ChangeFusion at SoCap08 - 13th to 15th October 2008
ChangeFusion recently attended the Social Capital Markets conference in San Francisco. This landmark conference brought together investors and entrepreneurs commonly bound under one mission: search for socially, environmentally and economically sustainable solutions to social and environmental problems. This new wave of change represents an emerging sector of organizations seeking to blend the best practices of both worlds - business and nonprofits.
The overarching theme of the conference (I presume like any other investment conference) was risk versus returns. There was a clear bifurcation amongst the participants over this issue. On one hand, investors from the traditional financial sectors doubtful whether social enterprises could achieve market-rate returns and rated them as high risk investments, while on the other hand, there were experienced social enterprise investors who have invested in high return enterprises. At this stage though, few social enterprise investors have managed to realize their returns as none of them have exited on any of their deals.
Bear in mind though, the investors are pointing to social enterprises with clear business models to generate revenue and are scalable. Also, the type of investments made for social enterprises registered as non-profits would be in the form of quasi-loans or loans-like-equity. The remaining ventures would have access to traditional financial instruments such as debt or equity.
BetterWorldBooks was an example of a fairly successful investment conducted by GoodCapital which was frequently thrown around by investors at SoCap08. Socialmarkets.org also dominated some of the sessions as a platform which encouraged 'crowdsourcing' of impact measurement of nonprofits. This was a rather crucial issue that was dealt with because one of the biggest reasons why socially-oriented organisations are unable to attract funding is because of the lack of standardised and measurable impact measurement tools/ metrices/ indexes.
Need to exit on deals
The need to exit on deals is becoming exigent for many investors and as a result they’re pointing towards to the following options:
- Buy-back option for social enterprise owners
- Sale of equity to traditional companies which intend to acquire social enterprises or have identified clear synergies
- The creation of an informal exchange amongst social enterprise investors
- The public listing of social enterprises either in dedicated social stock exchanges or mainstream capital markets
New wave of enterprises
The new wave of enterprises in this distinct sector act with social or environmental goals but operates under business models to generate profit. Companies like the fair-trade craft venture Community Friendly Movement, low-cost solar light maker D.light Design, rural farming technologies group Grassroots Innovation Network, microfinance group SKS Microfinance and the social innovation consulting and investment firm ChangeFusion all have fundamentally different businesses, but the same motivator: a better world.
The primary growth engine behind these enterprises is ‘social capital’. Social capital represents a new wave of quasi-philanthropic and quasi-commercial forms of investment. The goal of social capital is not to maximize profits only. Instead social capital aims to maximize on social or environmental impact whilst also maximizing on economic profit. ChangeFusion, a social venture investment firm in Bangkok, Thailand facilitates the delicate process of investing in social enterprises in South and East Asia. The key goal is to identify and support scalable ventures that are able to generate social or environmental impact whilst being economically sustainable.
One of ChangeFusion’s early investments includes the Grassroots Innovation Network in the Northeast of Thailand and Community Friendly Movement in India. Grassroots Innovation Network provides farmers with access to low-cost agricultural solutions such as organic fertilizer and drip irrigation, which enables the farmers to improve their crop, yield and diversify their income. Community Friendly Movement, on the other hand, sources hand-made crafts from low-income communities and applies a fair-trade sales model to sell the crafts. The low-income communities are able to reap higher income levels through these fair-trade sales and improve their living standards.
Although the economic returns promised by investments by ChangeFusion, are lower than traditional venture investment, the social and environmental impact is significantly higher and more sustainable than traditional nonprofits.
ChangeFusion continues to pursue efforts in catalysing sustainable/ social enterprises in the region. With an existing portfolio of 23 ventures, the organisation hopes to work with much more in the near future. Bringing an atmosphere similar to Social Capital Markets in crucial to the sustainable development of this region.
The following is some of the key initiatives that CF intends to work on in the coming months:
Business-Social Enterprise partnerships - We aim to help identify clear partnerships between businesses and social enterprises that can help improve the bottom-lines of both entities. This is also applicable to identifying more sustainable forms of community investment for Businesses within their CSR scope.
Investments for social enterprises - The idea is to help bridge the capital gap that most social enterprises face in order to scale up their operations. This could take place in the form of either direct placement, fund management etc
Non-financial resource gap - CF is also keen to bridge other kinds of resources that startup social enterprises would need access to - talent from the corporate sector, hardware etc
*by S. Dev Appanah