Final Report to the Aspen Network of Development Entrepreneurs (ANDE) February 2011

Transcription

1 Final Report to the Aspen Network of Development Entrepreneurs (ANDE) February 2011

2 Background In August 2009, the Root Change Innovation Scouts initiative received support from the ANDE Capacity Development Fund (CDF) to develop a collaborative platform and field network for identifying high impact small and growing business investment opportunities. During the first 6 months of the grant period Root Change focused on building program infrastructure: people identifying indigenous innovation scouts in Africa, Asia and Latin America systems, technology developing a Web based technology platform to support opportunity screening, and systems creating new curriculum to train and deploy scouts. As part of the development process, Root Change conducted interviews with 20 different ANDE member organizations and institutions working in the Impact Investing sector. This critical feedback was incorporated into the design of the program. This first phase of the program culminated in the public launch of the Root Change Innovation Scouts Website ( at the ANDE Annual Conference. Through a new institutional partnership with the Monterey Institute of International Studies, Root Change also trained 60 MBA and MPA graduate students as junior scouts and created a permanent feeder program on campus that will support Innovation Scouts worldwide. Funding for Vietnam and Tanzania country launches was secured from SNV and the Grassroots Business Fund (GBF). During the second phase of the grant, Root Change invested program resources towards field launch and program support in Tanzania and Vietnam. A total of 38 scouts were trained: 23 in Vietnam, and 15 in Tanzania. This report summarizes these launch activities and includes the results from opportunity screening workshops hosted by trained Innovation Scouts. Overview of Innovation Scouts The Innovation Scouts technical approach features a global network of Scout practitioners, web-based and people-centered filters to identify promising investment opportunities, and includes a web-based marketplace where opportunities for investing germinate in public view. The model works as follows: 1. It starts with Innovation Scouts, a global network of BDS providers and indigenous social investment funds that identify new investment opportunities in the social enterprise space in developing countries. Innovation Scouts, recruited and trained by Root Change, identify opportunities for investing in small and growing businesses with a social value (double bottom line). Scouts rely on their local knowledge of the social enterprise sector to screen promising SGBs and are trained to lead Investment Opportunity Screening Workshops 1 (OSW). 2. Scouts host investment opportunity screening workshops where local social entrepreneurs present the merits of their social enterprise. During each screening 1 Root Change has developed and piloted a one-day Opportunity Screening Workshop model that incorporates individual reflection by social business entrepreneurs, peer review, capacity building of entrepreneurs, and a scored evaluation by a panel of experts. 2

3 workshop, approximately 20 investment opportunities are filtered down to between 5 and 7. After the screening workshop, the profiles of the best social enterprises are presented to the general public through the Innovation Scouts web platform. Less successful enterprises are encouraged to refine their models for future support. Innovation Scouts screen and support a range of social businesses that fall on a continuum of early stage development to growth. On one end of the continuum, Innovation Scouts target social businesses that are in the early stage of development seeking investments of $10,000 to $50,000. On the other end of the continuum, Scouts identify social businesses with a 2-3 year operating history and with an established business model and revenue stream. Investments that these growth social businesses are seeking are in the $150,000 to $1 million range. The Innovation Scouts target portfolio is 75 percent early stage development and 25 percent growth. 3. Scouts post promising social enterprises on the Root Change Innovation Scouts web platform, which includes a Social Enterprise Stock Exchange. Through a partnership with Spigit, a leader in idea management technology, investors and the general public can examine screened sector-specific social businesses and make investments with a virtual currency. The web platform turns registered users into traders who are invited to review and comment on social enterprise investment opportunities, pose questions to entrepreneurs, and buy or sell shares in enterprises that investors believe have the greatest potential for social impact and financial return. 4. Root Change taps the collective intelligence of the social impact investing sector. Potential investors can watch as the public value of certain investment opportunities, traded as stocks, rise and fall with the release of new information or news of recent performance results. Investors can choose to engage directly with the entrepreneurs, work through preferred Innovation Scouts on the ground, or work with other investors to explore possible collaboration on investment portfolios that meet their strategic needs. 5. Social businesses scale their enterprises by tapping local business development and capacity building professionals with knowledge of financial management, operations, and local markets. The Innovation Scouts Initiative fills the local capacity gap by providing technical assistance during the pre-investment phase, and by building/investing in sustainable local markets of BDS and capacity building providers 2. 2 Innovation Scouts receive $500 from Root Change to conduct Opportunity Screening Workshops and get a success fee of 2.5 percent for every social business that is funded by Impact Investors. In this way, medium and long term incentives for Scouts to support local social businesses are established. 3

