April 18, 2010
I’m at The Hub incubator space next to London Kings Cross station this evening. I’m attending a spontaneous entrepreneurial event called TEDxVolcano that has been set up in 24 hours by Nathaniel Whittemore of AssetMap and Change.org with the support of TED, TEDxLondon, Sandbox Network and many others. The wonderful MC was June Cohen of TED Media.
Video of the event is now up at http://ow.ly/1zZOE.
The amazing line up of TEDxVolcano speakers were:
- Larry Brilliant, Skoll Foundation
- Rita King, Dancing Ink
- Chris Fralic, First Round Capital
- Jim Fruchterman, BenetechJim Burke, Participant Media
- Cara Mertes, SunDance Festival
- Sally Osborn, Skoll Foundation
- Matthew Bishop, The Economist, Author of Philanthrocapitalism
- Jim Hornthal, CMEA Capital
- Gary Bolls, Social Capital Markets (SOCAP) Conference
- Peter Greenberg, Travel Correspondent CBS
- Elizabeth Lindsey, Mapping the Human Story
- Jeff Skoll, The Skoll Foundation
There were also three wonderful musical performances by Sushella Raman.
Here are some funny or especially noteworthy quotes:
“Money doesn’t really matter when you’re stuck by a volcano. You could have a private jet, but that just means you’d get to die alone.” – Cara Mertes
“This is the generation that has to decide whether we will actually have a civilization” – Cara Mertes, Sundance
“The name of the volcano Eyjafjallajokull in the local Icelandic dialect actually means Goldman Sachs.” Matt Bishop, Philanthrocapitalism
“It is difficult to have an intelligent debate today on many critical issues like capitalism and on climate change without people immediately taking sides.” – Matt Bishop, Philanthrocapitalism
“Thank you to the British allowing us colonials to stay here for an indefinite period of time.” – Jim Hornthal
“How many people are stranded. You’re screwed. So, what’s the best thing to do when you’re caught in a trap. Eat the cheese!” – Peter Greenberg, CBS Travel Correspondent
“Today in Kenya, 400 tonnes of flour (or flowers?) in Kenya was thrown out because it is rotting. Think about the economic impact.” – Peter Greenberg, CBS Travel Correspondent
“For every day we’re not flying and air cargo is not flying documents aren’t being delivered, produce is not being delivered, medicine and organs aren’t being delivered.” – Peter Greenberg, CBS Travel Correspondent
“Even in the best of times, airlines lie. If they were running the shipping business they would have listed the Titanic as on time.” – Peter Greenberg, CBS Travel Correspondent
“We all have watches, but we have no time.” – Elizabeth Lindsey
“Perhaps this time is essential for you to consider, are you going to upgrade your impact” – Elizabeth Lindsey
“We wanted to keep our friends here after Skoll. Do you know hard it is to fake a volcano. Damn the volcano, let’s have a ball.” – Jeff Skoll, Skoll Foundation
Here was the TED Blog post on the event.
April 15, 2010
What Comes After Microloans?
As a technology entrepreneur and angel investor in both North Carolina and East Africa, I’ve been thinking about what comes next in microfinance? To me, it’s microequity.
I had a fascinating breakfast this morning here in Oxford on the topic of microequity. The field of microequity is nascent, but rapidly growing. To me microequity is investing small amounts in for-profit socially responsible companies, particularly those in the developing world. I’d consider the core of microequity investment ranges are between $5k and $100k in for-profit socially responsible companies in the developing world.
Microequity investing can fill a tremendous need for capital for SMEs that can help a small business grow when microloan maximums have been reached but an entrepreneur is not yet able to access banks and larger scale institutional investors.
Effectively, microequity can be seen as seed funding and angel funding for companies in the developing world–with the exception that investing $25,000 in an existing company in the developing world really is growth capital rather than seed capital as this amount of capital can go much further and in some cases get a company past cash flow positive.
A Model for Microequity
From my vantage there seems to be a profitable (and hence scalable for greatest social impact) model that is now being developed investing in these microequity capital ranges in many parts of the world and filling the gap that sometimes exists between microloans, banks, non-profit investing funds, and institutional capital while creating tremendous social impact through sustainable job creation and economic development.
Overhead costs, deal selection, accounting transparency, and methods of obtaining the return are perhaps the most challenging obstacles to achieving a market rate of return to the investment. We talked about how all of these challenges can be overcome. There is such a huge gap here that traditional finance has not yet solved and there so many high quality opportunities to invest in while making a tremendous impact.
One suggestion centered around taking a pre-agreed upon percentage of free cash flow (FCF, or effectively net profits) that is pre-agreed upon in advance. Another suggested revolved around tying returns to a revenue multiple since EBITDAs are easier to manipulate by non-audited smaller companies.
Personally, my interest is in helping small, high potential companies based in the developing world owned primarily by local entrepreneurs access the mentorship and financial resources they need to grow into the future leading companies in their respective countries and eventually take their firms public on regional stock exchanges when run. It will likely take a couple decades to bring together the educational (human capital), governmental, and infrastructural resources needed to help small companies run by smart ambitious local entrepreneurs thrive–but the trend toward local entrepreneurial-led (often ICT-related) economic growth is already happening in Kampala, Kigali, Dar es Salaam, and Nairobi and so many other emerging markets globally from what I’ve seen.
To me, small business growth is the key to sustainably growing an economy and effectively increasing per capita incomes (otherwise known as reducing the number of people in urban and rural areas in poverty) and I believe through the right local trust networks for deal flow and local entrepreneurial support and mentorship models it is quite possible to achieve very strong returns investing today in high-potential for-profit socially responsible companies in the developing world.
Not Replacing NGOs, Non-Profits, and Public Sector
Investing in for-profit socially responsible companies in the developing world does not replace the need for a strong effective transparent public sector and does not replace the need for investments from non-profit organizations and NGOs.
Rather, it is additive to creating sustainable bottom-up economic development that creates local constituent-based growth in a way that reduces inequality of opportunity–and it happens to be where I think I can add value with my background as a venture-backed technology entrepreneur at some point.
Creating a venture capital fund that puts social return equal to financial return is something I hope to focus on someday down the road and create a scalable model that provides market-rate returns (15-20% per annum) investing in high-growth entrepreneurial ventures in the developing world run by local entrepreneurs (likely in the energy, solar, water, agricultural, low-cost medical device, software, and Internet fields).
Microequity Breakfast This Morning at Skoll
The microequity breakfast attendees this morning were:
Forrest Metz, Dev Equity, based in Oxford
Ryan Allis, iContact, based in North Carolina USA
Allan Barkat, Dualis, based in Israel
Naoko Felder-Kuzu, Socential, based in Zurich
Ron Boehm, Boehm Gladen Foundation, based in California, USA
Rob Pettit, Sumaria, based in Dar es Salaam, Tanzania
We had a great discussion around the technical structure around how to achieve market-based returns investing in for-profit socially responsible companies in the developing world.
We also talked about networks of socially responsible investors including Social Venture Network, Aspen Network for Development Entrepreneurs, and the Global Impact Investing Network and marketplaces for entrepreneurs in the developing world raising capital like BidNetwork and NeXii.
Questions & Comments?
What questions are there on this topic of microequity and investing in companies that create social good while achieving market returns or above market returns? I’d love to discuss this more!