Final Report to the Aspen Network of Development ... · 2/3/2010 · A maximum score of 4 can be assigned to each factor. Final peer review scores are then averaged across 20 factors

Final Report to the Aspen Network of Development Entrepreneurs

(ANDE)

February 2011

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Background

In August 2009, the Root Change Innovation Scouts initiative received support from the ANDE

Capacity Development Fund (CDF) to develop a collaborative platform and field network for

identifying high impact small and growing business investment opportunities. During the first 6

months of the grant period Root Change focused on building program infrastructure: people—

identifying indigenous innovation scouts in Africa, Asia and Latin America systems,

technology—developing a Web based technology platform to support opportunity screening, and

systems— creating new curriculum to train and deploy scouts. As part of the development

process, Root Change conducted interviews with 20 different ANDE member organizations and

institutions working in the Impact Investing sector. This critical feedback was incorporated into

the design of the program.

This first phase of the program culminated in the public launch of the Root Change Innovation

Scouts Website (www.rootchangescouts.org) at the ANDE Annual Conference. Through a new

institutional partnership with the Monterey Institute of International Studies, Root Change also

trained 60 MBA and MPA graduate students as junior scouts and created a permanent ―feeder

program‖ on campus that will support Innovation Scouts worldwide. Funding for Vietnam and

Tanzania country launches was secured from SNV and the Grassroots Business Fund (GBF).

During the second phase of the grant, Root Change invested program resources towards field

launch and program support in Tanzania and Vietnam. A total of 38 scouts were trained: 23 in

Vietnam, and 15 in Tanzania. This report summarizes these launch activities and includes the

results from opportunity screening workshops hosted by trained Innovation Scouts.

Overview of Innovation Scouts

The Innovation Scouts technical approach features a global network of ―Scout‖ practitioners,

web-based and people-centered filters to identify promising investment opportunities, and

includes a web-based marketplace where opportunities for investing germinate in public view.

The model works as follows:

1. It starts with Innovation Scouts, a global network of BDS providers and indigenous

social investment funds that identify new investment opportunities in the social enterprise

space in developing countries. Innovation Scouts, recruited and trained by Root Change,

identify opportunities for investing in small and growing businesses with a social value

(double bottom line). Scouts rely on their local knowledge of the social enterprise sector

to screen promising SGBs and are trained to lead Investment Opportunity Screening

Workshops1 (OSW).

2. Scouts host investment opportunity screening workshops where local social

entrepreneurs present the merits of their social enterprise. During each screening

1 Root Change has developed and piloted a one-day Opportunity Screening Workshop model that incorporates individual reflection by social

business entrepreneurs, peer review, capacity building of entrepreneurs, and a scored evaluation by a panel of experts.

http://www.rootchangescouts.org/

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workshop, approximately 20 investment opportunities are filtered down to between 5 and

7. After the screening workshop, the profiles of the best social enterprises are presented

to the general public through the Innovation Scouts web platform. Less successful

enterprises are encouraged to refine their models for future support.

Innovation Scouts screen and support a range of social businesses that fall on a

continuum of ―early stage development‖ to ―growth‖. On one end of the continuum,

Innovation Scouts target social businesses that are in the early stage of development

seeking investments of $10,000 to $50,000. On the other end of the continuum, Scouts

identify social businesses with a 2-3 year operating history and with an established

business model and revenue stream. Investments that these growth social businesses are

seeking are in the $150,000 to $1 million range. The Innovation Scouts target portfolio is

75 percent early stage development and 25 percent growth.

3. Scouts post promising social enterprises on the Root Change Innovation Scouts web

platform, which includes a Social Enterprise Stock Exchange. Through a partnership

with Spigit, a leader in idea management technology, investors and the general public can

examine screened sector-specific social businesses and make investments with a virtual

currency. The web platform turns registered users into traders who are invited to review

and comment on social enterprise investment opportunities, pose questions to

entrepreneurs, and buy or sell shares in enterprises that investors believe have the greatest

potential for social impact and financial return.

4. Root Change taps the collective intelligence of the social impact investing sector.

Potential investors can watch as the public value of certain investment opportunities,

traded as stocks, rise and fall with the release of new information or news of recent

performance results. Investors can choose to engage directly with the entrepreneurs, work

through preferred Innovation Scouts on the ground, or work with other investors to

explore possible collaboration on investment portfolios that meet their strategic needs.

