Sunday, June 1, 2014

Making Impactful Social Investments

I am a member of Social Venture Partners (SVP), an organization that uses venture investing principles to support social ventures. Founded in Seattle, SVP now has chapters all over the world. SVP Bangalore celebrated its first “formal” anniversary last weekend.

SVP Bangalore Chair Akila Krishnakumar invited me to talk on strategy for social investments. I had fun preparing for this talk, and decided to use this opportunity to think carefully about the important question of how to make impactful social investments.

I started by thinking of which social ventures have really impressed me. I quickly zeroed in on Aravind Eyecare as one of the leading candidates. Aravind founder Dr G Venkataswamy took an important problem (hundreds of thousands of people suffering from unnecessary blindness due to cataract), figured out a way of reducing the cost of cataract surgery by a significant margin (a complete reconfiguration of the process to improve doctor productivity and replace expensive doctor’s time by relatively inexpensive paramedics’ time) and scaled it up in his own hospital. Another important reason for success of the Aravind model is its sensitivity to the social context – for example, they usually collect prospective patients from a single village and bring them together with their families to the hospital since they realize that an individual patient, on his own, is likely to be find the process scary.

But Aravind is not impressive just for this reason. Over time, they have improved upon the original process in a spirit of continuous improvement. They have been generous in sharing their model with others. And they organize an annual conference where they and other eye hospitals exchange ideas and best practices.
But, it doesn’t stop there. The Aravind model has been a source of inspiration to others. Lifespring Hospitals uses Aravind’s principles in maternity care. Dr. Devi Shetty’s Narayana Hrudayalaya has adopted elements of the Aravind model in its efforts to cut the costs of cardiac care.

If I were to make a “social” investment, I would like to make it in an organization like Aravind which has such widespread impact.

Giving this a conceptual shape…

Social investing, or impact investing as it is called by some, has been around for about a decade. Along with strategic philanthropy, it seeks to make a dent in major social challenges, particularly in the poorer parts of the world.

Some recent research done by prominent foundations in this broad space points to a framework for impactful social investing.

The Omidyar Network

The Omidyar Network has some insights that resonated with me. They identify three important types of social enterprises – market innovators, market scalers and enterprises providing market infrastructure. Aravind would clearly be a market innovator, a social enterprise that created a new model to solve an important social problem. However, Aravind is unusual in that it has also been successful in scaling up the model and making it a more generic solution to the problem. Often, this market scaling is done by a different set of enterprises. Market infrastructure is a set of activities and functions that is often needed by a sector to function effectively – e.g. a credit rating service helps the growth of microfinance.

How are these relevant to the question of social investing? Market innovators need risk capital and a willingness to support experimentation. Some market innovators take a long time, as long as a couple of decades to refine their models. So, they would clearly need some philanthropic investments to sustain themselves. On the other hand, market scalers may be more amenable to the risk-adjusted return metrics of more conventional investing. Market infrastructure again because of its public goods nature may need philanthropic capital.

I believe the importance of this market infrastructure is often under-estimated. Take the case of low-cost medical devices as an example. With the support of the Government of India’s Department of Biotechnology, Stanford University, AIIMS and IIT Delhi offer a Stanford India Biodesign (SIB) Programme to train a new generation of innovators. In its first 5 years, SIB graduated 24 fellows leading to 12 devices, 20 provisional patents and 5 products in trials. But there are major gaps in the ecosystem that currently prevent SIB from achieving its full potential. The absence of independent and credible testing, certification, distribution, and service support organizations across the length and breadth of India impede commercialization of the new medical technologies emerging from SIB. Social investing could help create this critical market infrastructure.

The Omidyar Network makes another important point – it’s sometimes necessary to support a large number of social enterprises in the same space in order to provide the critical mass to help the sector take off.

Ashoka Foundation

The Ashoka Foundation is a catalyst for social entrepreneurship and social innovation in a different way. They identify individuals who have the potential to make a major impact and then support them as Ashoka Fellows. The criteria Ashoka uses to select fellows are relevant to our search for criteria for impactful social investing.

Ashoka has identified five pathways for an individual to revolutionize a sector – (1) changing the market dynamics to include new, previously excluded beneficiaries; (2) changing public policy or industrial norms; (3) bringing about full inclusion of disadvantaged groups; (4) creating a congruence between business and society; and (5) bringing about a culture of change-making.

These change-makers (particularly categories 2 and 5) would benefit from philanthropic investing because they often provide social benefits that clearly have the characteristics of public goods. Here, I am thinking of organizations like the Association of Democratic Reforms that have contributed to improving the quality of our democracy by putting the spotlight on the criminal records and assets of election candidates. Or, of PRS Legislative Services that seeks to improve the quality of parliamentary discourse and decision-making by briefing legislators on the consequences of impending legislations.


Social (philanthropic) investors have a major role to play in making social entrepreneurs successful. To make a large impact, the broad consensus seems to be that they should look at sectors and not individual organizations. They should identify and understand the nature of the problem being solved. The nature of the financing required and the organizations to be supported is linked to the gap/problem being solved. The effort of social investors should be to accelerate the process of solving the problem – a study by McKinsey suggested that accelerating the development of new low-cost medical devices by even a few years could mean additional health benefits to a couple of billion people in India. In doing so, they need to take an ecosystem approach, realizing that innovators, scalers and infrastructure will all be needed to make major impact.

[References: Matt Bannick & Paula Goldman, “Priming the Pump: The Case for a Sector based Approach to Impact Investing,” Omidyar Network, downloaded from on May 22, 2014; “How do you know when you have revolutionized a field? Ashoka’s approach to assessing impact,” downloaded from on May 22, 2014]

(The view expressed here are the personal views of the author.)

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