clear hierarchy: consumer apps (applications), enterprise apps and then technology for social enterprises. Most engineers probably don’t even know the third bucket even exists.[2]” A summer internship at a microfinance institution led him to change his mind. He went on to co-found Artoo, an organisation that provides technology-based solutions for social enterprises who work for unreached populations.

However, it’s a good time to be a socent, particularly if your solution is driven by engineering and design solutions.  Arunachalam and Segal are not the first engineers to take that leap. Harish Hande founded SELCO India, a social enterprise promoting sustainable energy in 1995. He was awarded the Ramon Magsaysay Award in 2011 for his work. More recently, Gyanesh Pandey co-founded Husk Power Systems, an initiative that harnesses rice husk resources to electrify rural Bihar. Anu Sridharan, a civil engineer, set up NextDrop, an organisation that uses mobile technology to let people track the availability of water in their area.

Winds of change

While socents cannot expect the vast benefits and support received by their corporate contemporaries, the world is constantly creating new options to provide for the needs of social entrepreneurs. Online magazine ‘The Alternative’ lists eight degree programmes in social entrepreneurship[3] for those so inclined. These are offered by well-recognised institutions like the Tata Institute of Social Sciences and the School of Management at Xavier’s Learning and Research Institute. This is likely to create a cohort of second-generation entrepreneurs more easily in the future.

Securing funding to ensure that their products reach the required scale to effect large-scale social change remains a challenge for entrepreneurs. However, there are reasons to be upbeat. The National Innovation Council launched the ‘India Inclusive Innovation Fund’ in January 2014. The fund has an initial corpus of Rs500 crores and is looking to increase the corpus to Rs5,000 crores soon[4]. In the same year, there were approximately 35 impact investing funds[5] in the country, and the number seems likely to grow.

Socents aren’t immune to the challenges of running a successful organisation. Being passionate about your work doesn’t compensate for managerial acumen. Matthew Cain points out how love for your idea can be a stumbling block to a socent’s success.Successful social entrepreneurs have passion but it's not for their idiosyncratic idea or the way they do business. It's for seeing a problem and providing a solution. They are passionate about reaching the destination, not their particular patented route.[6]

Why do social enterprises fail?

 

Not everyone asks why social enterprises fail. The reasons will surprise you – a large part of an enterprise’s failure can be attributed to founders’ decisions, while business sense can be the undoing of others.

 

Matthew Cain analyses five reasons social enterprises fail – a must-read for anyone looking to take the leap!

Socents would do well to tread these unknown waters carefully. However, if they play their cards right, Indian socents can easily achieve the change they want to see in the world.

 


[1]Aakar innovations http://www.aakarinnovations.com/#!mission/c1pup

[2] Segal, Sameer, ‘Dark Knights: Hackers for Impact’, April 15, 2013, http://sameersegal.github.io/posts/Dark-Knights/, accessed on 13th June, 2014

[3] ’17 ways to get an education in social entrepreneurship’, September 25, 2013, http://www.thealternative.in/business/17-ways-to-get-educated-in-social-entrepreneurship/, accessed on 13th June, 2014

[5]‘Chhabra, Esha, Does India Need Its Own Impact Investors?’, May 5th 2014, http://www.forbes.com/sites/eshachhabra/2014/03/05/does-india-need-its-own-impact-investors/, accessed on 13th June2014

[6] Cain, Matthew, ‘5 Reasons Social Enterprises Fail’, April 2, 2014, http://www.theguardian.com/social-enterprise-network/2013/jun/28/five-reasons-social-enterprises-fail-business, accessed on 19th June 2014