5. Social businesses scale their enterprises by tapping local business development and

capacity building professionals with knowledge of financial management, operations, and

local markets. The Innovation Scouts Initiative fills the local capacity gap by providing

technical assistance during the pre-investment phase, and by building/investing in

sustainable local markets of BDS and capacity building providers2.

2 Innovation Scouts receive $500 from Root Change to conduct Opportunity Screening Workshops and get a success fee of 2.5 percent for every

social business that is funded by Impact Investors. In this way, medium and long term incentives for Scouts to support local social businesses are established.

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Field Launch of Innovation Scouts

The launch of Innovation Scouts in Tanzania and Vietnam included initial sourcing of BDS

providers, local investment firms and NGOs working in business development. Root Change

took an end-to-end view of opportunity identification. This included an analysis of the local BDS

marketplace along with investments in social and organizational infrastructure – people and

systems – in order to reduce the transaction costs of discovering and supporting viable social

enterprises over the long term. In Tanzania, Root

Change was assisted by Serengeti Advisors and Choice

Capital. In Vietnam, SNV and the SPARK program

provided on the ground support for field launch.

In Tanzania, 15 new Innovation Scouts were trained by

Root Change to source high potential SGBs and to lead

Opportunity Screening Workshops (OSW). Two OSW

events were held in Dar es Salaam. The first was led by

Root Change and served as an ―in service‖ training for

local Innovation Scouts. The second was led by a team

of newly trained Scouts. A total of 16 SGBs

participated. In Vietnam, 23 Scouts were trained and

three OSWs were led by newly trained Scouts with

support from Root Change and SPARK. At each OSW,

SGBs were evaluated against 7 criteria: sound business

thinking; sound financial model; proof of concept;

social impact; experienced management team; risk

analysis; and innovation. Scoring was based on 20

factors associated with the evaluative criteria (Annex A:

Self Assessment and Peer Review Framework).

One of the innovations of the OSW process is the mix

of self assessment, peer review and juried ―expert‖

assessments. All SGBs are assessed by their peers based

on the 20 success factors. This process helps to expedite

screening of up to 20 SGB participants. It also builds

analytical capacity of social entrepreneurs. Scores by

peers are based on the quality of evidence SGBs can

produce to support their claims. Peer reviewers consider

the evidence in terms of a) relevance to the factor and b) adequacy of detail. A maximum score

of 4 can be assigned to each factor. Final peer review scores are then averaged across 20 factors

with a possible range from 0 to 4. High scores indicate strong evidence supporting SGB

performance claims.

Final recommendations for advancement are left to the discretion of the Innovation Scouts.

Scouts are trained to concentrate on the highest performing SGBs based on peer review scores

and performance during the pitch. Other considerations, however, are encouraged in the final

selection process, particularly the strength of the innovation and the potential for social impact.

During the first OSW in Dar es Salaam, Tumaini Nutritional Flour, a village-based nutritional

supplement SGB, was selected for advancement on the strength of the entrepreneur’s social

impact and relatively high peer-review score.

Outputs of the ANDE Grant:

98 trained Innovation Scouts (38 field-based Scouts and 60 junior scouts)

Over 20 screened GBOs Ongoing field operations in

Tanzania and Vietnam Detailed analysis of the

Tanzanian and Vietnam SGB and BDS communities

One SGB in negotiation with impact investor

Over 400 Innovation Scouts online platform members

Over 70 signed agreements with BDS providers targeting services to local SGBs and social enterprises.

1550 visits to www.rootchangescouts.org from 39 counties and territories

Over $80,000 in leveraged matching funds

New and strengthened social capital among local BDS providers and GBOs.

http://www.rootchangescouts.org/

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Results from the Tanzania OSWs are shared in Table 1.1.3 Two SGBs from the first OSW were

posted to the Innovation Scouts Platform: Footloose and Tumaini. In an second OSW convened

and facilitated by Tanzania Innovation Scouts, three additional SGBs were recommended by

local Innovation Scouts. They were 1) NARCO, a biogas/renewable energy SGB, 2) TanDairies,

an integrated dairy farm, and 3) Youth Entrepreneurs Credit Union. However, based on the peer

review scores, The Youth Entrepreneurs Credit Union had relatively weak documentation. Root

Change has requested that local Scouts work with these social entrepreneurs to improve their

organizational culture of documentation before advancing the SGB to the Scouts platform.

