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Building our pipeline: reaching hundreds of good quality social enterprises

A big part of our solution to solving the pioneer gap is to lend at scale to thousands of social enterprises. However, reaching out and doing that many deals while ensuring a minimum standard (both in impact and in finances) is a huge challenge. In this article, we outline how we do so.

 

We first began lending by reaching out and calling for applications from social entrepreneurs directly, hanging around the grapevine, and heading down for demo days with accelerators – not much different approach from most investors. We quickly learnt that this was not a scalable approach. Meeting individual entrepreneurs and doing due diligence without prior contact with them requires time and effort which are in short supply. While we learnt a lot through this experiment, there was only so many people we could meet or work with. We decided to take a different approach.

 

In the process of conducting our initial loans, we spoke with a few social enterprise accelerators who groused that they recognised many social enterprises who were financially sustainable and were changing lives in a meaningful way but were unable to attract external funding. This resulted in our current approach of working with social enterprise aggregators to source for and support such social enterprises.

 

Today, we partner with two main types of social enterprise aggregators. We structure deals and work with these aggregators at the ecosystem level to fund as many as 20-40% of the social enterprises within their network. By incorporating information and feedback from these partners, we gain a more accurate picture of the social enterprises at a lower cost. More importantly, we are able to fund social enterprises who are doing amazing work but would have otherwise gone unfunded. We have since predominantly partnered with two types of aggregators.

Type 1: Social Enterprise Accelerators:

These are social enterprise accelerators or incubators. They are organisations that support and work with social enterprises for periods ranging from 3 to 36 months in the growth. 

Type 2: Market Access Providers

These are organisations that typically work with individual cooperatives, Self Help Groups (SHGs), and Farmer Producer Organisations (FPOs). They help these organisations to obtain a higher price for their products and often provide value-adding services such as processing. Unfortunately, we realised that many of these organisations who had started out borrowing from Microfinance Institutions (MFIs), had outgrown them and had no access to capital to purchase equipment, training etc.

Through these partners, we are able to potentially reach out and support thousands of social enterprises.

 

Partnerships with our social enterprise aggregators is a win-win. The “Bridging the Pioneer Gap” report by Village Capital and ANDE reported that accelerators that form formal partnerships with “domestic commercial investors” such as ourselves have significantly higher success and survival rates. In their sample, those accelerators that had such a partnership had social enterprises with a 41% success rate and 85% survival rate compared to a success rate of 26% and 72% survival rate.

 

A side benefit of working with our partners is us using the pre-existing information these aggregators already have to improve our due diligence process. We believe strongly that the person who knows how and what to spend on their business is the social entrepreneur themselves. Many social entrepreneurs did not start their organisations to raise funds or talk to funders. They start their businesses because they saw a problem in their community that they cared deeply about and, often, know how to solve and grow their business it better than anyone else. Hence, it is deeply unfortunate when we see many social entrepreneurs bang their heads against the wall trying to understand how to raise funds while neglecting operations. Incorporating information from our partner social enterprise aggregators into our process means that we minimise disruption to a social entrepreneurs’ time. This frees up the time most social entrepreneurs would otherwise spend raising funds (taking between 3-6 months) to focus on operations and grow their business.

 

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