knowledge sharing among investors and resource … · discussion by hari natarajan, sr. technical...

Final workshop report – May 2015 SELCO Foundation

KNOWLEDGE SHARING AMONG INVESTORS AND

RESOURCE PARTNERS

I. Overview and Agenda

i. Background

ii. Session summaries

iii. Agenda and Participant list

II. Session 1: Sustainable Investments

i. Key Insights

ii. Action Ideas

III. Session 2: Experience Sharing by SELCO

Incubatees

IV. Session 3: Tapping into the National Clean

Energy Fund i. Background and Issues

ii. Summary of Feedback

iii. Next steps

Images from the Workshop

Mini grid installation in MM Hills, Karnataka


I. OVERVIEW and AGENDA:

i. BACKGROUND

SELCO Foundation in an effort to encourage investment in Social Enterprises that nurtures sustainable growth,

organized the second of a workshop series on “Sustainable Investing for Social Enterprises” on the 13th of April 2015

at Bangalore, India. The workshop brought together international and national representation from the spectrum of

social enterprise funding such as fund managers working with philanthropic funds, investors motivated by

commercial returns, energy enterprises in both early and growth stages, incubators and networks. Attention was

paid to ensuring group diversity in terms of background, gender, region, experience and sector to bring in multiple

perspectives.

The event was a continuation of the workshop conducted by SELCO Foundation in Bangalore in 2014. In last year’s

session it was realized that dominant investment available to enterprises is equity and getting debt and smaller

range capital is the larger challenge. The ecosystem available to firms is highly fragmented, complicating business

operations. This year’s session on Sustainable Investments was aimed at:

Defining key features of sustainable investments within the contexts of social enterprises

Earmark 3-4 concrete steps towards building patient investors

Recommendations on the “content of messaging” towards cultivating the idea of sustainable investments to

broader community working in this space.

The larger goal was to capitalize on the gathering of this group of experts to also discuss other relevant issues and

share experiences of the Incubation Center.

ii. SESSION SUMMARIES

The workshop was broadly divided into three sessions. The first began with presentations from investor partners on

key features of their sustainable investment portfolios by Jeffery Prins, Program Manager, Sustainable Investments

Climate and Energy, DOEN Foundation and Elena Casolari, Executive President, OPES Fund. Some of the features

examined included funding patterns, criteria used by patient versus commercial funders, fund and enterprise impact

measurement, valuation of enterprises, return on funds both qualitative and quantitative etc. The moderated

discussion by Hari Natarajan, Sr. Technical Expert, GIZ culminated with the participants voicing their opinions on how

funders and enterprises can better communicate their needs and what are the elements absent in terms of

knowledge which prevents a level playing field for all the stakeholders.

In the second session, entrepreneurs from the SELCO Incubation centre Mr. Dev Kishore from Mangaal Sustainable

Solutions, Ms. Sushmita Bhattacharjee from Pushan Renewable Energy and Mr. Prateek Rath from Abha Innovations

shared their experiences as early stage energy entrepreneurs providing solar based solutions in remote regions of

the country which are plagued not only by poor socio-economic development but also by left wing extremists and

hard to reach geographies.

The third session was a discussion on the National Clean Energy Fund operated by Ministry of Finance, Government

of India, its modalities and methods to leverage the fund to build the ecosystem for energy access solutions and

increase its visibility and access to practitioners and various stakeholders in the sector.


iii. AGENDA:

Session Time Topic Speaker/Anchor

Welcome Remarks 9 to 9:10AM Revathi.K., President,

SELCO

SESSION 1: SUSTAINABLE INVESTMENTS

I. Setting the

Context

9:15 to 9:45 AM -Recap of last year’s workshop

-Progress in the last year towards

recommendations

Sarah Alexander, Lead

Communications, SELCO

Foundation

II. What is

Sustainable

Investing?

9:50 to 11:00

AM

-Presentation on fund structures covering

criteria used to select potential investees; how

do they measure impact; what are the nature of

returns; how they “valuate” enterprises; typical

investment instruments such as convertible

debts etc.

Jeff Prins, Program

Manager DOEN

Foundation

Elena Casolari, CEO, Acra

11:00 to

12:00PM

-Defining features of a “sustainable investments”

building off presentations on funds.

Moderator: Hari Natarajan,

GIZ

III. Cultivating

Patient Investors

12:15-1:00 PM - How can this group get more “patient”

investors in the mix?

-What are concrete steps that can be taken

towards this

Open Discussion

Closing Remarks on Session Harish Hande, Founder, SELCO

SESSION 2: INCUBATION CENTER- ENTREPRENEUR EXPERIENCES

SELCO Incubation

Centre

2:00-3:00pm Experience sharing by three entrepreneurs of their background, interest in the

sector, goals and experiences

SESSION 3: NATIONAL CLEAN ENERGY FUND FOR CLEAN PRACTITIONERS

Tapping into

National Clean

Energy Fund

3:30-5:00pm Ways in which NCEF can be capitalized;

Inputs to be fed into SELCO Policy advocacy efforts

Given below is the participant list.


