Nicolas Chevrollier, Christina Gradl and Sarah Worthing: Corporate Impact Venturing

Photo: Rural Spark

By Nicolas Chevrollier, BoPInc and Christina Gradl and Sarah Worthing, Endeva

The base of the global economic pyramid (BoP) comprises 4 billion people and represents a $5 trillion USD market opportunity. Both corporates and entrepreneurs recognize this large and growing opportunity. Both struggle to realize it. Corporate Impact Venturing allows them to complement each other’s weaknesses and reinforce their strengths. Together, they can reach the scale that is required to close the massive service delivery and income opportunity gaps at the BoP.

Corporations are set up for efficient routines, not exploratory innovations. But this is exactly what is required: the low purchasing power and widespread market constraints can only be addressed through new business models. Corporations lack the insight into low-income consumer markets, what triggers low-income people to purchase products and services. In addition, encumbering internal bureaucracy, short investment horizons, high return expectations, and risk aversion all pose challenges for innovating at the BoP.

Flexibility, creativity and time
Social entrepreneurs, on the other hand, have the flexibility, creativity and time to immerse themselves in target market that allows the to develop innovative business models that work at the BoP. Examples include new technologies such as mobile health or off-grid energy solutions, new distribution models such as micro-franchises, or new efficient operating models such as specialized clinics or low-cost schools. Yet, social entrepreneurs often stay small because they lack the professional staff, finance and know-how to scale up.

Perfect match?
Sounds like a perfect match? Absolutely. By acquiring an equity stake in a social enterprise, corporations gain a foothold in BOP market, learn about the market and how do business there, and participate in a proven innovative model. Social entrepreneurs can benefit from the capital, but also the geographical reach management knowhow to grow and replicate in other countries.

Win-win situation
And these matches are already happening. French multinational electric utility company ENGIE invested in Rural Spark, which develops smart grid solutions for rural India. Morgan Stanley made a $5 million dollar equity investment into Eleni LLC, a Nairobi-based company that designs, builds, and supports the commodity exchange eco-systems in frontier markets. This win-win situation has been coined as Corporate Impact Venturing (CIV).

When focused on inclusive business, Corporate Impact Venturing can be formally defined as ‘the practice of corporates directly investing capital and in-kind resources to an inclusive business with the expectation of financial, social, and strategic returns.’

Combining strengths
Corporate Impact Venturing combines the strengths of corporates and social enterprises, and thus addresses the constraints that limit the impact on either side like what Shell is implementing around renewable energy. The solutions: Corporates invest equity into inclusive businesses with the expectation of financial, strategic, and social returns. Companies acquire functional BoP business models and inclusive businesses gain capacities to scale. Overall it creates a new dynamic to scale impact with inclusive business by maximizing the strength of all parties involved.

Case: Shell and Husk Power Systems
In 2008, Shell provided equity and non-financial support to build organisational capacity, training and product development, and strategic assistance for Husk Power Systems. Husk Power Systems are pioneers of decentralised renewable energy to off-grid communities. They design, install and operate small-scale power plants that convert solar energy or agricultural waste into affordable electricity for people in rural India and East Africa. Shell provided the financial backing needed to expand Husk Power Systems. Shell Foundation added the strategic, organisational assistance (Health and safety, operational, business expertise, etc.) as well as the R&D assistance.

On March 9th 2016 in Munich (Germany), Endeva is organizing a one-day interactive and action-oriented workshop brings together practitioners to share their own experiences and discuss emerging trends in the field of Corporate Impact Venturing. For more information, visit http://www.endeva.org/civ

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