Scaling up across borders – the Auticon case
Societal problems are often similar in developed countries in Europe. Nonetheless, while there are many great initiatives developed in different countries, they are seldom scaled up across borders. Indeed, the EVPA industry survey conducted byt he Knowledge Centre in 2011 found that only 4% of VP funding targets European countries. At a European level this creates inefficiency as it prevents other countries from benefiting from social innovations developed elsewhere. The Social Venture Fund, an impact first fund based in Germany, supports the scaling up of innovation across Europe both financially and non-financially.
The Fund with of €7.5 Million under management, has to date completed three investments. One of them, Auticon, is a great example of a successful transfer from one country to another; in this case from Belgium to Germany.
In the following interview Johannes Weber, Managing Partner and initiator of the Social Venture Fund, talks about the challenges of transferring the Auticon project to Germany and explains what venture philanthropy organisations can do to support the scaling up of innovation across Europe.
Why has the Social Venture Fund decided to invest in the scaling up of an initiative across European borders?
Weber: There are a couple of reasons for this. First, our investors come from many parts of Europe. They thus expect that investments are made on a Europe-wide basis.
Second, if you have made an investment in a social enterprise that has been able to scale up, you see that most of the social problems in developed markets in Europe have very much in common. However, solutions to these problems are initiated in different countries, which often lead to parallel developments. This is very inefficient. In many cases other regions could benefit from that innovation as well.
A last reason is that focusing only on one country with a fund of this size is still difficult. Since we wanted to make good impact investments that provide a decent financial return and actually return the investment of capital, we felt we had to broaden our perspective.
Tell me more about the investment in Auticon.
Weber: Auticon is a company that helps people with Asperger’s syndrome, which is a very strong kind of autism, to find jobs. Demographically, 1% of all people suffer from Asperger’s
syndrome. These people often demonstrate above-average capabilities in the IT field. However, due to their limited social skills in terms of interaction and communication, they tend to have problems in a working environment. Auticon helps people with autism develop their special skills, trains them to be software testers and deploys them as consultants in IT departments within large and medium-sized organisations. The concept is not a kind of sheltered workshop, but one that provides service on a top level. People with autism tend to have error rates that are often up to 10 times lower than for testers without autism. This is a real value-add for the companies.
Before investing in Auticon, we explored a number of other social enterprises providing working opportunities for people with autism. We knew we wanted to bring such a model to Germany, but found some difficulties in doing so. Most of the organisations we talked to were still struggling with their main market and were thus not prepared to grow into another country yet. Another that was prepared to scale up wanted to do so through a social franchise model. Despite being a very simple business model, the support of people with autism still depends a lot on governmental support, which tends to be very different across countries in Europe. This would have made a social franchise very difficult. In any case, it would have simply not been economically lucrative to pay a franchise fee to a player somewhere in Europe in order to bring this to another country. As the model would have to be adapted to local peculiarities, the value-add from the franchise model would have been very limited.
Many of these players, which employ people with autism as software testers have smaller business models alongside their core business model (such as training, schools, assessment centres). These tend to support this business model and this is the only way they can work economically. In order to make the business model work in Germany, we felt we had to strip the business model to its core. – that is providing software testing by people with autism and charging an hourly rate. We found a company in Belgium called “Passwerk” that has a very similar approach. It is actually the biggest player in Europe, employing 55 people. They have a very professional team and are really excellent in what they do. They were very happy to help and share everything they have – documented process, assessment processes etc. – free of charge. They really educated us, showed us all the stumbling blocks, shared information and prevented us from making the same mistakes they had made when they started. Once we had started with Auticon, our Germany-based project, we felt we would need them to come to Berlin a couple of days every month to help us with the first assessment, with employing the right people, with the struggle we might have in the process, etc. We thus formed a cooperation, which is legally not binding, but allows us to pay a fee that will compensate “Passwerk” for travel and working time.
What were the main difficulties in scaling up Auticon and how did you overcome them?
Weber: All in all it went surprisingly smoothly because our partner in Belgium was so helpful and open. Auticon could actually call “Passwerk” every day and talk about any problem. The cooperation has been excellent.
There were of course minor stumbling blocks, such as the fact that all the information was in Dutch and had to be translated into German. Another difficulty we had was to assess whether the business model would actually work in Germany. We talked to CEOs of companies and asked them if they were willing to employ people with autism. We were also fortunate to be able to contribute one larger client to Auticon in the beginning. This helped us to work on a very practical project. As I said before, the implementation of Auticon depended also on the support of the government. People with autism have a severely handicapped pass and receive governmental support. We needed to find out if the government would be ready to support Auticon. This is essential since we work with so-called “job coaches” that help Auticon employees in their daily work within the client’s company. However we wanted to offer the services of Auticon at market rate and this does not include the salaries of the job coaches. Another struggle was finding the right legal form. We really juggled with this one, as so many things depend on your legal form. Luckily we could rely on good legal advice. In the end we decided to set up a limited company (in German: GmbH) and we might set up a charitable limited company (gGmbH) alongside. Finally, there was the issue of finding the right people within the company as well as deciding how to approach people with autism. After all, these are not the people that will apply for a job directly as they tend to be rather frustrated with the working environment. In both cases, it was very helpful to have a strong network and board members, such as Aspies (a self-help group for people with Autism) and the German Autism Association and many others who helped us.
How can venture philanthropy organisations help organisations that wish to scale their projects across borders?
Weber: Organisations that want to scale need to have the necessary capacities. Many social entrepreneurs still lack the size to think about internationalisation. Venture philanthropists can provide the capital and know-how for them to grow. Furthermore, the CEO that is driving the scaling up as well as the employee implementing it on the ground must be the right person. Investors can help to put them into place. Concerning the former, you often see a very charismatic founder who is really successful in his or her country or region. However, he might not have the necessary entrepreneurial knowledge to take the initiative across regional, let alone national borders. In the target country you need a strong entrepreneur who is really enthusiastic about implementing the initiative and who has preferably worked in the same social area for years. That has been the case with Auticon. The Managing Director in Germany has worked for two years on developing a concept to make such a business model work in Germany and has an autistic son himself. This helped us to understand his intrinsic motivation to succeed.
Furthermore, it is important to involve experts on the ground to get a better impression of whether and how the initiative would work in a certain country. Here, venture philanthropists can help a lot by providing access to their networks.
Finally, as an investor in an organisation that wants to scale up, you should be very realistic and blunt. Sometimes, you have to realize that not all initiatives can be scaled up. Many services are not good to scale up because they are so human-capital intensive. If the social entrepreneurs think it would not work then we should not push the social entrepreneur or organisation in that direction, because they will just be unsuccessful and eventually burn out.
What are the next steps for Social Venture Fund?
Weber: On the one hand, we would like to increase our portfolio. We aim to have 8 to 10 investments. By coincidence, the last three investments were somehow related to Germany. However, our focus is on Europe. So, one of the next steps is to initiate a pure investment in another European country- preferably together with a local Social Venture Capital Fund or Venture Philanthropist.
On the other hand, we will continue to help our portfolio companies to scale up in their core business models, as well as prepare investors in other markets to take our innovations across borders.
Of course we also think about our lessons learned and what a Social Venture Fund 2 could look like. In this sense it is very important to meet other funds and exchange experiences. EVPA has really helped setting up this platform for us.