Date: 2024-12-30 Page is: DBtxt003.php txt00017972
Social Enterprise
The Problem of Finance
A startup in India aims to bridge a yawning gap entrepreneurs in the social enterprise sector face
Peter Burgess
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Date: 2024-12-30 Page is: DBtxt003.php txt00017972 | |||||||||
Social Enterprise | |||||||||
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Burgess COMMENTARY Peter Burgess | |||||||||
| A startup aims to bridge a yawning gap entrepreneurs in the social enterprise sector face “Some social enterprises receive small grants that help them kickstart the organisation. But the ‘what next’ answer was not available in the market, which is where we came in” says, Edward Yee, cofounder of Givfunds. BCCL startup-1 Givfunds aims to provide working capital for social enterprises to scale up operations or until they can get more funding. When Akash Singh, 19, conceptualised Energinee Innovations in October last year, he expected enough support to come his way given his experience with some of his previous projects. In 2016, a wind harvesting machine developed by him had received an award from the Prime Minister’s Office. He had also received accolades for innovations such as a smart irrigation sprinkler machine and a self-power generating machine. With Energinee, Singh wanted to address the issue of temple waste, which would otherwise be dumped in local water bodies, causing pollution. He found a way to process the waste into modelling clay that can be sculpted into products. Singh even planned to get the inmates of Dasna jail, Ghaziabad, to make the ecofriendly products. But the going got tough when he tried to raise funds for his social enterprise project that was incubated at the Atal Incubation Centre , BIMTECH Greater Noida, under the NITI Aayog. “I started out with Rs 30,000 raised through family and friends, besides some savings from previous projects. But it was really difficult to generate working capital beyond that,” says Singh. “And it is impossible to grow when you don’t receive investment. Any good invention or product can enter the market only when it has enough money to sustain itself.” Fortunately for Singh, his hunt for cash became successful in May 2019 when he was introduced to Givfunds Social Ventures. “I had my doubts initially on whether early stage funds for social enterprises were really available. But I got the money just three days after I filled out an application form. It took me by surprise. It was a real boost for our operations. We’ve received two rounds of funding and hope to receive the third in January,” Singh says. Energinee has received Rs 1.8 lakh and expects to get Rs 3-5 lakh depending on the revenue it generates. Working capital This quick dispersal of funds to keep social enterprise startups afloat is what sets Givfunds apart from other investors. It was set up in December 2017 by Irwan Malhotra and Edward Yee, who met each other during a train journey in India. As they got talking, they realised that most social enterprises “didn’t have access to funds” says Malhotra, who has been running Vencap United, an investment bank, for about 10 years. Givfunds aims to provide working capital for social enterprises to scale up operations or until they can get more funding. While the initial round of funding is Rs 2-3 lakh, it could rise to Rs 20-25 lakhs after a review every six months. In turn, it takes a small project management fee of 1-4% per annum. Impact investors usually have hurdle rates of 20-80%. Yee had already interacted with social entrepreneurs during a stint with the Yunus Centre in Bangladesh, run by social entrepreneur and Nobel laureate Muhammad Yunus. Most banks require financial statements for at least three years, besides credit history and collateral, before funding an enterprise, says Yee. As a result, social entrepreneurs are forced to turn to money lenders, who charge them exorbitant interest rates. “Some of them had small grants that would help them kickstart the organisation. givfund But the ‘what next’ answer was not available in the market, which is where we came in,” says Yee, who is currently at University of Oxford on a Rhodes scholarship. They first reached out to social incubators, which allowed them to connect with enterprises in metros as well as tier-3 and -4 cities. “We looked at social entrepreneurs who were genuinely committed to their work and hence had a high willingness to repay. And that is where the social incubators and aggregators came in, because they had spent substantial time with these enterprises,” says Yee. They still had to ensure a social enterprise had the ability and the willingness to repay. But a lot of their decisions were based simply on trust. “We haven’t had a single defaulter yet,” adds Yee. The initial capital of around Rs 15 lakh came from their own savings, before funds started coming in from other sources. Today, Givfunds supports around 18 social startups in India and three in Singapore. Cash flow One of the first social enterprises they tied-up with was Krishi Star, which works with farmers to supply their produce to hotels and restaurants. “Because of the role we play in the supply chain, access to working capital was a major hold-up,” says Bryan Lee, founder of Krishi Star. “In a lot of places, farmers need payments in cash but a customer, like a hotel, would paying us on credit. Our operations were largely limited by the equity we had.” In three year, Givfunds hopes to scale up to 7,000 rounds of funding and raise capital through corporate social responsibly programmes. Their work has been recognised by the US State Department and the Singapore International Foundation, among others. Givfunds has also received a grant from the Nanyang Technological University, Singapore. “We’re absolutely clear about the problem we are trying to solve. There may be 90,000 social enterprises in India. Even if we can help 10% of them, it will be huge. That is how big the need is here,” Malhotra says. Since receiving money from Givfunds, Singh has been able to scale up operations. This has helped Energinee Innovations get recognition from many, including the National Innovation Foundation and NITI Aayog, that have offered to fund the enterprise. The enterprise now covers around 152 temples in the Delhi-NCR region and has developed another prototype of a bin that not only collects temple waste but also improves quality of the surrounding air. “The Ministry of Micro, Small and Medium Enterprises is today helping us patent this bin and has even extended Rs 2.5 lakh to redevelop the prototype,” Singh says. “A lot of recognition is coming in now, but if we didn’t have the initial funds to develop our product, we would have never reached this stage.” | |||||||||