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VC/PE view of investing in bottom of the pyramid
- 1. Investing in the Bottom of the Pyramid Shyam Kamadolli Entrepreneur, Venture Capitalist and Private Equity Investor November 2010
- 2. 2 © 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others unless explicitly ascribed to them. The “Fortune at Bottom of the Pyramid” is not easy for investors to access Donor/Charitable Programs Not sustainable Address basic human needs: health, education, food programs E.g. Bill and Melinda Gates Foundation, Fidelity Charitable Foundation Socially responsible investing Seeks some financial returns but only to the extent of sustainability “Double/triple bottom line” just as important E.g. Acumen Fund, Unitus, Ennovent, Catamaran Venture Capital / Private Equity Seek sustainable models for profitability and financial gains Sequoia, Accel, Matrix, Fidelity
- 3. 3 © 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others unless explicitly ascribed to them. Venture Capital traditionally looks to maximise financial returns; the BOP offers good opportunities Only focus: generating financial returns for our investors If investors want to be charitable or socially responsible they have other vehicles to achieve their goals VCs are looking for opportunities to generate excess of 35%+ IRRs (generally speaking) for investors The hurdle rate is the same for BOP and non-BOP investments Private equity investors get in to these businesses at a later stage and given the lower risk have slightly lower expected return expectations (25%+)
- 4. 4 © 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others unless explicitly ascribed to them. $$ Time Seed Early Growth Mature / Expansion Angels VCs Strategic Investors Debt Investors Revenues Revenues Expenses Mezzanine Bootstrap – self financing Financing lifecycle Private Equity
- 5. 5 © 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others unless explicitly ascribed to them. The BOP Opportunity We are looking to back innovation: products/services/business models. The big question: Does the bottom of the pyramid need its own unique set of products and services? Or is it a matter of repackaging products and services that we would use? Product innovation: Solar lamps, Terracotta non-stick pans, Nano-tech water purifiers Service innovation: Banking services, Micro-insurance, Remittances Business model innovation: Microfinance Successful IPOs to date in Microfinance: SKS and Banco Compartamos in Mexico Windfall gains for VC/PE investors in SKS
- 6. 6 © 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others unless explicitly ascribed to them. Risks VCs take: unfavourable brand associations (1) Banco Compartamos: first Microfinance IPO, 2007 38% ROE
- 7. 7 © 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others unless explicitly ascribed to them. Risks VCs take: unfavourable brand association (2) Farmer suicides reported as collection agencies get tough
- 8. 8 © 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others unless explicitly ascribed to them. Risks VCs take: financial risks Microfinance related risks have played out already Regulators: Vote-bank politics has led government regulators to arbitrarily cap returns in Microfinance District collectors have unilaterally “forgiven” loans in some instances Moral Hazard Borrowers have taken loans from several lenders expecting that loans will be forgiven Leverage For Microfinance like models to work for investors, cheap credit is a major requirement. ROE is the prime metric and without leverage these will make BOP investing unviable.
- 9. Thank you