BDS Marketplace and Technical Support

Following the initial OSWs in Tanzania and Vietnam, social enterprise owners were invited back

the following day to an open marketplace with local BDS service providers. The BDS

Marketplace was built on Root Change’s LINCS methodology, and offers a high degree of

flexibility in implementation. Four key activities represent the core of any the Marketplace

events. These are:

3 OSW results from Vietnam are still be translated into English and are not yet available.

Table 1.1 Opportunity Screening Workshop Participants and Scores Score of 4 indicates evidence completely supports rating assigned by SGBs

Score of 2 indicates evidence partially supports rating assigned by SGB

No. Enterprise Sector Score

1 K&M Enterprises Fashion 2.23

2 Fresh Traders Food Processing 2.2

3 NBDS Professional Services 2.7

4 TZ Crafts Handicrafts 2.8

5 Tumaini Food Nutritional supplements

3.15

6 Biubkla LTD Food Processing 2.2

7 Upamoja Women’ Cooperative Food Processing 1.9

8 Footloose Handicrafts 3.4

9 Famour Design Fashion/Textile 1.6

10 Samara Art Group Textile 0.75

11 Salim Kinunga LTD Honey Processing NA

12 Tavoka Enterprises Leather Processing NA

13 Renard LTD Ecotourism 1.07

14 TanDairies Integrated Dairy Farm 1.8

15 NARCO (T) LTD Biogas/Renewable energy 1.6

16 Youth Entrepreneurs Credit Initiative Microfinance 1.74

http://www.rootchangescouts.org/Idea/View?ideaid=937




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1) The matching of organizational strengthening needs with BDS provider services

2) Facilitated interaction between local BDS Service Providers and social development

Organizations

3) The mapping of interactions within the local BDS market

4) Follow-up efforts to promote continued and sustainable collaboration

Each service provider posted 3-5 business development and OD service offerings at the event.

SGBs explored the marketplace service offerings in three rounds. OSW participants were joined

by many more entrepreneurs through word of mouth.

At the two events, SGBs bid on over 70 BDS services including business planning, financial

planning, accounting packages, preparation of strategic plans, processing of business registration

and licensing, technical support for renewable energy initiatives, business coaching and

marketing support. Over $30,000 in bids were submitted by SGBs during the marketplace events.

The BDS marketplace events also served as an opportunity to use Organizational Network

Analysis (ONA) to map the BDS market. Root Change administered the ONA survey at each

BDS marketplace event, which brought together key actors across the BDS/SGB ecosystem

(Figure 1.1). The market analysis includes a value chain map with nodes (the organizations or

individuals) and linkages (flows of collaboration, resources, etc.) across nine value chain (VC)

stages: Input Supply, Business and Financial Planning, Marketing, Business Licensing/Legal

TA, Internal Systems, Staff Development, Product Distribution/Service Delivery, Strategic

Partnering and Brokering, Financing.

Key actors are identified for each value chain stage, and gaps in the Tanzanian BDS VC are

highlighted.4

4 Data also available from Vietnam launch

Figure 1.1

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Program Developments

Since the launch of Innovation Scouts in Tanzania and Vietnam, Root Change has continued to

support and work with Innovation Scouts on the ground, as well as local partners to continue

building the Innovation Scouts network, improve on methodology, and scale the program.

The pace of activities following the initial launch of Scouts in Vietnam and Tanzania illustrate

the potential for viral growth. Scouts have taken initiative in hosting new OSWs, organized and

travelled to Uganda to screen social innovators in Kampala, and begun work on a new social

investment portfolio featuring technology-focused social enterprises in East Africa (Table 1.2)

At the same time, Root Change has been able institutionalize an incentive-based model that

keeps the cost of investment opportunity screening dramatically lower than traditional models.

Through the Innovation

Scouts network, screening of

social investment

opportunities averages only

$25 per social enterprise5.

Root Change has continued

to build and strengthen the

relationship between the

Innovation Scouts program

and the Monterey Institute of

International Studies. This

relationship has influenced

the development of an Impact Investing Certificate program through the business school, and the

MIIS own ―Scouts‖ Program. Root Change has also finalized placement of 3 graduate students

as interns to the Root Change Innovation Scouts field operations: one will be placed in Tanzania

and housed at Root Change’s local partner, Choice Capital’s office in Dar es Salaam, while two

additional graduate students will be interning in Vietnam, based out of SNVs offices, Root

Change’s local partner in Hanoi and Ho Chi Minh City.

To date, the Innovation Scouts platform now hosts 16 SGBs from across East Africa and SE

Asia, with more than 400 members from more than 10 countries around the globe. Registered

users from over 35 different countries regularly visit the site each month (Figures 2.1 and 2.2).