Participant List: In total there were 27 external participants and 6 key internal SELCO representatives along with a

number of other young, new individuals from the SELCO Foundation and at the event. The complete list is provided

below.

Organization Designation Name

S3IDF-US Founder, President and

Executive Director Russell DeLucia

Villgro COO P R Ganapathy

Rang De Co-Founder, CEO Ramakrishna NK

Lemelson Foundation CFO Phillip Varum

Lemelson Foundation CEO Carol Dahl

Enclude (advisor to Lemelson) Program Manager Preeth Gowdar

OPES Foundation Executive President Elena Casolari

DOEN Foundation Program Manager Jeff Prins

United Nations Foundation Executive Director, Energy

Access Richenda Van Leeuwen

GIZ Sr. Technical Expert Hari Natarajan

S3IDF CEO Avinash Krishnamurthy

SELCO Foundation Advisor Thomas Pullenkav

CLEAN CEO Ashis Kumar Sahu

The Climate Group Program Officer Jarnail Singh

Insitor Management India Investment Manager Karan Gupta

Avni Director Rajnish Jain

Mera Gao Power Co-Founder Brian Shaad

Simpa Networks President and Co-Founder Paul Needham

Boond Manager, Communications Priyanka Garg

Boond Financial Manager Chanchal Chanani

Onergy COO Piyush Jaju

Mangaal Founder Devkishore

TATA Trust Senior Program Officer Poornima Dore

Contrarian Drishti Partners Managing Partner Somak Ghosh

S3IDF, Independent Consultant S3IDF Advisor Thomas

Pushan Founder Susmita Bhattacharjee

Abha Innovations Founder Prateek Rath

CTI-PFAN Regional Coordinator Nagaraja Rao

SELCO President Revathi K.

SELCO Founder Harish Hande

SELCO Foundation Lead, Communications Sarah Alexander

SELCO Foundation Principle Analyst Surabhi Rajagopal

SELCO Fund Sr. Manager, SELCO Fund Smitha Devara

SELCO Incubation Center Sr. Manager Prasanta Biswal


II. SESSION 1: SUSTAINABLE INVESTMENTS

i. Key Insights

The presentations and the ensuing moderated discussions provided many insights on the challenges faced by

enterprises in attracting investment, the constraints faced by investors during investment and the ways to resolve

these issues to encourage patient capital. These insights are detailed below:

1. Process of raising investments can be time consuming and takes away from main operations

Cumbersome domestic administrative requirements (laws) and effort involved in capital procurement and

infusion even for experienced energy enterprises can lead to significant time lags.

Early stage enterprises might find the task even more strenuous due to their poor access to legal and

financial expertise.

Cost of raising capital can range from 2% - 5% with due diligence processes ranging from “3 to 5 months” to

“12 to 18 months” to close.

2. Social Enterprises can start making profits only after 5 to 8 years of successful operation

Funders often expect firms to make profits within a period of 3 to 4 years of operation, but enterprises require a

longer time frame which they face difficulty in communicating to investors. Several funders’ acknowledged that the

idea of the scale of operation of a firm is wider (more numbers) than deeper (access to the un/under-served). The

ecosystem1 available to firms is highly fragmented which complicates operations delaying profitability for reasons

such as:

Consumer Purchasing Power: Social Enterprise “require time to convert ground-work to scale and be

sustainable, but we do not have resource to do the same”. Often investors only consider the supply side of

the product or service without considering the purchasing power of the customers with whom social

enterprises engage. Several social enterprises operate to provide solutions where the state itself has

failed; this is often not recognized by investors.

Training and Basic Infrastructure: In India, “Enterprises carry on their balance sheet what in other

countries are borne by the ecosystem.” This is true in case of technical training of staff, enabling end-user

repayment of bank loans, developing infrastructure and livelihood for end-user etc. This need to be

factored by investors while shaping their terms of engagement.

Human Resource Development: Team building is a difficult task especially in the remote and rural region

as it is difficult to recruit and retain people. Hence firms depend on internally developed resources, which

require a longer time-frame.

Technology: Most money raised by businesses is mostly ear-marked for growth, lesser than 20% is

available for technical assistance, which is insufficient.

3. Fund exit in 12 to 15 years is more reasonable for a firm

Experts agree that soft funding plays an important role in low end markets and is key to successful social enterprises

reaching scale; and the soft needs to be in terms of not just lower interest rates, flexible and hybrid funding

mechanisms, but also repayment periods which could stretch to as long as 12 to 15 years as the gestation period in

underdeveloped markets cannot be benchmarked against the 7- 8 years of structured and developed markets.

