Santa Clara University Team Selected to Design New Capital-Investment Approach for Developing-World Entrepreneurs
Team of SCU Students and Silicon Valley industry veterans among five winners of the Argidius-ANDE Finance Challenge
SANTA CLARA, Calif., Oct. 17, 2012 – A team of Silicon Valley industry veterans and students at Santa Clara University’s Center for Science, Technology, and Society (CSTS) has been selected to design and implement a new investment tool with the potential to aid thousands of small and growing businesses in emerging economies.
This two-year project is one of five winners of the Argidius-ANDE Finance Challenge, a highly competitive international competition administered by the Aspen Institute Network of Development Entrepreneurs (ANDE). The Santa Clara team will receive a €200,000 grant to support the design, analysis, and field-testing of the new investment vehicle.
The Problem: Angels but not Investors
Financing for small and growing businesses in developing economies is constrained by the low level of return from investments already made to date. Most “impact investors” have seen their investment holding period lengthen from 3-5 years to 7-10 years. Without more understanding and confidence in the ability of social enterprises to provide return, equity investors are hesitant or unable to commit new funds.
Achieving reliable and repeated returns would make not only existing dollars available to new investments, but it would also improve investor confidence to commit new capital to what are now seen as difficult or ‘frontier’ markets. So far, debt and equity mechanisms have failed to offset the risks inherent in developing markets with enough reward to encourage new investors.
For small enterprises promising moderate (7% - 14%) returns from moderate ($25K - $250K) investment amounts, a new solution is needed. CSTS believes a risk-capital investment vehicle that is a hybrid between low-return debt and high-return equity is needed – and could encourage significant funding currently sitting on the sidelines to jump into emerging markets.
The Solution: Demand-Dividend Investment Vehicle
Responding to interest in a new model, CSTS Impact Capital program director John Kohler has begun work on a financing concept. The Demand-Dividend project work will include final financing model design, a regression analysis on existing enterprises, and the creation of flexible term sheets. The Argidius grant will fund the field-oriented phase - preparing to test the new financing model with between four and six enterprises beginning in early 2013. Planning and initial diligence visits will occur in the autumn of this year.
CSTS is uniquely positioned to receive this grant. They launched a dedicated Impact Capital initiative in 2010 with the aim of preparing social enterprises to move beyond philanthropic grants to attract private investment capital. Early work culminated with the release of a white paper, Coordinating Impact Capital in the summer of 2011.
John Kohler recently presented on the Demand Dividend concept at SOCAP12 in San Francisco on October 3, 2012. Visit John's SOCAP12 profile for more information.
Taking the VC out of the Valley
Successful demonstration of a Demand Dividend investment vehicle will create ‘economic pull’ by delivering what impact investors do not readily achieve today: moderate to high return with a more-rapid capital cycle.
CSTS has received expressions of interest from 11 impact funding sources and, with demonstrated success, will encourage these funds, as well as its many fund contacts through ANDE, Toniic, Oxfam and its Silicon Valley network, to use the Demand Dividend. The Center also will be co-leading an examination on alternative investment being conducted at the University of Michigan Law School, which will be instructive to the Argidius-ANDE Finance Challenge results.
About the Center for Science, Technology, and Society
The mission of the Center for Science, Technology, and Society is to accelerate global, innovation-based entrepreneurship in service to humanity. Through an array of programs including its signature Global Social Benefit Incubator (GSBI™), the Center engages an international network of business, investment capital, and technical resources to build the capacity of social enterprises around the world. As a Center of Distinction at Santa Clara University, the Center leverages its programs to inspire faculty and students with real-world case studies, distinctive curricula, and unique research opportunities, advancing the University's vision of creating a more just, humane, and sustainable world. More information at www.scu.edu/socialbenefit
Deborah Lohse | SCU Media Relations | firstname.lastname@example.org | 408-554-5121
Erin Berkenmeier | CSTS | email@example.com | 408-551-6048