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Luis Miranda

Building Social Ventures

I recently spent two days at TiE Con Delhi, where I participated in a fireside chat with Rob Gertner, Deputy Dean at Chicago Booth (where I studied many moons back). The discussion was on the increasing impact of social entrepreneurship on economies, society and the role education can play in accelerating it. On Day 2 Rob moderated a panel discussion with 3 alumni from the University of Chicago who have founded social enterprises – Sandeep Ahuja of Operation ASHA, Sachi Shenoy of Upaya Social Ventures and Chris Turillo, of Medha. In this blog I will talk about some of the takeaways from these two sessions.

The main challenges facing social enterprises relate to financial capital and human capital. Capital markets don’t work well for social enterprises because it is difficult to measure social impact in the short term. There hasn’t been much academic work done so far in the area of striking a balance between social impact and profitability and a lot more work is needed to be done on the role of incentives in social enterprises. So we are still in early days when analysing the success of social enterprises and till then much of the reports will be anecdotal. Many business schools across the world are building out their capability in analysing social enterprises, prompted by the interest seen from students. Rob is the faculty coordinator for the Chicago Booth Social Enterprise Initiative and is the faculty advisor for the Social New Venture Challenge.

Operation ASHA has done a phenomenal job driving down the cost of TB treatment. Their cost is 5% of what competitors incur. They did this by ‘decluttering’ the process. 80% of their work force doesn’t have a high school certificate – and this may look scary in a medical area. But they work closely with the DOTS initiative of the World Health Organisation and the Government. The Directly Observed Therapy Short (DOTS) Course requires each TB patient to swallow each dose in the presence of a certified healthcare worker. Operation ASHA took steps that in hindsight look simple – they took the treatment to the patients, made their 200-odd centres low-cost, efficient and accessible by training non-medical workers and they used finger-printing technology to track the delivery of the medicine. And these centres are now being used by other organisations to distribute supplies and aid to the slums. Their success metrics are fantastic, reflecting how efficiency, technology and process re-engineering using common sense can build scale, lower costs and have significant impact. Their numbers have been vetted by MIT’s Poverty Action Lab.

Medha aims to work with existing education systems – in their case it is government-aided colleges in Lucknow. They prepare kids to find jobs after college by teaching them sector-agnostic skills. They recently won a 2012 Echoing Green Fellowship in New York. And Upaya works with tiny enterprises in North India to create employment opportunities for the poor. Their first investment has already created 300 jobs in the dairy-related space, with household incomes doubling  and expenditure on food quadrupling in 6 months.

What are the lessons learnt from these social entrepreneurs? One, capital raising is tough. Most organisations that I am involved with raise a significant amount of their funding from overseas. Domestic funders are growing but it is still early days and foreign funding will continue to be critical for this sector. Two, social impact has to be measured properly, and this is expensive. This cost has to be treated as an investment since it will help raise subsequent funding for future projects. Most of the funding to assess impact has been raised overseas and it is hard to get domestic funding for impact assessment. Three, financial incentives work in the social sector also. In the case of Operation ASHA they spend $ 4 to add a patient (where $ 3 goes to the care worker who identifies the patient) versus the WHO standard of $ 450 per patient. Four, technology is critical for enhancing productivity and lowering delivery costs.

These lessons, except for impact assessment, could be the same as those learnt by for-profit entrepreneurs. This highlights the fact that in order to succeed, social entrepreneurs need to focus on sound business practices, just like for-profit entrepreneurs. Success measurement does get muddied because success in the social space is not just measured by IRR and the measurement of social impact can be expensive and debatable today. As this sector grows, we will see more academic research in this area.

(I look forward to having an online discussion on these issues – so please continue to write in with your comments. I spent over a decade in the private equity industry and enjoyed the excitement of working with great colleagues and partnering exceptionally brilliant entrepreneurs to build India’s infrastructure. We had a great ride, but sometimes we got it wrong! I am now experimenting to see how we can transfer the lessons I learnt, and did not learn, in the for-profit world to the incredibly passionate and brilliant social entrepreneurs I now hang out with; the aim is to build sustainable organisations without destroying the soul of their NGOs)