4. Social Enterprises require different types of funding

1 The Enterprise ecosystem consist of financial institutions, technology and service providers, capacity developers – trainers,

supportive policies, basic physical and social infrastructure etc.


Social Enterprises require a mix of grants, debt and equity directed at different needs of enterprises. While

this is acknowledged there are few innovative financial instruments that have been devised, in part, due to

regulatory restrictions but also more efforts are needed to pilot new instruments.

Philanthropic investors must provide grant to early -stage firms for pilots and for “high-risk” but “high-

impact” segment. They must not hastily infuse grants into otherwise profitable areas of operation.

Enterprises must choose the right investor for the right kind of investment and put funding obtained for

the right use based on the terms of the fund.

5. Grant funds as a catalyst for social enterprise development

Grant funders would like to be seen as more than just “dumb capital” that can be leveraged to subsidize

transaction costs that benefit commercial funds high returns.

As demonstrated before, grants can be targeted towards supporting certain aspects of the firm operation

that are in line with the grant’s mission.

Instead of injecting pure grants they can lend grants that are convertible to loans, based on the firm

progress.

6. When funds have a longer exit strategy then there will be a pressure for return.

Return Expectations: Return expectations of funds are determined by the investor pool from which funds

are raised. There is a sentiment that fund managers are thus obligated to represent their interests and

expectations and thus are not in complete control of ultimate return expectations. Despite this, efforts can

be made that apprise investors of key features of sustainable investments and related realities on the

ground to better temper expectations and prevent tailoring of results to suit investor expectations, rather,

ground realities.

Time and Return Expectations: Time has an importance place in return expectations, when the fund enters

with a 10 year exit strategy, there is bound to be a return expectations, enterprises need to recognize this.

Clause to Penalize Mission Drift: Mission statements can be altered under some circumstances by either

the entrepreneur or investor thus moving away from their initial commitment to certain vulnerable target

population. There needs to be mission protective clauses in term sheets and shareholder agreements that

are neutral irrespective of which party indulges in mission drift.

ii. ACTION IDEAS

Based on the insights from the previous section, some implementable ideas were discussed and elaborated. These

ideas are briefly presented below and needs elaboration through further analysis and consultations.

1. Make legal framework, policy implementation more efficient

Regulatory constraints and time required in India may force funds to route themselves through countries with

liberal investment regimes such as Switzerland or United States.

Understand institutional agencies involved in impact investment field. Engage with relevant Indian

regulatory agencies to advocate for flexible guidelines particularly around foreign funding infusion and

easier exits for small to medium energy entrepreneurs.

2. Create a database of funders

“90% of funders claim to be impact investors but are commercially driven”- quote from an entrepreneur

Often funders are not easily identifiable in terms of the type of capital they represent, commercial or patient.

Enterprises spend a lot of effort and time in identification process.


A database of funders and the type of funding they provide, created by a sector representative body like

CLEAN would benefit early stage enterprises immensely.

The database along with the list of investors should include the instrument type, the stage of the enterprise

they cater to and different enterprise funding needs of enterprise they meet. This information will enable

right investment reach the right enterprise at the right phase of operation.

3. Develop metrics for evaluating social enterprises

A robust framework to evaluate social enterprises must be developed.

This framework must be capable of evaluating and factoring in different technologies, business models,

end-user segments, geographical and infrastructural constraints of the region in which the enterprise

operates in etc.

4. Reaching out to representative body for impact investors

Efforts will be made to reach out to impact investors networks within India and across the globe to

facilitate greater cohesion among and communication between investors. Some suggestions included:

o Sessions to promote language and/or key features on sustainable investments for social

enterprises can be incorporated into training workshops with fund managers or during key

meeting events over the year.

o Exposure visits: an immersive experience for investors within operational areas of enterprises

over a range of 3-7 days. This will help in building trust and empathy on both sides within the

context of realistic conditions.

III. SESSION 2: EXPERIENCE SHARING BY SELCO INCUBATEES As part of this session, 3 Entrepreneurs- Devkishor Soraisam of Mangaal in Manipur, Sushmita Bhattacharjee of

Pushan in Madhya Pradesh and Prateek Rath of Abha Innovations in Orissa- shared their experiences of having

started a business, interesting anecdotes and milestones from their few years of work on the field and the challenges

faced in setting up a renewable energy business.

This was also used as an opportunity to launch the first version of the Entrepreneur Booklet featuring 5 of the

medium sized entrepreneurs of the SELCO Incubation Center including- Onergy, Boond, Mangaal, Pushan and Abha

Innovations. The booklet was launched by Richenda Van Leeuwan, Executive Director of the United Nations

Foundation with representatives and founders of the 5 Practitioner organizations, including Piyush Jain, Priyanka

Garg, Devkishor Soraisam, Sushmita Bhattacharjee and Prateek Rath.

