Tuesday
October 5
2010

Josh Cleveland

SOCAP10: Where the Action Is, the Fastest Growing Markets and Industries

As Shashi Buluswar of Dalberg mentioned to kick off the panel, it depends on exactly what type of action you’re talking about. Today, we’re talking about impact investment opportunities.

For those in the audience hoping for a crystal clear answer along the lines of “solar energy in Sub-Saharan Africa” there was no such information put forth. But that doesn’t mean that the panelists didn’t offer some valuable insights on what’s hot moving forward. In addition to Shashi, the panel included Stuart Davidson, from Labrador Ventures; Dan Crisafulli, formerly of the Skoll Foundation; Lisa Carpenter from Gap Inc. and Eric Berkowitz, from Bamboo Finance.

Shashi briefly presented the framework I covered in a previous article to help guide the discussion and then moved on to delve into each panelist’s area of expertise.

Systems approach to investing

Stuart Davidson’s ideas suggested that it was not a geography or industry that would garner the most attention in the coming years, but rather different business and investment models. One of particular interest that he put forward is the idea of “systems investing.” To frame this methodology, Stuart describes the three issue areas that investors generally cannot control and that may impede the success of a portfolio company: issues with execution (not the right product, not the right management team etc.); issues with customers (they can’t afford it or distribution does not reach them); and finally, issues with suppliers (suppliers cannot provide the good at a reasonable quality). “Systems investing” takes all these factors into account. To better manage risks in their portfolios, Stuart described an approach whereby the investor invests in other areas of the supply chain in addition to the core enterprise by focusing on suppliers. By investing in companies that will need to supply a product crucial for an enterprise to succeed, you take some of the risk out of the investment and help the enterprise achieve its goals. It’s an interesting topic that I plan to follow up on in greater depth. Stay tuned.

Policy Issues

The panel was unsurprisingly unanimous on the power of effective policy to accelerate growth in emerging markets. But as Eric Berkowitz added, yes, policy changes can help, but for the time being, the overall hope is that government will just stay out of the way. As Eric mentioned, business models are often successful in developing countries because the government is failing to provide a good. In order for the enterprise to be lucrative, all the government needs to do is stay out of that sector. As soon as the government makes statements about moving in to that sector (whether legitimate or not) the business experiences significant turbulence. Sometimes it’s easier if the government just stays out. What is not clear, however, is if these thriving industries (energy, water, telecoms) that are filling a government void should in fact serve as substitutes to public sector infrastructure in the long run.

Aligning with Corporate Capacity

Representing the corporate and foundation investment sides of the coin, Lisa Carpenter highlighted Gap’s increased focus on aligning company giving and support with its core competencies. Instead of contributing toward general economic development initiatives in a supplier country, the organization instead can leverage its access to capital for supplier loans. From the points that Lisa made today, we can expect to see more investments from corporations better aligned with assets of the business.

What does all this mean? Growth is going to happen in a lot of different areas. Telecoms, IT, food, and apparel were all mentioned briefly on the panel. India is always important to watch, as it is considered by many to be the Petri dish of social enterprise. But as Shashi summarized after the discussion, there are no easy answers and certainly a lot of issues that smart organizations need to look into in order to be effective.

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