4 Field Launch of Innovation Scouts The launch of Innovation Scouts in Tanzania and Vietnam included initial sourcing of BDS providers, local investment firms and NGOs working in business development. Root Change took an end-to-end view of opportunity identification. This included an analysis of the local BDS marketplace along with investments in social and organizational infrastructure people and systems in order to reduce the transaction costs of discovering and supporting viable social enterprises over the long term. In Tanzania, Root Change was assisted by Serengeti Advisors and Choice Capital. In Vietnam, SNV and the SPARK program provided on the ground support for field launch. Outputs of the ANDE Grant: In Tanzania, 15 new Innovation Scouts were trained by Root Change to source high potential SGBs and to lead Opportunity Screening Workshops (OSW). Two OSW events were held in Dar es Salaam. The first was led by Root Change and served as an in service training for local Innovation Scouts. The second was led by a team of newly trained Scouts. A total of 16 SGBs participated. In Vietnam, 23 Scouts were trained and three OSWs were led by newly trained Scouts with support from Root Change and SPARK. At each OSW, SGBs were evaluated against 7 criteria: sound business thinking; sound financial model; proof of concept; social impact; experienced management team; risk analysis; and innovation. Scoring was based on 20 factors associated with the evaluative criteria (Annex A: Self Assessment and Peer Review Framework). One of the innovations of the OSW process is the mix of self assessment, peer review and juried expert assessments. All SGBs are assessed by their peers based on the 20 success factors. This process helps to expedite screening of up to 20 SGB participants. It also builds analytical capacity of social entrepreneurs. Scores by peers are based on the quality of evidence SGBs can produce to support their claims. Peer reviewers consider the evidence in terms of a) relevance to the factor and b) adequacy of detail. A maximum score of 4 can be assigned to each factor. Final peer review scores are then averaged across 20 factors with a possible range from 0 to 4. High scores indicate strong evidence supporting SGB performance claims. Final recommendations for advancement are left to the discretion of the Innovation Scouts. Scouts are trained to concentrate on the highest performing SGBs based on peer review scores and performance during the pitch. Other considerations, however, are encouraged in the final selection process, particularly the strength of the innovation and the potential for social impact. During the first OSW in Dar es Salaam, Tumaini Nutritional Flour, a village-based nutritional supplement SGB, was selected for advancement on the strength of the entrepreneur s social impact and relatively high peer-review score. 98 trained Innovation Scouts (38 field-based Scouts and 60 junior scouts) Over 20 screened GBOs Ongoing field operations in Tanzania and Vietnam Detailed analysis of the Tanzanian and Vietnam SGB and BDS communities One SGB in negotiation with impact investor Over 400 Innovation Scouts online platform members Over 70 signed agreements with BDS providers targeting services to local SGBs and social enterprises visits to from 39 counties and territories Over $80,000 in leveraged matching funds New and strengthened social capital among local BDS providers and GBOs. 4

5 Results from the Tanzania OSWs are shared in Table Two SGBs from the first OSW were posted to the Innovation Scouts Platform: Footloose and Tumaini. In an second OSW convened and facilitated by Tanzania Innovation Scouts, three additional SGBs were recommended by local Innovation Scouts. They were 1) NARCO, a biogas/renewable energy SGB, 2) TanDairies, an integrated dairy farm, and 3) Youth Entrepreneurs Credit Union. However, based on the peer review scores, The Youth Entrepreneurs Credit Union had relatively weak documentation. Root Change has requested that local Scouts work with these social entrepreneurs to improve their organizational culture of documentation before advancing the SGB to the Scouts platform. Table 1.1 Opportunity Screening Workshop Participants and Scores Score of 4 indicates evidence completely supports rating assigned by SGBs Score of 2 indicates evidence partially supports rating assigned by SGB No. Enterprise Sector Score 1 K&M Enterprises Fashion Fresh Traders Food Processing NBDS Professional Services TZ Crafts Handicrafts Tumaini Food Nutritional 3.15 supplements 6 Biubkla LTD Food Processing Upamoja Women Cooperative Food Processing Footloose Handicrafts Famour Design Fashion/Textile Samara Art Group Textile Salim Kinunga LTD Honey Processing NA 12 Tavoka Enterprises Leather Processing NA 13 Renard LTD Ecotourism TanDairies Integrated Dairy Farm NARCO (T) LTD Biogas/Renewable energy Youth Entrepreneurs Credit Initiative Microfinance 1.74 BDS Marketplace and Technical Support Following the initial OSWs in Tanzania and Vietnam, social enterprise owners were invited back the following day to an open marketplace with local BDS service providers. The BDS Marketplace was built on Root Change s LINCS methodology, and offers a high degree of flexibility in implementation. Four key activities represent the core of any the Marketplace events. These are: 3 OSW results from Vietnam are still be translated into English and are not yet available. 5