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Suman Mukhopadhyay
Hi Luis, greetings ! Leadership and scale are the two key areas for what social enterprise segment should look up to people like you. I'm a recent convert from corporate, and I have started believing that a narrow data based investment model can not do justice to assess the potential of this sector. A big and strategic social sector fund through thoughtful giving and professional leadership with key themes can help create a visionary financial system to deliver shared social good.
Hi Luis, I got a chance to work in private equity, public market and also in a company which is doing impact investing. Let me tell you the truth of impact investing. It simply doesn't work. There are challenges like capital scarcity, talent scarcity etc but more important than that there is moral scarcity. Most of the impact investors are showing fraud indicators to their foreign LPs ( who don't have any idea of India. Financial indicators are universally understood but social indicators are local in nature) to justify their social contribution but the fact of the matter is neither they are generating IRR nor they are doing any great social service. They have excuses for both and the shameful thing is these excuses are being used to hide a culture of inefficiency . After spending time in impact investing my conclusion is that only market based solution provided by private parties coupled with government provided infrastructural improvements can work in impact investing. Social investors are behaving like NGOs of past. They are mushrooming everywhere because money raising has become easy, but when it comes to accountability they have poor record. An investment fund can be successful only when there is little gap between its networking talent (networking with LPs), Investing talent ( identifying good opportunity) and Operating talent ( People who can work with portfolio companies on ground). The irony in social sector is that this gap is huge. People who have the ability to network with foreign LPs have no idea of operating in difficult circumstances in hinterland. Yes they can create cock and bull stories in front of ignorant LPs but that won't provide financial IRR or real return even in terms of social indicators. I have problem with this approach because I think bad investment kills growth of a sector. The way these funds are acting my fear is they will give bad name to social sector and in future good talent with good intention will not dare to enter this sector. This sector requires long term capital and talent.
Shivendra Sharma
Hi Eklavya! I really like your sharing your experiences and have had similar ones...am researching on the subject currently with a view to publishing a report on what is really needed for social enterprises to be supported and encouraged. I am based in Gurgaon and would like to connect and understand your insights further. Look forward to hearing from you in.linkedin.com/in/shivendrasharma
Hi Luis, it is totally understandable the challenges with impact assessment for a social enterprise. The same holds true for the social work done by big organizations. However, one of the ways to do is to find out key impact indicators. Can you suggest some impact indicators which can be looked at for such an assessment.
Hi Luis, You have rightly mentioned that technology is critical for improving productivity. This could be a good opportunity for the some of the IT companies to work with social entrepreneurs to develop specific solutions that could be used by these enterprises on a non profult basis. If developed smartly, the IT companies could leverage these solutions and sell them for a profit to companies who are interested in running marketing campaigns in rural areas, etc.
Great takeaways, very succintly captured! I would like to add that a lot of social entrepreneurs are pressured by the sustainability requirement, that leads to confusion of priorities. The financial capital that is raised has expectations that although look at 'Social Impact', more tacitly question the entrepreneur on whether long term financial sustainability is achievable.
 
 
Luis Miranda
Luis Miranda started investing in India's infrastructure before it became fashionable. He started IDFC Private Equity and was earlier a part of the start-up team of HDFC Bank.
Luis has invested in and has been on the boards of companies like GMR Infrastructure, Delhi International Airport, Gujarat Pipavav Port, Gujarat State Petronet, L&T Infrastructure and Manipal Global Education.
Today he is involved with various non-profits like Centre for Civil Society, SNEHA, Human Rights Watch, Gateway House and Samhita Social Ventures. Luis graduated with an MBA from Chicago Booth.
 
 
 
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July 07, 2014 20:29 pm by Medha mentioned in Forbes India - Medha
[...] advisor Luis Miranda recently wrote a great piece on Building Social Ventures for Forbes India Blog. In it he mentions Medha and Chris’ recent participation at TiECon [...]
November 18, 2012 19:21 pm by Shivendra Sharma
Hi Eklavya! I really like your sharing your experiences and have had similar ones...am researching on the subject currently with a view to publishing a report on what is really needed for social enterprises to be supported and encouraged. I am based in Gurgaon and would like to connect and understan...
November 01, 2012 16:34 pm by Suman Mukhopadhyay
Hi Luis, greetings ! Leadership and scale are the two key areas for what social enterprise segment should look up to people like you. I'm a recent convert from corporate, and I have started believing that a narrow data based investment model can not do justice to assess the potential of this sector....
October 11, 2012 19:56 pm by Eklavya
Hi Luis, I got a chance to work in private equity, public market and also in a company which is doing impact investing. Let me tell you the truth of impact investing. It simply doesn't work. There are challenges like capital scarcity, talent scarcity etc but more important than that there is moral s...
October 10, 2012 10:26 am by Swati
Hi Luis, it is totally understandable the challenges with impact assessment for a social enterprise. The same holds true for the social work done by big organizations. However, one of the ways to do is to find out key impact indicators. Can you suggest some impact indicators which can be looked at f...