The missing piece of the 30-second pitch

Pitches come in all forms. Good ones, bad ones, long ones, short ones, and everything in between. Many of them, like those I heard at last week’s Dasra Social Impact graduation, were carefully sculpted into 30-second pitches accompanied by a single powerpoint slide. If you’re an entrepreneur and you get this opportunity, what should you include?

Sentences 1-2: Name(s) and description

Successful people know that people drive success. They need to know your name in addition to your organization’s name. Don’t rush through it! Then slowly, and with more pauses than you think a sane person would tolerate, give a half-sentence description of what you do. Contrary to popular wisdom, this out-of-the-gate description shouldn’t be what you want to do. We’ll get to that in a minute. E.g.:

My name is Mark Hand, and I work with First Light Ventures. We provide $75-350K investment to entrepreneurs starting businesses with a social or environmental purpose.

Sentences 3-4: Opportunity and progress

If you’re speaking to an individual, pay attention to body language. If your two-sentence opener didn’t work, quit the pitch and ask them a question about something else. If you can’t demonstrate that you understand a sideways glance around the room to mean “this isn’t for me,” you’re sunk.

If you are giving a formal pitch, however, or you sense an opening with an individual, give the listener a sense of the opportunity and what you’ve done so far. Again, this is not what you want to do, but what you’ve done so far.

Three years ago, our founder saw that seed-stage entrepreneurs struggled to find that critical first funder. We’ve funded 25 companies, 9 of them here in India.

Sentence 5-6 (or 7?): Vision and need

If you’re pitching to an individual, stop here, leave space for questions, and shift into conversation-mode. If you’re giving a formal pitch, you’ve got two bits left. First, the vision: draw a compelling picture of a goal that is on the border of ambitious and crazy. The Dasra Social Impact entrepreneurs nailed this–at the end of the pitches, I saw a world in which India’s children learned in activity-based classrooms, wastepickers were organized into money-making unions, and rural households could access cheap, affordable energy on mobile-based phones.

Here is where many entrepreneurs miss an opportunity. Having given someone the one-two of what you’re doing, and convinced them that your company on the forward march to building a better world, you can now help them help you. So, ask for it. Are you looking to hire a COO? Trying to find off-take partners for your biodiesel? Confused about the difference between pre- and post-money valuations? Lay it out there–you never know what you might get back, especially in a roomful of people you haven’t yet had the chance to Google. This may sound a bit awkward at first, but I’m hoping it becomes a ubiquitous part of the standard 30-second pitch.

Our ultimate goal is to attract as much capital into seed-stage investing as possible. If you’re inclined to help, we have five entrepreneurs raising follow-on rounds of funding now in fields from education to microlaons; most of our portfolio is looking for working capital; and we would love to hear about any energy startups you’ve seen.

Happy pitching!

The three keys to scale (from someone who’s done it)

Over coffee last week, my colleague Akshat asked Gray Ghost Ventures’ CEO Arun Gore what three things he considered most important for startups to scale. Arun would know: as Director of Operations and then CFO at what would become T-Mobile, he helped scale that company (then VoiceStream) from 35 employees to 30,000 employees in seven years. Arun’s three most critical determinants of scale:

Focus

When a company gets its first round of funding or its first taste of good press, the temptation to dilute focus can be overwhelming. Arun gave one example of a US-based company with one year of experience operating in India, a company which was planning to expansion into the Philippines. This, Arun advised the young company, was a mistake: having only begun to learn the Indian market, the company would lose focus by splitting its time between India and another country. For a company to scale, says Arun, it needs to be as focused as wildebeests after water.

Management

“A CEO,” said Arun, “Doesn’t manage a company. A CEO manages people that manage a company.” It’s not uncommon for entrepreneurs to struggle with letting go of any aspect of their company–be it marketing or operations or fundraising–but until she learns how, the company will not grow. Secondly, a great entrepreneur collects the people. She comes to an investor with an armful of people eager to come on board as soon as the company secures funding. She will also have a demonstrated capacity to wrangle with the big personalities necessary to grow a company, quickly.

Timing

An entrepreneur can build focus and management ability with time and discipline. But timing, says Arun, is a gift. The best entrepreneurs know that right now is when an idea’s time has come and that this is the product that people don’t even know they want yet. The difference between good and bad timing is that of swimming down and upstream (or perhaps like being in the way of a wildebeest stampede?).

