NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

It originally made sense to me when the NextBillion editors asked me to cover the panel titled “Sometimes it Doesn’t Work: Lessons Learned” at SoCAP’09 this year as my last blog entry was titled “A Lesson Learned.” The one that learned the most lessons with me as it was clear that the financing mechanisms for social ventures is highly complex and I realized I knew very little about the business.

The panel featured Bart van der Vaart from Small Enterprise Assistance Funds (SEAF), Candace Smith from Microvest, Cliff Kellogg from Shorebank, and moderator Debra Schwartz from the MacArthur Foundation in a discussion on the various social ventures each of their respective firms have funded and the key learnings and challenges they found in the process.

The firms finance a range of ventures, from small private-sector businesses in developing countries to microfinance institutions to solar/alternative energy companies with a social mission. Each member of the panel has been in the business for years and had the following observations:

• Foundations tend to be slow and generally don’t invest in enough. You can almost burn as much money trying to get money FROM them.
• “If you know ONE foundation, then you know ONE foundation.” Foundations are all very different. You really need to understand the motivations of that particular foundation and what the decision makers care about.
• Leveraging the individual personalities of foundation members that were involved in funding deals was important. Some investors “were squeaky wheels, some were quiet.” For example, Shorebank would do weekly calls, using the more proactive personalities to get things moving. “The chemistry of the deal team can make a big difference.”
• Non-foundation investors had never played on both levels of the risk ladder before. They had a program need to implement something, say in Africa,
• The “chicken and egg” problem – sometimes in order to get the funds, the investment firms needed to develop a pipeline of companies to invest in. Often many companies were not ready to take the two to three million dollars needed create a business.
• In countries with strong government involvement in the economy (e.g. China, Vietnam), things could get set up very fast. The government would say “though shalt lend” and the money flowed. And then with a full pipeline of companies to invest in, the government would say “though shalt not lend.”
• “Super transparency is critical.” Every deal needs to have high levels of communication and reporting. You need to retain your credibility, so communicating the good AND the bad is critical.
• All the investors were starting to see more for-profit/nonprofit interaction than before which they hadn’t seen before.

While the technicalities of investing went over my head (I never could figure out what a PRI is), the key learnings sounded very similar to any engagement I’ve had working with NGOs, international financing agencies (e.g., World Bank, USAID) and governments.

• Things move very sloooowwwww. Patience is required.
• A ton of proactive engagement is required on the part of the firm trying to make things happen.
• “Understand than be understood” is important no matter what type of engagement you are in.

I certainly learned a lesson. Thanks to the panelists for an enlightening panel.