Social Investing: A Primer for Newbie Fund Managers

Beyond Profit Guest Blogger, Venkat Subramanian, reports.

With social investing catching the attention the world over, and interest around green tech and bottom of the pyramid (BOP) engagements, there is a sudden frenzy in the social sector. Though we welcome this (much needed) attention, we only hope and pray that this is not just a temporary fad but a more conscious shift in the global investment and business outlook.

Many investors have expressed anguish about their inability to find suitable entrepreneurs and ventures. Most such ventures seem to mistrust such investors and don’t seem to be very open. Having shifted from corporate life with exposure to various aspects of conventional business and funding to this socially entrepreneurial sector recently in past few years, we thought we would put together a simple guideline, to set out expectations to a newbie Angel/VC/PE interested in the social sector from the entrepreneur’s perspective.

1) Social entrepreneurs are FIRE fighters, not flame throwers.

Social entrepreneurs are problem solvers of a very high degree – they take on issues that often cannot be handled by even the government and corporate sector. Their key drivers are a passion to solve a burning issue, creating better life for the people they serve and building a business model from the heart rather than the bank balance.

Typical VCs and Angels are often used to the yoyo lives of dot.com vaporwares, Enron-style scamwares, and Satyam-style scandalwares. Driven by quick exits and the “next big bling bling,” they often don’t see eye to eye with the above bunch.

What they need is some real soul searching. Before you talk balance sheets and cash flows and 10x multiples, please look inside and confirm if you, Mr. Social VC, really DO HAVE the HEART to solve problems of poverty, urban divides, etc.

2) Social entrepreneurs don’t exit, they EXIST.

Again, the passion to serve people is too strong for some entrepreneurs to see basic realities like profitability and scalability. They live with the problem and DIE with the problem. So the only “exit” option is DEATH.

Are you ready for that, Mr. Social Investing Angel?

3) Social entrepreneurs don’t need money, at least not in the millions of dollars!

Surprised, but true. Most social projects can be set up and made successful with a few thousand dollars. The real resources that they need the most are time and people rather than money.

Again, to use the fire fighting metaphor, often what they need is a pail of water, at the right time (which usually means right now).  Unfortunately, most VCs need a due diligence and evidence of capability to fight fires before they even open their taps!

Mr. Social VC, don’t be Uncle Scrooge. Listen to your heart rather than your head. If you can’t spot a genuine, sincere, honest person and make a decision in 15 minutes, you won’t be able to do so in 15 years! I don’t say it, the psychologists do! (Google “How people make decisions.”)

Not to undermine the value of numbers and figures, but we all know that they can be fudged to fool investors. Ask PWC. Ask Satyam. Ask Enron. They once had perfect balance sheets.

4) Social entrepreneurs don’t wear Armani.

Now, that’s a lot of savings. You don’t need your Armani suit, Tissot watch, and Versace glasses for the next meeting. And for God’s sake, don’t set up meetings in five star hotel lobbies. It’s become too cliché.

Rather switch to desi cotton, chappals, and drive an auto to the spot where WE work–often the slums  or some god forsaken village. Show that you are willing to change – because THAT is what we are striving for – to CHANGE lives. Mr. VC, let’s start with yours first.

5) Think Global, Act Local.

Most social projects are very localized. Even if they scale, it’s often within the same country. So talk in local currency, not US dollars. Also, ask what WE want rather than bracket us into strange terminologies like “Seed,” “Pregrowth,” “Post revenue,” “early IPO,” and other BS.

Mr. VC, many of these terminologies and valuation norms are remnants of the Lehman era. Most people who invented them are either in jail or on the streets now finding jobs.

So please, leave your “investment” lingo dictionaries aside and start talking in plain type: Do you like the project? Do you want to be involved regardless of the stage or financial requirements?

6) SECTOR agnostic = “I don’t have a F*&^ clue” where to put my money

Yes. We know that all your other investments in tech, real estate, energy, and BPOs have all drawn a naught. But the social sector needs lots more involvement. Please get off the PC, stop reading Gartner’s reports and case studies, and make your own judgment.

Yes, there is GOOD money (as in GOOD KARMA) in social investing. Yes, there are ample good ventures that are doing well. If you know where to look, the fortune at bottom of pyramid will reveal itself.

And lastly,

7) Poverty is RELATIVE.

Often the urban junta and educated make the mistake of associating poverty with economic status. But our own experiences have made us realize that being poor and having less money are two very different things.

Confused? Let me explain. For a person who makes US$ 150,000 a year in America, someone who makes US$ 15,000 in India may seem poor. But that’s INR 7 lakhs + per year! Ten times the national average!

Similarly, to someone making INR 7 lakhs per year in an India city, someone making INR 70,000 per year is poor. But that’s enough money to raise a family of 10 in a village!

People at the bottom often have nothing to lose. They are born survivors. Things can’t get any worse. They have learned to be happy in spite of their economic misery. Through sheer guts, hard work, and determination, several have managed to give their children good education and healthcare, with little help from anyone.

The so called multimillionaires are the ones who need all the help – divorced, broken kids, wild lifestyles, and misguided careers, they end up in shrink’s office! Poor diets, poor life habits, poor social connections – several have ended up as nervous junkies.

So, welcome to the world of the REAL poor!

As Morpheus says in the Matrix, “Do you you want the red pill or the blue pill? Do you wish to see how deep the rabbit hole goes?”

Venkat Subramanian is the Founder and Managing Director of Matchbox Solutions, a company which uses technology to solve critical issues in India. Efarm, one such solution, uses technology to provide supply chain efficiency for procuring and delivering fruits and vegetables grown on rural farms.