Working Paper No. 4 Asia's Impact Angels: How Business Angel Investing

50 Pages·2012·2.61 MB·English

ACSEP
The Asia Centre for Social Entrepreneurship and Philanthropy (ACSEP) is an academic research
centre at the National University of Singapore Business School that boasts of an international
multi-disciplinary research team. ACSEP came into formal existence in April 2011 with a geographic
focus embracing 34 nations and special administrative regions across Asia.
The Centre aims to advance understanding and the impactful practice of social entrepreneurship
and philanthropy in Asia through research and education. Its working papers are authored by
academia and in-house researchers, providing thought leadership and offering insights into key
issues and concerns confronting socially driven organisations.
For full details of ACSEP’s work, see bschool.nus.edu.sg/acsep
About the Author
Dr. Rob John is a Visiting Senior Fellow at the Asia Centre for Social Entrepreneurship &
Philanthropy, NUS Business School. His research interest is entrepreneurial models of social
finance in Asia. John was trained as a synthetic organic chemist, receiving his PhD from Oxford
University, followed by research posts at universities in the United States, Switzerland and
Ethiopia. Following a career spanning 15 years in international development, he directed an
Oxford-based venture philanthropy fund. From 2005 to 2009, John was the first visiting fellow
at the newly established Skoll Centre for Social Entrepreneurship at the University of Oxford’s
Said Business School, researching the development of venture philanthropy in Europe. John was
the founding executive director of the European Venture Philanthropy Association (EVPA), and in
2010 co-founded the Asian Venture Philanthropy Network (AVPN) to build a community of venture
philanthropy practitioners serving Asia’s social entrepreneurs.
Email: [email protected]
Acknowledgments
I am very grateful to the angels, network staff and entrepreneurs who willingly gave their time
to be interviewed during this study.
Emily Reynolds, Westcott House, Cambridge, very kindly permitted us to use her original
artwork for the cover.
Version
ACSEP Working Paper No. 4, version 1.0, 2015
ISBN 978-981-09-5453-6
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Table of Contents
Introduction .............................................................................................4
1. Business Angel Investing .....................................................................5
2. Impact Investing ..................................................................................7
The Social Entrepreneur ........................................................................................................7
Entrepreneurial Social Finance ............................................................................................7
The Origins and Expansion of Impact Investing ................................................................8
3. Impact Angels: Experiences from Developed Economies .................11
Impact Angels in the United States .....................................................................................11
Toniic – A Global Impact Investing Community.................................................................12
Impact Angels in the United Kingdom ................................................................................13
Chapter 3 Profiles ...............................................................................14
UnLtd Big Venture Challenge ...............................................................................................14
Clearly Social Angels .............................................................................................................16
4. Impact Angels in Asia..........................................................................20
Migrating Angels ...................................................................................................................20
Impact Angel Networks ........................................................................................................21
Independent Impact Angel Networks .............................................................................22
Angels Embedded in Impact Networks and Other Organisations .............................24
Individual Angels ...................................................................................................................25
Chapter 4 Profiles ...............................................................................26
Indian Angel Network – IAN Impact ...................................................................................26
Intellecap Impact Investment Network (I3N) .....................................................................28
Ennovent Circle......................................................................................................................32
CIIE ..........................................................................................................................................34
Patrick Cheung ......................................................................................................................34
Sadeesh Raghavan ...............................................................................................................35
5. Conclusions, Recommendation and Further Enquiry .......................38
References ...............................................................................................40
List of Interviewees and Web Resources ...............................................42
Glossary ...................................................................................................43
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Introduction
Our series of working papers reflects an An effective ecosystem will provide the
interest in how the philanthropy and social financing requirements of social businesses
investment sector is developing to provide capital throughout all stages of their development.
and non-financial support to social entrepreneurs Entrepreneurs require seed and start-up
and entrepreneurial social ventures in Asia. financing, and later on first stage and expansion
We have coined the term Entrepreneurial Social capital as their enterprises grow and develop.
Finance (ESF) to capture a broad canopy of To be starved of the right kind of capital (or
practices that include venture philanthropy advice) at any stage is a chasm of death that can
and impact investment. These practices reflect lead to the demise of even the most promising
a paradigm shift by philanthropists who are businesses. We felt that our enquiry – while far
prepared to use a wider range of financial tools from comprehensive – shows the potential of the
to support a broader spectrum of organisational angel investing model in supporting early stage
types, including social enterprises, to fulfil their enterprises whose mission blends social impact
social impact objectives. and financial sustainability.