6 1) The matching of organizational strengthening needs with BDS provider services 2) Facilitated interaction between local BDS Service Providers and social development Organizations 3) The mapping of interactions within the local BDS market 4) Follow-up efforts to promote continued and sustainable collaboration Each service provider posted 3-5 business development and OD service offerings at the event. SGBs explored the marketplace service offerings in three rounds. OSW participants were joined by many more entrepreneurs through word of mouth. At the two events, SGBs bid on over 70 BDS services including business planning, financial planning, accounting packages, preparation of strategic plans, processing of business registration and licensing, technical support for renewable energy initiatives, business coaching and marketing support. Over $30,000 in bids were submitted by SGBs during the marketplace events. The BDS marketplace events also served as an opportunity to use Organizational Network Analysis (ONA) to map the BDS market. Root Change administered the ONA survey at each BDS marketplace event, which brought together key actors across the BDS/SGB ecosystem (Figure 1.1). The market analysis includes a value chain map with nodes (the organizations or individuals) and linkages (flows of collaboration, resources, etc.) across nine value chain (VC) stages: Input Supply, Business and Financial Planning, Marketing, Business Licensing/Legal TA, Internal Systems, Staff Development, Product Distribution/Service Delivery, Strategic Partnering and Brokering, Financing. Key actors are identified for each value chain stage, and gaps in the Tanzanian BDS VC are highlighted. 4 Figure Data also available from Vietnam launch 6

7 Program Developments Since the launch of Innovation Scouts in Tanzania and Vietnam, Root Change has continued to support and work with Innovation Scouts on the ground, as well as local partners to continue building the Innovation Scouts network, improve on methodology, and scale the program. The pace of activities following the initial launch of Scouts in Vietnam and Tanzania illustrate the potential for viral growth. Scouts have taken initiative in hosting new OSWs, organized and travelled to Uganda to screen social innovators in Kampala, and begun work on a new social investment portfolio featuring technology-focused social enterprises in East Africa (Table 1.2) At the same time, Root Change has been able institutionalize an incentive-based model that keeps the cost of investment opportunity screening dramatically lower than traditional models. Through the Innovation Scouts network, screening of social investment opportunities averages only $25 per social enterprise 5. Root Change has continued to build and strengthen the relationship between the Innovation Scouts program and the Monterey Institute of International Studies. This relationship has influenced Table 1.2 Technology Portfolio under Development No. Enterprise Sector Status 1 Afrecom Communications Telecommunications Portfolio development 2 Ubuyandsell Technology Portfolio development 3 Uhuruone Technology Portfolio development 4 Moneywire Technology Portfolio development 5 Ushahidi Technology Portfolio development the development of an Impact Investing Certificate program through the business school, and the MIIS own Scouts Program. Root Change has also finalized placement of 3 graduate students as interns to the Root Change Innovation Scouts field operations: one will be placed in Tanzania and housed at Root Change s local partner, Choice Capital s office in Dar es Salaam, while two additional graduate students will be interning in Vietnam, based out of SNVs offices, Root Change s local partner in Hanoi and Ho Chi Minh City. To date, the Innovation Scouts platform now hosts 16 SGBs from across East Africa and SE Asia, with more than 400 members from more than 10 countries around the globe. Registered users from over 35 different countries regularly visit the site each month (Figures 2.1 and 2.2). 5 E and Co, one of the largest social impact investment firms operating today, typically invests 30 cents in pipeline development for every dollar invested in a social enterprise. $30,000 in pipeline development costs for every $100,000 invested is prohibitive for most aspiring social investors. 7