Thanks to Arun for the time and the tips.

MPI Board Update I

Two months ago I joined the Board of Directors for Manna Project International, the NGO I worked with from 2004-2009. What I have learned in our two meetings to date:

On MPI

• After three years of hard work by Zak, Lori, and MPI crew, MPI’s finances are in good shape. The bulk of MPI’s revenues come from–and are spent on–volunteers, and the team has a good eye on the number of volunteers and trips are required to keep each site in fighting shape. You can read more about MPI’s finances on GuideStar, and our annual report here.
• Recruiting volunteers is still hard work. I think you’d be hard-pressed to find an MPI Program Director that wouldn’t say that the yearlong experience was worth the fundraising effort, but it’s a tough initial pitch to a debt-laden college grad. MPI-Guatemala, by the way, is recruiting right now. Do you know any outbound college students?

On Board Membering

• Being a good Board member, like being a good investor, feels like a never-ending job. There’s always something else you can do to benefit a young, growing organization.
• Given ninety minutes of facetime each month, Boards don’t move very fast. One sixth of the way in, I’d hoped to be able to report more clearly on (a) the state of MPI’s programs, (b) MPI’s plans for growth, and (c) learning how MPI’s approach to development matches up with industry best practices. Zak has promised me that we’ll get to these questions in the second half of the year, so I’ve promised Zak that I’d be patient. In the meantime, fellow Board member Chris Taylor has given me some reading material to keep me occupied.

Lagniappe: Skype’s multi-person videochat function has markedly improved since the last time I tried to use it (c. 2008).

Can investors really “add value beyond money?”

Last month, I spoke with a veteran entrepreneur about some advice he had given a first-timer about whether to take money from an investor. The younger asked, “What value do they add beyond money? What kind of technical assistance, etc.?” The older–who has received at best intermittent support from us at First Light–replied “Just take the money. The investors you’re talking to are good people, and they’ll treat you well. Their job is investing, not building your company. That’s your job. Plus, you don’t want them or anyone else in your hair all the time while you’re trying to run a company.”

Over the last two months, we at First Light have been working to codify the support we offer entrepreneurs at the same time that the chatter around “adding value” has picked up among social VCs in India. In the VC community in the US, the catch-phrase for this non-financial support is value-added investing. Among incubators and NGOs, one struggles to untangle what people mean by technical assistance, business development assistance, or capacity building.

Everybody’s doing it, or at least saying that they’re doing it. Grassroots’ new fund has a pot of money specifically dedicated to technical assistance, and in one social investor’s recent PPM I saw an entire page dedicated to the fund’s portfolio support plan. At the end of this month, East Angels plans to hold a Bizarro pitch session in which VCs will pitch to entrepreneurs. Part of the original hypothesis behind our own Accelerator is that Shell Foundation support will allow us to provide more hands-on time than a typical spray-and-pray seed fund. But the data suggest that a VC’s “value add” doesn’t matter that much in most cases, despite what  VCs claim.

But some pesky data and a handful of honest entrepreneurs aren’t going to stop investors, their analysts, and incubators from justifying our existence by the assistance we provide to entrepreneurs. So how is a savvy entrepreneur to see through the smoke to determine whether an investor wil actually be helpful? A few (humble!) suggestions:

Look for character. Your investor is going to be around for a long, long time. Are they trustworthy? How do they handle conflict? Will you be able to maintain mutual respect even when you violently disagree?

Look for the right attitude toward your business. In an IVCA meeting last month, Multiples CEO Renuka Ramnath shared with a roomful of VCs that she approached each entrepreneur as someone who was already on track to building a successful company. She viewed her role as adding an extra shove, not fixing what was broken (for you nonprofiteers out there, consider the overlap between this approach and Asset-Based Community Development). As a result, Ramnath is able to thread the needle between being uninvolved and overinvolved in her portfolio companies.

Test VCs’ claims. If an investor says that they’ll be able to offer connections, check whether they’re connected to the people that matter: Potential customers, potential hires, potential next-round funders, and the rest. If they claim to be area experts, check their resumes. If they promise to be able to help raise funds, ask to be connected to entrepreneurs they’ve helped raise funds in the past. If they promise to provide strategic advice, ask them for it on the spot to see whether you’re impressed.

Trust your gut. Because your gut is probably right.