Our first working paper explored the ESF Chapter 1 is a short review of the mainstream
ecosystem, which comprises the supply of and angel investing industry – its principles, origins
demand for capital, and the intermediaries and expansion into Asia.
who broker connections, offer information
and analysis, or advocate policies that create a In Chapter 2 we look at the role of the social
supportive regulatory environment. Our second entrepreneur and the rise of social enterprise in
paper looked at the development of philanthropy addressing social issues through market-based,
in Asia through the lens of innovation and trading activity. We explore the emergence
explored, through case studies, the development of impact investment in providing the capital
of venture philanthropy models, examples social entrepreneurs need to grow and develop
of strategic, collaborative philanthropy, their enterprises as part of the finance ladder of
and initiatives that strengthened the fragile funding from start-up to maturity.
philanthropy ecosystem. A third paper explored
in greater depth one of the innovations we Chapter 3 looks to the United States and the
identified in Asian entrepreneurial philanthropy United Kingdom for examples of impact angel
– the rise of giving circles in the region. activity. Investors’ Circle is probably the longest
established impact angel investing network.
Giving circles are an example of citizen Two U.K.-based angel initiatives show how
collaboration in philanthropy where individuals angel investing can be embedded or hosted by
pool their financial resources and together select organisations that support the impact investing
promising nonprofit organisations to support ecosystem.
with grants and business advice. In the study on
giving circles we found a number of initiatives Chapter 4 highlights a number of impact angel
where individuals collaborated to invest in social investments we found in Asia; the majority is
businesses – analogous to angel investing in located in India. We suggest a tentative typology:
mainstream commercial entrepreneurship. We migrating angels, impact angel networks (both
originally intended to include such examples of independent and embedded), and individual
collaborative investments in the study report, but angels. Several of these initiatives are amplified
felt it was potentially confusing for readers if we by extended profiles.
combined giving circles (which fund nonprofits
using grants) and impact angel investing (which In the final chapter we list research questions
use equity to fund social businesses) although that emanate from this initial study and offer
both seek positive social value creation, use recommendations on how the potential of
similar methodologies, and often involve the impact angel investing can be promoted and
same individuals. developed in Asia.
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1. Business Angel Investing
While a strict definition of business But funding is not the only critical asset
angel investing (or simply angel investing) business angels bring. Their business acumen,
is lacking, the practice is generally accepted patience and understanding of the length of
to mean individuals who invest both their time required before a new business develops
money and time into early stage businesses into a thriving venture are qualities valued
with the objective of a financial return. They by entrepreneurs. To this group, mentoring,
do so by acting either alone or in formal or expertise and access to business networks
informal syndicates called angel groups or often mean more than cash (OECD, 2011).
networks. Angels are typically high-net-
worth individuals with personal business Throughout this paper we have taken angel
acumen and experience. In North America investing to mean the practices of individuals
and the United Kingdom, angels are more who invest in early stage companies. Angel
narrowly defined as “accredited investors” by investing is also used to describe investment
the regulatory bodies.1 at the angel stage or the start-up/early stage
of a company by a variety of investors; some
Many angels are successful entrepreneurs of whom may be angels. We also use the term
with first-hand knowledge of launching and throughout this paper to denote individuals
growing companies, and help to cultivate who invest in early stage enterprises. While
entrepreneurship around them by drawing on an angel may invest alone it is normative to
their own acumen and experience. Some are invest in the company of others – informally
returning diaspora who become key enablers or through established groups.
of entrepreneurship in countries such as
Cambodia, India or Vietnam after having built The Kauffman Foundation has argued the
enterprises in the United States or Europe. advantages of collaborative angel investing
Other angels come from successful corporate (see Table 1) and actively supports the setting
business background whose capital and up of angel groups by providing practical
business connections are a resource for how-to guides, initially focused on the United
entrepreneurs starting their own ventures. States, but more recently in emerging markets
(Preston, 2004; World Bank, 2014).
Angels are important because of the key –
and expanding – role they play in funding new The United States dominates the angel
business ventures, which when successful are investing landscape with about 350 groups
major contributors to economic development scattered across almost every state and
through the creation of new jobs and wealth strong hubs in Silicon Valley and Boston.
(Kortum & Lerner, 2000). New venture Figures from 2007 suggested that there were
funding is inherently risky and shunned over 250,000 angels in the United States
by the banking system, especially during who invested US$26 billion in some 50,000
periods in the economic cycle when credit enterprises. The United Kingdom is thought
is tight. Venture capital and angel investors to have up to 6,000 angels who invested up
fill a funding gap commonly referred to as to £1 billion (US$1.6 billion).
the valley of death – a period of negative
cash flow during the pre-revenue stage of There are also angel networks in
a new venture after funds from family and Australia, Canada, China, India, Latin
friends have been exhausted. This funding America, the Middle East, New Zealand and
gap ranges between US$50,000 (family and South East Asia2 although data on the size
friends) and US$1 million (venture capital), of angel markets in these parts of the world
depending on the industry and country. is sketchy. The Indian Angel Network (IAN) is
Asia’s largest with over 300 angels across 10
countries. In 2014 it consolidated its global
1 Accredited investors are primarily defined by their net worth (US$1
million of disposable assets and income exceeding US$200,000 in the 2 The 2014 World Bank report offers a snapshot of angel investing
United States and Canada, and £500,000 of assets in the United Kingdom); globally, but inexplicably omits India (which has several networks,
membership in a syndicated business angel network; and a track record of including the largest in Asia) and South East Asia (with a growing regional
investing in unlisted companies. network).
