InVest in a Small Business, See Your Impact – In Real Time
One of the many amazing ventures in the Unreasonable Institute caught my eye with its innovative model that builds on previous successes in the social enterprise world, but offers something new and fresh.
InVenture, founded by former financial analyst Shivani Siroya, melds the person-to-person (P2P) website model-one of the founding pillars of Kiva-with investing in small-to-medium sized enterprises (SMEs) in the developing world. You can go on the InVenture site and invest as little as $25 in an SME in the developing world and receive constant updates on your business’ progress and social impact.
Investment in SMEs is coming to be seen as a powerful and practical strategy for strengthening emerging economies. SMEs, unlike most micro-businesses, have the potential to strengthen communities by employing people, providing necessary goods and services at a larger scale, and expanding quickly. Moreover, to strengthen communities even further through the SMEs, InVenture entrepreneurs reinvest 5 percent of their profits back into their communities.
(Above: A screen shot of an InVenture SME seeking investments. Image courtesy of InVenture).
P2P has its proven merits-investors may view the profile of an entrepreneur in the developing world and effectively “get to know” that entrepreneur before deciding to invest, creating an emotional connection between investor and investee. The profiles aid in transparency, and investors can ascertain the amount of risk they are taking through the business metrics, such as profit and growth rate. Also, in theory, P2P allows many small capital streams to flow out to a multitude of entrepreneurs, which often can be more effective than investing large amounts in a few small businesses with too little capacity to handle large investments.
InVenture, however, goes even further with P2P. Currently, it is in the process of developing an application that will allow investors to receive streaming updates on their investees, much like a Twitter stream. This will bring the day-to-day gratification and difficulties of the field right to the investor’s fingertips. On the ground, the entrepreneurs will be able to communicate their business progress via an SMS (text message) platform on their cellular phones.
In contrast with Kiva, the amount of investment in each entrepreneur is greater, and at the end of the investment period (one to three years), investors receive profits (that they can reinvest into new entrepreneurs). Similar to Kiva, this allows their investment to grow over time, thereby impacting exponentially more people.
InVenture does not provide loans; instead, it has a revenue-sharing model, in which the entrepreneur pays back a percentage of her revenue every month instead of interest-this means that the entrepreneur only has to pay an amount proportionate with her business growth. Currently, the amount invested in an entrepreneur ranges between $2,500 and $5,000, with an average of 40 users investing $50 each.
In its current locations-Mexico, India, and Mali-InVenture has partnered with local NGOs and microfinance institutions (MFIs). Once an entrepreneur is ready to “graduate” from an MFI-or is ready for more capital than the institution can provide, the MFI transfers its entrepreneur to InVenture. The MFI receives 1-3 percent of InVenture’s total revenue from an entrepreneur as an incentive to transfer its (generally very good) clients to InVenture. Then, InVenture Fellows spend three to six months with the entrepreneurs, providing customized guidance and monitoring their progress.
Now, with UnReasonable Institute training and funding in hand, the 1-year-old InVenture is ready to take on the world. I will definitely be keeping a close eye on this venture in the coming months.