Lessons from Entrepreneurs, for Entrepreneurs

Last week, Good magazine interviewed seven all-star social entrepreneurs. At the very bottom of the interview, they get to the good stuff: “Do you have any ‘lessons learned’ [sic] to share with people who are thinking of creating a social enterprise?” The answers are gems:

Lesson 1: Listen to your customers

Get on the ground and listen to the people you want to help! This is the heart of social enterprise—satisfying a customer with a product or service that they actually need. (Andrew Youn, One Acre Fund)

Go to the customer. Who are you trying to serve? Have you talked to them? Do they want your solution? (Timothy Wade, Waste Enterprisers)

As investors, we pay close attention to whether entrepreneurs seem to be listening to their customers. Spring Health’s Paul Polak, for example, has built his career on conversations with thousands of smallholding farmers. Recently, he and Jacob Mathew from Idiom design discovered through one of those conversations that rural Indian consumers were willing to pay a premium to have purified water delivered to their doorstep, like jugs of milk in 1950s America. In contrast, In 2006 I remember hearing HIV experts complaining about Ugandan women using the plastic rings from female condoms as bracelets rather than contraceptives.

Lesson 2: Focus on people  

Once you have a good idea, it’s having the right people on board that will make or break your business.  Your human resources are your most important resource. (Ashley Murray, Waste Enterprisers)

Making a solid early hire is like anabolic steroids for a company. I spoke last week with one entrepreneur who hired someone to pay attention to the details that she hates, from typos on blog entries to double-checking contracts; she feels like she’s added an extra 20 hours to her week. Conversely, a bad hiring move–or poorly managing high-class talent–means dead weight, distraction, and more time spent on HR when you should be talking to those customers. A friend of mine lost his star salesman this month because both (wrongly) focused on salary as the driver of that employee’s job satisfaction and shut off negotiation too early.

Lesson 3: Ditch the ego and execute

It’s hard to be the visionary and the operator at the same time. Figure out which role you are better suited to play, and find the best person you can find to do the other stuff. Also, don’t worry about if you are the first to come up with the idea – just execute the hell out of yours and in 3 years, no one will care who was first. I’m sure someone else has said that before, but it’s especially true for the types of people who gravitate to our field. (Peter Gross, MicroEnsure)

Entrepreneurs that we meet, by and large, are visionaries. Finding the operators is tough–and even more so when an entrepreneur isn’t willing to share power, equity, or limelight with someone else. BioSense, a Thane-based company with four founders (typically a red flag) has been able to build a product, make sales, and nearly close a round of funding–all because none of them allow ego to get in the way of execution.  They go so far as to have a rotation for attending conferences and events.

Thanks to Andrew, Timothy, Ashley, and Peter for the tips! Photo credit Lokis Tochter

The Closing Gap in Indian Seed Investing

(This is reposted with edits from vilcap.com, where Ross is making bold predictions about the upcoming year in impact investing and social enterprise)

When First Light began two and a half years ago, we had one goal: to fill the gap in funding between family members and social venture funds. Social enterprises were popping up on the promise of VC-like funding, but found that few funders were willing to take the sort of bet on young companies that weren’t quite ready for the Acumens and Aavishkaars of the world.

Today, the market for seed-funding for social enterprises is heating up fast–especially in India. Two large microfinance organizations are building seed funds, as is one design firm and another social enterprise incubator.  Unitus has launched its own seed fund, CIIE’s Infuse Fund targets seed cleantech investments, Cambodia-based Insitor has partnered with Breathe India Ventures to make (late-ish) seed-stage investments in India, and both Ennovent and Intellicap are building up their own networks of Indian angels. Even Acumen has begun to make investment below the $300,000 mark in India. Drop the social bit, and the field gets even more crowded: Mumbai Angels leads a growing pack of city-based angel networks, and even Dave McClure and company are looking to invest in Indian startups.

So what does this mean? A /ton/ of fundraising; increased competition for deals and higher valuations, for starters. And a general investor shakedown as entrepreneurs, flush with options, begin to get more picky about which investors and funds they work with. Hopefully, it will convince more would-be entrepreneurs to take the leap into starting their own company, knowing that one the rungs of social enterprise finance is snapping in place.

What Should Entrepreneurs Measure? Ditching What’s “Interesting”

Last week my friend Anu, CEO of NextDrop, asked me:

What we want to know is what’s the best way to track our progress, and the best way to communicate that to outside agencies/potential investors/funders. More specifically, what are the things you are interested in tracking?