IV. SESSION 3: TAPPING INTO THE NATIONAL CLEAN ENERGY FUND

i. BACKGROUND AND ISSUES:

To begin the session, SELCO Foundation Policy fellow, Bettina Bergöö, provided an informational overview of India’s

National Clean Energy Fund (NCEF) as well as of the major issues that have constricted the NCEF’s utilization,

especially by clean energy access practitioners.

The objective of the NCEF, established in the FY 2010-11 National Budget, is to fund research and innovative

deployment of clean energy technologies through viability gap funding and concessional loans. Its corpus is filled by

a Rs 200/tonne cess on coal mined in or imported into India. Surprisingly, its utilization has been weak: of an

estimated Rs 400,000 crores that have been collected through the cess on coal, less than Rs 9,000 crores have been

transferred to the NCEF. Of that, 484 crores are said to have been received by the Ministry of New and Renewable

Energy (MNRE) for disbursement to support clean energy projects. Each issue leading to underutilization of the fund


was presented along with a recommendation to address it, with an emphasis on support of the off grid renewable

energy sector.

Issue: Investments in the off-grid energy space have largely been restricted to equity instruments, and debt remains

the primary unmet need for off-grid enterprises; however, all NCEF funding approved thus far has been in the form

of viability gap funding (grants).

Recommendation: Leverage NCEF funds to mature private financial markets for clean energy investing by

offering a combination of debt financing (capital expenditure and working capital), grants (for innovation

and expansion) and loan guarantees for end user financing.

Issue: Till date, NCEF funding has gone almost exclusively to government schemes and large, grid-connected

projects. The existing “Project Type” options used to classify NCEF applications are vague and do not encourage

proposals from the off grid sector, especially for critical ecosystem development efforts.

Recommendation: Require that NCEF funding applications be submitted by proposal category that separates

Grid connected and Off grid Renewables and establish proposal categories explicitly for DRE capacity

building (including non-electricity interventions) through new venture incubation and ecosystem support.

Issue: NCEF past performance has been constrained by a lack of stakeholder engagement and process transparency,

limiting the quantity, quality and diversity of proposals, most notably from the DRE sector.

Recommendation: Appoint Independent Advisory Boards (IABs) to provide the administrative functions,

including stakeholder engagement and expert proposal evaluation, that the Ministry of Finance (MoF) does

not currently have capacity to conduct.

ii. SUMMARY OF FEEDBACK FROM PRACTITIONERS

Practitioners agreed that the clean energy access sector, through CLEAN, should push for the improved utilization of

the NCEF in support of DRE practitioners. In order to do so, CLEAN will need to partner with other GoI entities that

have existing schemes that can receive financing from the NCEF. Otherwise, the MoF may have little incentive to

improve the Fund’s management and disbursement. These schemes and the GoI points of contact associated with

them must be identified. There could be collaboration with TATA Trust, given the existing relationship with NABARD

and the interest in Natural Resource management and Energy access, to bring NABARD on board as a partner and

potential recipient of NCEF funds. While the group concurred with the suggested recommendations regarding

financing mechanisms and encouraging proposals for DRE capacity building efforts, it was suggested that

management of the NCEF should ideally be independent of MoF. Instead of MoF partaking in proposal evaluation

and individual project funding allocations, a Trust could be established (similar to the administration of the Pension

Fund) that manages the NCEF while the MoF makes an annual lump sum allocation. Such a NCEF Trust may appoint

the suggested IABs with expertise in specific energy sectors (e.g. off-grid) for advisory services as necessary.

iii. NEXT STEPS

Continue to seek clarity on the current management of NCEF and the process of fund disbursement.

Identify GoI schemes that support clean energy access entrepreneurs that should receive NCEF funds, and

establish relationships with points of contact for those schemes to assist in pushing for NCEF reform.

Strengthen relationship with the individual(s) responsible for NCEF at MoF.

CLEAN and allies present a strategy outlining recommended changes to the NCEF to Ministry of Finance.

Regardless of official changes to NCEF, CLEAN can act as a liaison with MoF and an aggregator of small

funding proposals from DRE practitioners, acting as a proponent for the sector to avail funds.

Attached below are a few photographs capturing moments from the workshop.


Interactions following Elena Casolari’s presentation on OPES Fund and their patterns of investment

Jeff Prins, DOEN, presents their strategies for Impact Investment; Interactions during the sessions moderated by Hari Natarajan

Launch of the Entrepreneur Booklet by Richenda Van Leeuwan and the 5 practitioners; Sushmita and Devkishore on their experiences

knowledge sharing among investors and resource … · discussion by hari natarajan, sr. technical...

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