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In the spotlight – what’s your opinion?

Posted on by EVPA


The latest research report “From Blueprint to scale – the case for philanthropy in impact investing” by the Monitor Group, in collaboration with EVPA member Acumen Fund, paints a clear picture: impact capital alone will not unlock the potential of impact investing for the global poor.

Philanthropy plays a crucial role in the development of the impact investment marketplace. Nonetheless it is not philanthropic funding in the common meaning that is here being considered (such as project based donations and grants) – but a highly engaged approach aiming to create sustainable and investable businesses models with strong societal impact. The research report calls this “enterprise philanthropy”, which has many common points with the venture philanthropy approach as defined by EVPA. In the following summary we will highlight the main outcomes of the report in order to clarify how highly engaged philanthropy can help catalysing the “pioneer gap” of inclusive businesses and collaborate with future impact investors.

There are still many challenges faced by impact investors in seeking to deploy impact capital.EVPA member and co- author of this research, Acumen Fund, reflects on this reality: in the past ten years it has considered 5,000 companies and invested in only 65. Most models of inclusive business being at an earlier stage of development have very modest margins and long times to scale; especially those that are pioneering new business models for which commercial viability is unknown. This is why the assumption that investor capital will easily flow to these opportunities is unrealistic. From a philanthropic point of view though this challenge looks extremely different; there is a great appetite from philanthropists to support innovations to improve effectiveness and sustainability, even when a financial risk is involved, including those that seek partnerships with the private sector. The microfinance sector shows that philanthropy can catalyse the growth of impact investing  better than any other. As microfinance is now seen as a commercially attractive sector, it is important to remember that during the last decades it has received $ 20 billion in subsidies from philanthropist and aid donors to refine its model through “thousands of cycles of trial and errors”. One of the pioneers of the sector, the Grameen Bank, took 17 years to become sustainable while Equitas, set up in 2007 (a company which replicates the same model) took only one year. With the attractiveness of the microfinance sector today there is the risk of overlooking the role of philanthropy in developing the inclusive businesses.


As the research shows, pioneering new business models create heavy burdens, especially in the BoP environment. Developing, redefining, changing and going through a large number of failures is the normal praxis for these social businesses that seek new ways of tackling societal problems. Knowing how to support a pioneering company requires an understanding of the needs that change from going from start-up up to scale. Monitor’s research indentifies four stages of pioneer firm development: blueprint, validate, prepare and scale. In all of these stages the support of grant funding is essential to reach the scale phase where impact investors are ready to deploy capital since the risks are lower. After designing their business in a concrete and achievable way and making sure the product or service works, pioneer firms need to validate the commercial viability of the business model requiring up-front investment to enable multiple rounds of market trials. Also pioneers need to prepare the market conditions, especially where the firm is trying to create a new marketplace and need to stimulate the demand for “push” products.

Pioneering social businesses need funding for all these stages. Nonetheless impact investors are not that willing to support early-stage development, preferring to enter the market after commercial viability has been established.

But how do inclusive business model reach these later stages if they are missing the funding in early stage development? This gap needs to be filled in order for market-based solutions to achieve their potential. This is where grant funding and philanthropy could work to catalyse societal needs and take the risk of failures at an early stage – the right grant support could help pioneers firm to develop, validate and establish new business models and build new markets to serve the BoP. Grants in this case represent the ultimate “risk capital” because they can tolerate a certain uncertainty around commercial viability.

As case studies in the report show, it is not only grants that are decisive for a firm’s success or failure. The real factors that drive success are the right strategy, organisational capacity, market conditions and leadership, all elements that the venture philanthropy approach considers as key elements for the model.


The research’s case study on the development and success of the Husk Power System in India shows that the collaboration between grants in an early stage, and later on investments can lead to a successful pioneer firm. Husk Power System is an innovative enterprise based in India: the production of gas from rice husk, an available agriculture waste, provides light to 25,000 households across Bihar, India. The company now has 75 mini power-plants that provide break even after six months of starting operations. Recently HPS raised $ 1.65 million of investor capital from IFC and Acumen Fund, LGT Venture Philanthropy and Bamboo Finance, and recently secured funding to take the model to Africa. As much as the success it has reached today, HPS started off with few personal savings and winning business plans competition. Once it had secured the value of the new technology during blueprint stage, it had yet to validate the commercial potential of the business model. This is where “enterprise philanthropy” came in.

In 2008, EVPA member Shell Foundation, who was seeking to support ventures delivering energy to low-income communities, decided to make grants, but took an enterprise-based approach to develop business that could then attract investment capital. Through a series of targeted grants, for a total of $ 2.3 million, Shell Foundation facilitated the entry of investors. The support was provided by following a venture philanthropy approach – a close and collaborative working relationship between HPS and Shell Foundation. Each grant was targeted and designed to help the business maintain its focus, progressing towards investability and scalability. One of the main goals was that HPS would sustain itself by customer revenues, like any for- profit business. It was critical to charge a commercial price and achieve a cost structure allowing profitability at that price. Only in this way the business could scale up commercially. In order to avoid mission drift and misleading targeted grants it was crucial for Shell and HPS to ensure joint prioritisation of key needs and grant objectives.

Gyanesh Pandey, CEO of HPS, says of the relationship: “We have a very open, collaborative working relationship with Shell Foundation. Yes, each of the grants is given for a specific purpose—none of it is just free money for us to spend as we wish—but I have never been asked to do something that I didn’t think was important for the business.”

This case study shows that grants can be more effective than debt, equity and other financial tools, especially in early stage development; nonetheless these have to be combined with restrictions, disbursement conditionality and reporting requirements.

The report points to the importance of strategic and high engagement grant making coming in at a critical stage in the development of a social business. Venture philanthropy is an essential factor in the development of successful social business and of deal flow for later state impact investors.

For further information on the report please contact Rik Vyverman, Business Development Manager, Acumen Fund at

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