My response:

I’d say that the best rule for tracking (be it social, financial, operational, etc.) is the same rule that I learned as a musician in high school: Keep it Simple. What you want is to find the minimum amount of metrics to track that give you maximum insight into what is driving the company; if you can do that well, and explain it well to investors, then you should be fine. So, for example, is it more useful for you to track total users of your service? Or new users each month? Do you absolutely have to know both at any given moment? What about employees? Is the number of new customers per employee the right metric for performance? And revenue–are you tracking your total weekly or monthly burn, your revenue growth, profit, margin, etc?

At the end of the day, what you want to boil all of this down to are the following two questions:

1. What metrics and ratios are absolutely critical for me to know what’s going on with my company? Note that this is not ”What information would be interesting to know?” These should be numbers you’re willing to fire people over if you don’t get them.
2. What metrics do potential investors consider absolutely critical to know about my company? There is no universal answer to this question, and even investors can get enchanted by “interesting” numbers and lose sight of “critical” numbers. Push back on this, and hard, until you get them to tell you what they’d be willing to fire you for not delivering.

Once you can answer these questions, then you’ve got a set of numbers that you can ensure end up in your inbox every Monday morning or with whatever frequency and format is appropriate. That’s the fun part, but the fun part turns into a nightmare if you haven’t spent enough time drilling into question number one.

How’d I do?

Top Trends in Impact Investing 2011: How Did We Do?

At the end of last year, three of us at First Light–Mark, Ross, and Nikhil–put together a blog series on the “Top Trends in Impact Investing and Social Entrepreneurship for 2011.” Ross (now Executive Director of the nonprofit Village Capital) has gone back to take a look at how we did. With blatant disregard for Ross’s intellectual property and only the feeble excuse that I wrote a bunch of the original “Top Trend” articles, I’m reposting the article here. 

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Last year, we had a 10-post series on the top trends in impact investing in 2011.  We made some bold predictions, (and some not-so-bold), as we tried to predict the upcoming year.

So how’d we do?  Here’s a self-assessment of how we felt our predictions played out in 2011.

10. Smart Phones Get Cheap

Grade: A-

We predicted a drop in price of smartphones to $75 in emerging markets.  While it hasn’t reached that price point, yet (the cheapest are around $90), it’s rapidly getting there. And we’ve seen in 2011 a number of promising enterprises leverage smartphone ability in BoP customers’ hands—for example, Village Capital fellow MobileWorks, which allows low-income customers to earn income performing micro-outsourcing tasks on photo-enabled phones, raised $1.7 million and graduated from Silicon Valley’s Y-Combinator.

9. Local investors in emerging markets step up to the plate

Grade: B (incomplete)

We’ve seen a lot of motion, but the jury’s still out on action.  In India, for example, we’ve seen a lot more local investors step out and raise funds—Impact Investment Partners and Omnivore Capital are two prominent ones launching—but they haven’t yet started actively investing. Mainstream angel groups such as Mumbai Angels and KAE Capital are beginning to explore the impact space, but are not yet convinced of its commercial viability.  Traditional impact funds such as Acumen and Grassroots Business Fund made big strides this year in building local investor capacity, though, so we expect this to be a major trend continuing in 2012.

8. “Pathological collaboration”

Grade: A+

“Partnership,” “Leverage,” and “Ecosystem” were buzzwords at every conference this year, and it seems that every major initiative—from high-profile enterprise financings (e.g. Husk Power) to organizational change (the SJF-Investors Circle merger) to new funds (e,g, HubCities, a Hub-Calvert partnership) involved more than one player.  And that’s a great thing.  We’re all playing with limited resources, so doing more with less is an ever-important reality.

7. Microfinance regroups

Grade: C

Sort of.  SKS’ stock is at an all-time low, and Muhammad Yunus resigned from the Grameen Bank due to political pressure.  But banks cut back on too-rapid growth, committed themselves to greater transparency, and the Smart Campaign, a global consumer protection agency, gave passing marks to 88 per cent of Indian microfinance banks in November.

6. Social metrics: fish or cut bait

Grade: B-

We’re still in the same holding pattern we were one year ago.  We predicted investors would cut bait, but the investor community seems to have doubled down on IRIS, which released its new version this year, and GIIRS’ launch of the GIIRS Pioneer Funds reiterate the broad-based industry collaboration.  But enterprises complained of the high cost of impact data collection without corresponding funding/bandwidth, and the response to impact assessment surveys getting real data from entrepreneurs have been disappointing.  In 2012, it seems that the social metrics mantra may be: “What if we set an industry standard and nobody reported?”