5 E and Co, one of the largest social impact investment firms operating today, typically invests 30 cents in pipeline development for every dollar

invested in a social enterprise. $30,000 in pipeline development costs for every $100,000 invested is prohibitive for most aspiring social investors.

Table 1.2 Technology Portfolio under Development

No. Enterprise Sector Status

1 Afrecom Communications

Telecommunications Portfolio development

2 Ubuyandsell Technology Portfolio development

3 Uhuruone Technology Portfolio development

4 Moneywire Technology Portfolio development

5 Ushahidi Technology Portfolio development

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Sourcing and Investment

At the end of 2010, the Grassroots Business Fund was introduced to one of the Innovation Scout-

sourced SGBs in Tanzania and is now in a dialogue with the Innovation Scout and SGB owners

around what may be the Innovation Scouts first successful investment. Grassroots Business Fund

has also expressed interest in working with the Innovation Scouts that are BDS providers, linking

Figure 2.1: Site Usage

Figure 2.2: Geographic Distribution of site users

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them with other existing investments in Tanzania and other countries for delivery of BDS

consulting services.

Program Growth and Scale-Up

Impact investing has the potential to grow exponentially in the next decade. With social impact

investing increasing worldwide, the biggest constraint to the growth is not lack of capital but lack

of enabling infrastructure to identify and cultivate viable investment opportunities at a scale that

achieves meaningful impact. Achieving this scale will require:

1. Deal Flow. Many enterprises need to be evaluated to find the few that meet impact

investor’s criteria for funding. Identifying and assessing these types of potential

investments is a costly, labor and time-intensive exercise that most investors are ill

equipped to handle. The result is a very limited pipeline of opportunities for investment,

undiscovered social entrepreneurs, and an impact investing model unable to reach full

potential for social change. Innovation Scouts provide a low cost solution to the most

difficult challenge facing impact investors: screening and strengthening innovative social

businesses for investment. Innovation Scouts provide a local presence with the

indigenous knowledge, technical savvy, and business acumen to broker agreements

among social entrepreneurs, business development service providers, and social impact

investors.

2. Technical Capability/Capacity Building. Impact investors have learned that financial

capital is not enough to support the growth of sustainable bottom of the pyramid

businesses. Entrepreneurs, especially those working to meet the basic needs of low-

income people, require support beyond financing to grow their businesses. In particular,

as they scale their social enterprises, they require talented management professionals with

knowledge of financial accountability, operations, and local markets. The Innovation

Scouts Initiative fills this gap by providing technical assistance during the pre-investment

phase and by building/investing in sustainable local markets of business development

service providers (BDS).

Root Change hopes to energize debate around these gaps, with the aim of engaging policy-

makers, practitioners, researchers and donors to further field test Innovation Scouts and ONA

metrics. We see this as an important contribution to bringing about advances in both investment

opportunity screening and local capacity development; not intending to replace or compete with

current best practices, but setting out to tackle collectively, the challenge of upgrading today’s

strategies.

Using field-based opportunity screening workshops and web-based crowd sourcing to create a

low cost innovation discovery network, country by country, Root Change hopes to build a global

infrastructure to screen and prepare social businesses for investment and scale-up. Plans for 2011

include expansion of the initiative into Kenya, Uganda, Nigeria and Peru.

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Annex A

Self Assessment and Peer Review Framework

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SGB Self Assessment Worksheet for Entrepreneurs, SGB owners, or SGB

managers Instructions: This self assessment is intended to help you, the social innovator, carry out an initial critical analysis of your concept. For each factor, as associated with each criterion, please assess your concept as follows:

Developing I/We are aware of and plan to incorporate this factor into our business/project

Practicing I/We are addressing but need to improve this factor in our business/project.

Accomplished I/We are doing a very good job of addressing this factor in our

business/project.