8 Figure 2.1: Site Usage Figure 2.2: Geographic Distribution of site users Sourcing and Investment At the end of 2010, the Grassroots Business Fund was introduced to one of the Innovation Scoutsourced SGBs in Tanzania and is now in a dialogue with the Innovation Scout and SGB owners around what may be the Innovation Scouts first successful investment. Grassroots Business Fund has also expressed interest in working with the Innovation Scouts that are BDS providers, linking 8

9 them with other existing investments in Tanzania and other countries for delivery of BDS consulting services. Program Growth and Scale-Up Impact investing has the potential to grow exponentially in the next decade. With social impact investing increasing worldwide, the biggest constraint to the growth is not lack of capital but lack of enabling infrastructure to identify and cultivate viable investment opportunities at a scale that achieves meaningful impact. Achieving this scale will require: 1. Deal Flow. Many enterprises need to be evaluated to find the few that meet impact investor s criteria for funding. Identifying and assessing these types of potential investments is a costly, labor and time-intensive exercise that most investors are ill equipped to handle. The result is a very limited pipeline of opportunities for investment, undiscovered social entrepreneurs, and an impact investing model unable to reach full potential for social change. Innovation Scouts provide a low cost solution to the most difficult challenge facing impact investors: screening and strengthening innovative social businesses for investment. Innovation Scouts provide a local presence with the indigenous knowledge, technical savvy, and business acumen to broker agreements among social entrepreneurs, business development service providers, and social impact investors. 2. Technical Capability/Capacity Building. Impact investors have learned that financial capital is not enough to support the growth of sustainable bottom of the pyramid businesses. Entrepreneurs, especially those working to meet the basic needs of lowincome people, require support beyond financing to grow their businesses. In particular, as they scale their social enterprises, they require talented management professionals with knowledge of financial accountability, operations, and local markets. The Innovation Scouts Initiative fills this gap by providing technical assistance during the pre-investment phase and by building/investing in sustainable local markets of business development service providers (BDS). Root Change hopes to energize debate around these gaps, with the aim of engaging policymakers, practitioners, researchers and donors to further field test Innovation Scouts and ONA metrics. We see this as an important contribution to bringing about advances in both investment opportunity screening and local capacity development; not intending to replace or compete with current best practices, but setting out to tackle collectively, the challenge of upgrading today s strategies. Using field-based opportunity screening workshops and web-based crowd sourcing to create a low cost innovation discovery network, country by country, Root Change hopes to build a global infrastructure to screen and prepare social businesses for investment and scale-up. Plans for 2011 include expansion of the initiative into Kenya, Uganda, Nigeria and Peru. 9

10 Annex A Self Assessment and Peer Review Framework 10

11 SGB Self Assessment Worksheet for Entrepreneurs, SGB owners, or SGB managers Instructions: This self assessment is intended to help you, the social innovator, carry out an initial critical analysis of your concept. For each factor, as associated with each criterion, please assess your concept as follows: Developing Practicing I/We are aware of and plan to incorporate this factor into our business/project I/We are addressing but need to improve this factor in our business/project. Accomplished I/We are doing a very good job of addressing this factor in our business/project. NOT APPLICABLE This factor is not relevant to our business, project, or idea SGB Name Criteria Factor Developing Practicing Accomplished Comments Sound Business Thinking Analysis of client/customer needs Assessment of capability and position in current market Analysis of competitors Growth / upscaling strategy Sound Financial model Proof of Concept Social Impact Tested or proven financial model Return on investment Cost recovery Track record of business category 2-3 years of data or history of performance by actual business or by organization Clearly defined social impact 11

12 SGB Name Criteria Factor Developing Practicing Accomplished Comments Multiplier effect at household level Multiplier effect at community level Experienced management Management team track record Passion/motivation Demonstrated results Risk analysis Innovation Demonstrates a clear understanding of the risks associated with the enterprise Finance or business model as a source of innovation Process as a source of innovation, including core processes and enabling processes Unique product, service or technology Delivery channel, brand or customer experience as a source of innovation 12

13 SGB Peer Review Worksheet for Peer Evaluator Instructions This scorecard is for use by peer evaluators for reviewing businesses, projects or ideas. It is intended to be used through an interactive discussion between the peer evaluation team and social innovators. Scoring Scale: 2 = Evidence completely supports rating assigned by social innovator 1 = Evidence partially supports rating assigned by social innovator 0 = Evidence does not support rating assigned by social innovator SGB Name Criteria Factor Evidence Score Sound Business Thinking Analysis of client/customer needs Comments Assessment of capability and position in current market Analysis of competitors Growth / upscaling strategy Sound Financial model Proof of Concept Social Impact Tested or proven financial model Return on investment Cost recovery Track record of business category 2-3 years of data or history of performance by actual business or by organization Clearly defined social impact Multiplier effect at household level 13