5. Seed financing grows up (more funders, more sophisticated investors, more vehicles)

Grade: A

New to the seed financing party in 2011: Abstraction Ventures (New Orleans-based), Unitus Labs (seed-stage India), Merism Capital (London-VilCap partner), Hub Ventures fund (Bay Area-VilCap partner), Potencia Ventures, Vox Capital in Brazil, through its Vox Labs program, Villgro (with a new investment arm), Mumbai Angels (India), Beyond Capital Fund, and Calvert Special Equities Group (though they are in between seed and series A).  And that’s nowhere close to a comprehensive list!  While there’s still a long way to go, and the picture for seed-stage ventures raising capital is very dark, it’s lighter than ever in 2012.

4. Kenya! The impact investing industry takes off in Kenya and East Africa.

Grade: B-

Another “incomplete” grade.  We saw big strides in funds (particularly flexible family foundations, as well as mainstream VC players getting involved in the mobile space), ecosystem-building efforts (including an east Africa chapter for ANDE and two new incubators).  The big question: is the boom limited to mobile, or are other sectors equally poised for success?

3. Rising commodity prices affect social entrepreneurs

Grade: D-

We predicted food prices would skyrocket, affecting those serving the poor. Although food prices are high compared to historical values, they are actually lower than they were when we wrote this prediction.

2. With budget cuts and austerity, governments use impact investing to do more with less

Grade: A+

Three of the largest impact investing commitments in 2011 were from governments: the UK’s USD $900 million commitment to the Big Society Bank, OPIC’s $300 million commitment to impact investing, and the Australian Government’s Social Enterprise Development Fund.

1. Patient Capital” hits a crossroads

Grade: B

We predicted an introspective year, and we got it: we’ve seen some of impact investing’s founders do impressive re-boots this year (e.g. Unitus), and others pause to assess their progress and think through their strategy going forward (e.g. Rockefeller Foundation, Acumen Fund).  One thing is clear: despite promise, no one really knows what it is we’re creating, but everyone is in serious self-reflection mode.  Some of the mechanisms we predicted (secondary markets, alternative revenue streams) never really got off the ground, though (for example, Mission Markets has converted from a second-market focus to an investment bank focus), and we have yet to see what this reflection will yield in 2012.  Not to worry—that’s more fodder for our new year predictions!

By Ross Baird

Things I like, all in one article

Namely: Investing, Ecuador, stimulants, do-goodery, and controversy.

Governments take all kinds of measures to boost business—from creating subsidies and setting standards to loans and fiscal stimulus—so it’s not unusual that the government of Ecuador is investing taxpayer money like a venture capitalist to get a new industry off the ground. It is unusual, however, that socialist Ecuadorian President Rafael Correa is using public funds to buy ownership shares in a Brooklyn startup.

Read more in Social(ist) Impact Investing: Why Ecuador Invested $500,000 in a Brooklyn Startup

Hard Questions From (and For) Impact Investors

Akshat and I attended ANDE’s Investment Manager training last week in Chennai, along with an impressive, expressive crowd that included representatives from funds, incubators, foundations, family offices, and even one aid agency. At the end of the week our trainer–Grassroots Business Fund’s own Bob Webster–asked us what questions we felt like hadn’t been answered to our full satisfaction. Some of them:

On screening companies and structuring deals, and managing investments:

• How do you get past major Indian metros and into rural areas to find entrepreneurs?
• How do you account for social impact in the due diligence process? Do you?
• How and why do investors choose between investment instruments? (eg debt, equity, quasi-equity)
• How do investors here value a company, and what challenges do they face when discussing valuation with entrepreneurs?
• How do you structure a Board of Advisers/Directors? What are you looking for, and what is the expense?
• How much technical assistance do investors feel is required post-investment? Who should do it? How much does it cost?

And from my favorite category, Other:

• As an investor, will you create more impact investing directly in businesses or in funds?
• What do incubators want to see out of investors? What do investors want out of incubators?
• How can business accelerators play a more active role in supporting funds?
• There are at least ten groups raising seed funds or building angel impact angel networks. What gives?
• How will the legal landscape for impact investing change in the next 3 years?
• Microfinance, social venture investing, seed funding… what’s the Next Big Thing?