tbn members day 2011 - steve beck - changing attitudes in the fight against poverty

1 © SpringHill Equity Management LLC

Changing Attitudes in the Fight Against Poverty

TBN Members DayDecember 3, 2011


The Executive Summary


Business-As-Usual Isn’t Working…


…Prompting Some Paranoia…


…And Some Serious Soul-Searching

“The figures for the last quarter are in. We made significant gains in the 15-26 year-old age group…

But we lost our immortal souls.”


Impact Investing Bursts On the Scene

Danook shows off his Swiss Army Rock.


Everyone Is Now Talking BIG

“We have two offices throughout the world.”


But Lasting Impact Is Not Yet Known

‘Uh oh…’


Where’s The Beef?


Questioning the Post-War Aid Model

Economists’ Adventures and Misadventuresin the Tropics


Aid Does Not Deliver Development

♦ Fosters dependency

♦ Distorts markets

♦ Misaligns incentives

♦ Rarely yields scalable, sustainable impact

♦ Fuels donors’ need to be needed

♦ Undermines accountability between government and its citizens

♦ Encourages the best and brightest in “recipient” countries to work for government or international NGOsSource: ECIPE Analysis of World Development Indicators Online


Giving – Dangers & Limitations

♦ Celebrating the grant

♦ Measuring the activity

♦ Appealing to the donor’s “messiah complex”

♦ Fostering dependency

♦ Lacking sustainability

♦ Lacking scalability


Good Giving…

♦ Does no harm

♦ Meets emergency (temporary) needs

♦ Fuels local initiative

♦ Has the potential for local sustainability

♦ Recognizes that the giver and recipient are both benefactors and beneficiaries


Impact Investing Defined

♦ Investments: debt or equity capital.♦ Intentional about positive social and/or environmental

impact (not just negatively screened).♦ Social/environmental impact is therefore measured.♦ Financial return is expected.

Investments intended to generate a positive social impact beyond financial return

“”

Source: JP Morgan & GIIN, Impact Investments: An Emerging Asset Class, November 2010.


3rd quartile pupil achievement Universal “free” education is NOT free

($2-5/month) 30-50% of instruction time lost due to

teacher absenteeism & neglect No accountability to parents

For-profit schools @ < $4 per month Pupils outperforming peers by 30-

100% 37 schools; now opening a new school

every 3 days By 2018: 3,300 schools; 2.4m students;

36,000 teachers Investment valued at 2.5x in Dec 2010

Series B financing

Investing in Primary Education

State School System


Investing in Mobile Information Access

“Google & Craigslist”(Addis Ababa)

Less than 5% Internet penetration Lost time Information asymmetry More than 450 million mobile phones Mobile phone is the computing

platform of choice

Short-code SMS/MMS info portal Built and launched multiple applications:

e.g., health management, job listing/search, news

18% market penetration in 4 months Poised to expand to new country markets


Investing in Energy Efficient Stoves

♦ 20-30% of income spent on wood or charcoal

♦ Respiratory ailments♦ Fire hazard♦ Deforestation/environmental damage

♦ 50% saving on fuel (time & money)♦ Reduce smoke & toxins by 85%♦ Local (Kenya) manufacturing♦ Target sales: > 700,000 stoves♦ Carbon offset♦ > 30% IRR

Traditional Stove


Impact Investing Growth Drivers

Money seeking diversification

Values driven investors and consumers

Growing inequity and environmental crisis

Apparent early success

Openings for policy change

Talent pushing new careers

Impact Investingis now

“locked in”

WILL IT

TAKE OFF?

Source: Monitor Institute.


A Growing Movement…


Despite the Hype, It’s Early Days…

Disparate entrepreneurial activities spring up in response to market need or policy incentives

Disruptive innovators pursue new business models in seemingly mature industries

Characterized by lack of competition except at top end of market

Developing centers of activity

Building enabling infrastructure that reduces transaction costs

Unlocking latent supply of capital by building efficient intermediation

Developing the absorptive capacity for investment capital

Uncoordinated Innovation

Uncoordinated Innovation

Marketplace Building

Marketplace Building

Growth occurs as mainstream players enter a functioning market

Entities leverage the fixed costs of their previous investments in infrastructure across higher volumes

Organizations become more specialized

MaturityMaturity

Activities reach a relatively steady state

Growth rates slow Industry

consolidation


Value CaptureValue Capture


Enabling Infrastructure and Standards

ImpactBase

GIIRS

IRIS


Investor SegmentsFi

nanc

ial R

etur

n

Social Impact

0

0

High

High

Impact Floor

Financial Floor

Financial-first investors with an impact floor

Impact-first investors with a financial floor

Adapted from Solutions for Impact Investors: From Strategy to Implementation, RPA 2009.


A Growing Field...

Investors Managers


ON – “Flexible Capital”

Omidyar Network is structured to support the notion that philanthropy is more than a type of funding. In its truest sense, philanthropy is about improving the lives

of others, independent of the mechanism …our investing style transcends typical boundaries that separate for-profit investing and traditional philanthropy. We

believe using both grants and for-profit investments can be powerfully complementary.

“”

Foundation$239m

LLC$209m

PRIsGrants Equity & Debt


Integrated Investing…

It does not make sense to partition our grant-making and investing, especially because our investments could potentially contradict our values. We are entrepreneurs and we always think about leverage. With limited capital and especially limited grants, what better way

to enhance impact that using all available capital to reinforce what we believe in?

“”

Target: 100% mission-related investments delivering net performance of CPI plus 5%.


…too HARD Insufficient compensation for

risk results in lack of interest There may not be enough good

deals Execution proves to be too

difficult Hype creates a bubble,

especially from overpromising

…too EASY The current financial markets

and incentives create an irresistible pull toward “greenwashing” and dilution of standards

The very premise of having a positive impact is undermined and the industry is discredited

The Risks: Impact Investing Is…



Summary and Concluding Thoughts…

♦ The intentional transforming impact of business is now well recognized.

♦ The impact investing field is developing rapidly and becoming more professional.

♦ But these are still early days with more talk than walk.

♦ TBN has been an early mover in ‘business as development’.

♦ How to focus and leverage TBN’s experience now?


Thank Youwww.springhillequity.com

tbn members day 2011 - steve beck - changing attitudes in the fight against poverty

Business

equity capital

health management

impact investments

impact investing bursts

impact aidgni

lasting impact

socialenvironmental

income growth