NOT APPLICABLE This factor is not relevant to our business, project, or idea

SGB Name Criteria Factor Developing Practicing Accomplished Comments

Sound Business Thinking

Analysis of client/customer needs

Assessment of capability and position in current market

Analysis of competitors

Growth / upscaling strategy

Sound Financial model

Tested or proven financial model

Return on investment

Cost recovery

Proof of Concept

Track record of business category

2-3 years of data or history of performance by actual business or by organization

Social Impact Clearly defined social impact

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SGB Name Criteria Factor Developing Practicing Accomplished Comments

Multiplier effect at household level

Multiplier effect at community level

Experienced management

Management team track record

Passion/motivation

Demonstrated results

Risk analysis Demonstrates a clear understanding of the risks associated with the enterprise

Innovation Finance or business model as a source of innovation

Process as a source of innovation, including core processes and enabling processes

Unique product, service or technology

Delivery channel, brand or customer experience as a source of innovation

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SGB Peer Review Worksheet for Peer Evaluator Instructions This scorecard is for use by peer evaluators for reviewing businesses, projects or ideas. It is intended to be used through an interactive discussion between the peer evaluation team and social innovators. Scoring Scale:

2 = Evidence completely supports rating assigned by social innovator 1 = Evidence partially supports rating assigned by social innovator 0 = Evidence does not support rating assigned by social innovator

SGB Name

Criteria Factor Evidence Score

Comments









Cost recovery

Proof of Concept




Multiplier effect at household level

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SGB Name

Criteria Factor Evidence Score

Comments




Passion/motivation




Process as a source of innovation, including core processes and enabling processes

Unique product, service or technology

Delivery channel, brand or customer experience as a source of innovation

Totals

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SGB Summary Scorecard

Instructions: This worksheet is intended to help compile the self assessment and peer evaluator scores, and calculate a final score for the business/project. This scorecard should be filled out by a peer evaluator, NOT the social entrepreneur. In filling out the scorecard:

1) Transcribe each of the scores from the SGB self Assessment into the Self Assess Column.

Developing = 0

Practicing =1

Accomplished = 2 2) Transcribe the peer review scores from each of the peer evaluators 3) Use the equation at the bottom to calculate the SGB Score

SGB Name

Criteria Factor Self

Assess Peer # 1

Peer #2

Peer #3

Peer #4

Peer # 5

Peer #6

Peer #7

Sound

Business

Thinking

Analysis of client/customer

needs

Assessment of capability

and position in current

market



Sound

Financial

model

Tested or proven financial

model


Cost recovery

Proof of

Concept

Track record of business

category

2-3 years of data or history

of performance by actual

business or by organization

Social

Impact

Clearly defined social

impact

Multiplier effect at

household level


Experienced

management

Management team track

record

Passion/motivation


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Risk analysis

Demonstrates a clear

understanding of the risks

associated with the enterprise

Innovation

Finance or business model as a source of innovation

Process as a source of

innovation, including core

processes and enabling processes

Unique product, service or

technology

Delivery channel, brand or

customer experience as a source of innovation

Sub Totals

SGB Sore =

+

=

+

=

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Worksheet Definitions

Criteria Factor Comments



Sound business thinking requires an analysis of customer or project participant needs, perceptions and behavior. Social Innovators demonstrate sound business thinking when they take time to assess their personal and organizational capabilities and assess current market position. They regularly revise their target market and product differentiation based on sound analysis of their competitor’s current position, capabilities, and actions.






A sound financial model responds to market forces of supply and demand and promotes effective use of resources. A sound financial model generates income or cost recovery for the enterprise. Examples include membership fees, subscription fees, licensing to franchisees, leasing, and direct product sales.


Cost recovery

Proof of Concept


Proof of concept requires evidence that the enterprise fulfills a legitimate need and has demonstrated success. If the enterprise does not have 2-3 years of data or history of actual performance then a track record of successfully piloting or launching new initiatives can help.



The value-added generated by a social innovation that leads to greater improvements in service coverage and quality, and positive impact on social and/or environmental benefits. Multiplier effect at

household level




Indicators of experienced management can be found in a strong vision, leadership with an entrepreneurial spirit and passion, a successful track record, demonstrated results and a history of employee satisfaction and low turnover.

Passion/motivation



Risk analysis includes an assessment of four potential threats, including financial risks, market risks, legal risks and risks associated with day to day operations.


Change that creates a new dimension of performance or impact. There are four primary sources of innovation:

A finance or business model innovation might include new incentives to participate in a program or new ways to cover costs, while simultaneously advancing the social innovator’s social mission.

A process innovation might include a change in the way that staff connect with customers or project beneficiaries, or the way you produce a product.

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Criteria Factor Comments

A delivery channel or offering innovation might include engaging with new actors or organizations to distribute your products, or repackaging your offering to bring greater value to your customers/project beneficiaries

A product or technology innovation involves a breakthrough in terms of quality, speed, efficiency or ease of use.

Documents

Final Report to the Aspen Network of Development ... · 2/3/2010 · A maximum score of 4 can be assigned to each factor. Final peer review scores are then averaged across 20 factors