14 SGB Name Criteria Factor Evidence Score Comments Multiplier effect at community level Experienced management Management team track record Passion/motivation Demonstrated results Risk analysis Innovation Demonstrates a clear understanding of the risks associated with the enterprise Finance or business model as a source of innovation Process as a source of innovation, including core processes and enabling processes Unique product, service or technology Totals Delivery channel, brand or customer experience as a source of innovation 14

15 SGB Summary Scorecard Instructions: This worksheet is intended to help compile the self assessment and peer evaluator scores, and calculate a final score for the business/project. This scorecard should be filled out by a peer evaluator, NOT the social entrepreneur. In filling out the scorecard: 1) Transcribe each of the scores from the SGB self Assessment into the Self Assess Column. Developing = 0 Practicing =1 Accomplished = 2 2) Transcribe the peer review scores from each of the peer evaluators 3) Use the equation at the bottom to calculate the SGB Score SGB Name Criteria Factor Self Assess Peer # 1 Peer #2 Peer #3 Peer #4 Peer # 5 Peer #6 Peer #7 Analysis of client/customer needs Sound Business Thinking Assessment of capability and position in current market Analysis of competitors Growth / upscaling strategy Sound Financial model Tested or proven financial model Return on investment Cost recovery Proof of Concept Track record of business category 2-3 years of data or history of performance by actual business or by organization Social Impact Clearly defined social impact Multiplier effect at household level Multiplier effect at community level Experienced management Management team track record Passion/motivation Demonstrated results 15

16 Risk analysis Innovation Demonstrates a clear understanding of the risks associated with the enterprise Finance or business model as a source of innovation Process as a source of innovation, including core processes and enabling processes Unique product, service or technology Delivery channel, brand or customer experience as a source of innovation Sub Totals SGB Sore = + = + = 16

17 Worksheet Definitions Criteria Factor Comments Sound Business Thinking Sound Financial model Proof of Concept Social Impact Experienced management Risk analysis Innovation Analysis of client/customer needs Assessment of capability and position in current market Analysis of competitors Growth / upscaling strategy Tested or proven financial model Return on investment Cost recovery Track record of business category 2-3 years of data or history of performance by actual business or by organization Clearly defined social impact Multiplier effect at household level Multiplier effect at community level Management team track record Passion/motivation Demonstrated results Demonstrates a clear understanding of the risks associated with the enterprise Finance or business model as a source of innovation Sound business thinking requires an analysis of customer or project participant needs, perceptions and behavior. Social Innovators demonstrate sound business thinking when they take time to assess their personal and organizational capabilities and assess current market position. They regularly revise their target market and product differentiation based on sound analysis of their competitor s current position, capabilities, and actions. A sound financial model responds to market forces of supply and demand and promotes effective use of resources. A sound financial model generates income or cost recovery for the enterprise. Examples include membership fees, subscription fees, licensing to franchisees, leasing, and direct product sales. Proof of concept requires evidence that the enterprise fulfills a legitimate need and has demonstrated success. If the enterprise does not have 2-3 years of data or history of actual performance then a track record of successfully piloting or launching new initiatives can help. The value-added generated by a social innovation that leads to greater improvements in service coverage and quality, and positive impact on social and/or environmental benefits. Indicators of experienced management can be found in a strong vision, leadership with an entrepreneurial spirit and passion, a successful track record, demonstrated results and a history of employee satisfaction and low turnover. Risk analysis includes an assessment of four potential threats, including financial risks, market risks, legal risks and risks associated with day to day operations. Change that creates a new dimension of performance or impact. There are four primary sources of innovation: A finance or business model innovation might include new incentives to participate in a program or new ways to cover costs, while simultaneously advancing the social innovator s social mission. A process innovation might include a change in the way that staff connect with customers or project beneficiaries, or the way you produce a product. 17

18 Criteria Factor Comments A delivery channel or offering innovation might include engaging with new actors or organizations to distribute your products, or repackaging your offering to bring greater value to your customers/project beneficiaries A product or technology innovation involves a breakthrough in terms of quality, speed, efficiency or ease of use. 18