One of the trends we have seen as Bangladesh Angels is that a growing number of investment proposals have some sort of impact angle or mandate explicitly embedded in their operating structure, target customer base or other facets.
They might be development organisations that are becoming or spinning off a social enterprise, especially as donor funds dry out. They can come from long-time NGO executives trying their hand at entrepreneurship in relevant fields.
It could be for-profit startups looking at impact investments, non-dilutive grants and B2B opportunities with donors. Also, we have worked with many companies in sectors like edtech, that have an impact at the forefront. But how can we best help these impact organisations raise funding?
The wrong way(s) to pitch
Often, the same people running the NGO project are to become entrepreneurs, but they do not appreciate the differences in skills and mindset required to run a startup versus an NGO project. This includes taking dramatic reductions in salaries and overheads in exchange for shares and putting customers at the forefront rather than donors' expectations and continually iterating the product or service for them.
Sometimes, the NGO leader believes the quickest way of transition from a non-government organisation to a business is to delegate business development functions to consultants or managers when they have to lead and understand what is required.
When going through their pitch, it reads like a project proposal. There's a lot of talk about the market need and the landscape but not enough about the business opportunity. Instead, there is an emphasis on reach and impact. There may be a need to shift the target customer group to a higher-paying demographic or cross-subsidise between groups, but we do not see enough thinking along these lines.
There are budgets but not enough about the returns. There is an insufficient exploration of technology for efficient supply chains and a better user experience. Talk about potential B2B "partnerships" such as corporations or government, it is more about CSR or subsidies. When asked about competition, they cannot answer the question "What do you do best, that no one else is doing or capable of doing?"
A model heavily dependent on grants tends to be stretched thin across too many projects without an immediate synergy, based on where and when grant funding was opportunistically available, distracting from the process of finding true, sustainable product/market fit.
This is our worry when commercially-focused startups start looking for grants as well, particularly if they are early in their product development journeys. We would strongly advise against it unless the grant opportunity fits within the pre-existing roadmap of the business and helps de-risk some of those activities.
The models we like to see
There are early-stage impact-focused startups led by entrepreneurial leaders with development backgrounds, who are creating growth opportunities in new market segments at the intersection of profit and impact.
What these entrepreneurs in the following case studies from Bangladesh have in common is that they have honed on a specific target market, found and quantified the business opportunity, developed linkages with partners including corporates, have thought about where technology can help scale and are trying to build brands that their consumers can identify.
Notably, they are all business-first organisations, focused on sales and conversions. Most importantly, they have a clear vision of what they want to achieve. and believe it can only be done through business.
iFarmer allows the urban middle class and non-resident Bangladeshis to fund farms in Bangladesh. Funders pay for a livestock, fisheries or crop financing bundle, with an average holding period of 6 months, and receive a 15%-20% return on their investment.
It bundles quality agriculture input, advisory and farm capital, while wherever applicable creates market access for the farmers, through its B2B agri-supply chain model. Since its inception in 2018, iFarmer has facilitated a total of 10 Crore BDT (1.2 million USD) to the farmers, bundled as inputs and capital for farming.
bhalo is trying to break into a largely underserved smallholder market segment valued $10B by offering best quality farming inputs, customised technical advisory and credit facilities for livestock, crops or fisheries farmers.
At the heart of their model is a planned cloud-based platform that would enable a network of exclusive agents, to provide farming inputs, advisory, credit, market access and financing options for farmers.
A farmer can buy farming inputs or sell their products, through the bhalo app, call centre, agents or by simply visiting bhalo retail outlets.
Light of Hope
Light of Hope focuses on improving the future skills of children e.g. creativity, problem-solving, emotional intelligence. They have built Bangladesh's largest online platform for teachers and parents for skill development, knowledge and awareness creation. In the last 5 years+, Light of Hope and its products has served 250,000+ children and trained more than 10,000+ teachers/parents in 24 districts and 550+ schools.
Although back in 2018, the bulk of the revenue for LoH was coming from projects, by 2020 over 80 percent of the revenue is coming from its B2C segment.
Apon Wellbeing sets up low-cost grocery stores in garment factories. Through a membership-based model, they offer discounted goods and services to increase the living real wage of low-income households, typically 10 percent off the normal retail price.
After exceeding a certain spending threshold, the shoppers are eligible to avail health insurance and credit of up to 30 percent of their salary. Apon currently operates thirteen stores in its network, and has experienced 15 percent month-over-month growth since inception with only 32 full-time employees.
The role of the ecosystem, including Bangladesh Angels
Ecosystem actors like Bangladesh Angels need to create a linkage between these types of companies in Bangladesh and impact-focused institutional and angel investors outside Bangladesh. Lean impact frameworks that embed within the business and customer journey would help communicate the value proposition to investors like these, who are choosing among impact models in different countries based on scalability and cost-effectiveness.
We are working on this as part of Biniyog Bridhi's train-the-trainer program to create a pool of impact management and invest readiness professionals who can advise startups. But the catch is that these foreign investors would look for local support of these companies to get to a certain scale.
That is the challenge for Bangladesh Angels - to bridge the gap between Bangladeshi angels - local and non-resident - who may be sceptical of "impact-first" enterprises and view them as charities in new clothing.
We need to show the market opportunity and growth of these businesses, as well as the valuation appreciation that is possible if these companies can raise larger funds in the future from impact investors.
We are also advocates of more integration between startups, whether they are in education, health and agriculture, and government programs, allowing for greater scale and reach.
Sure, "B2G" can become a new revenue opportunity, but more importantly, it is a way to create barriers to entry and might be treated as a loss leader to build that.
Lastly, we need to get more donors to support social enterprises through impact investment, potentially in partnership with intermediaries and transaction advisors like us.