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2. Impact Investing3
services are traded and any profit or surpluses
The Social Entrepreneur
are reinvested rather than distributed to
shareholders.
Social entrepreneurs may choose to realise
The steadily growing global phenomenon their innovations through a social enterprise,
of social entrepreneurship has caused one but they can also use the non-hybrid forms of
of the most significant shifts in philanthropy commercial business or charitable nonprofit.
over the last 50 years. Social entrepreneurs However, pressing too hard on definitions
and their associated ventures are challenging misses the point that entrepreneurs
the old paradigm whereby the grant-making (including the social kind) are essentially
programmes of philanthropic organisations pragmatic and not ideological. Delivering
funded the project costs of charities through their mission counts and organisational form
a reactive application process. is simply a means to that end.
In the new paradigm, philanthropists ask,
“how can we best fulfil our mission objectives
by responding to the innovations of social
entrepreneurs?” The language and underlying
Entrepreneurial Social
attitude have shifted from donation to
investment (even when non-returnable grants
Finance
are made) – a departure from subsidising
charitable projects to investing in the
development and resilience of organisations.
Social entrepreneurship and social The opportunities for innovation in
enterprise are sometimes viewed as philanthropy afforded by the rise of social
synonymous. In a field where terminology is entrepreneurship coalesce with a new
generally loose and inconsistent, this is not generation of philanthropists; many of whom
surprising. We view social entrepreneurship are entrepreneurs wanting to connect their
self-evidently as the realm of the social business acumen to their aspirations for
entrepreneur – an individual who according charitable giving. They are younger than
to Bessant and Tidd (2011) is “prepared to their predecessors and want to give while
challenge and change, to take calculated still developing their careers; many wanting
risks and put energy and enthusiasm into the to engage actively rather than give passively.
venture, picking up and enthusing supporters They often question the effectiveness
along the way. They are typically ambitious, of more traditional charitable giving and
mission driven, passionate, strategic (not just speak more readily of impact and outcome.
impulsive), resourceful, results oriented.” Younger professionals – perhaps reflecting
Such people operate in different segments of a broader re-evaluation of the nature of
society – the private sector, the social sector financial security, personal motivation and
and sometimes within government or public responsibility to society – want to engage in
institutions. charitable work with their volunteered skills.
In contrast, social enterprise is an The reaction of philanthropy to social
organisational form – thought of as a hybrid entrepreneurship bears some analogy to the
between traditional models of a private way that angel investing and venture capital
company and a charitable organisation – are responses of the commercial sector to
pursuing clearly articulated social impact entrepreneurship. Sir Ronald Cohen, whose
objectives through a model where goods or experiences in the United States during
the 1970s gave him the impetus to create
3 Adapted and updated from a previous working paper (John, Tan, & Ito,
the British venture capital industry, likens
2013)
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the relationship of entrepreneurship and 15 percent. Finance-first investors are more
venture capital as two intertwining strands commercially driven investors who want to
of DNA, each mutually supporting the optimise their financial gain (typically in the
growth of the other. Without the innovation five to 10 percent territory) at the expense of
that entrepreneurs bring, there would be creating social value.
no compelling reason for a venture capital
industry; venture capital – with its hands-on,
risk funding – is a valuable resource for
entrepreneurs who want to grow their
companies.
Arguably there is a parallel with
social entrepreneurship and the models
of philanthropy that invest in ambitious
nonprofits with a blend of finance and
advice. In a previous paper in this series, we
introduced the term entrepreneurial social
finance to capture an emerging number of
finance models that seek to meet the needs
of entrepreneurial nonprofits and social
enterprises in Asia. Entrepreneurial social
finance is our umbrella term that identifies Figure 1: The Social Finance Landscape (adapted from John, Tan, & Ito, 2013)
a number of practices often described by
labels such as venture philanthropy, enterprise
philanthropy and impact investing. Exact
definitions are elusive and anyway contested.
The Origins and Expansion of
Figure 1 illustrates the landscape of social
Impact Investing
finance using the metrics of (i) degree of
engagement and (ii) the kind of financial return
anticipated. Venture philanthropists and
impact investors engage actively with their
investees, unlike traditional grant-making or Although the term impact investing
the social investment industry. Traditional was only first coined in 2008, its rise has
grantmakers generally use non-returnable been meteoric and its global promotion
donations, and thus have a negative return well resourced. Pure philanthropy is
of 100 percent. The social investing quadrant always constrained since donations are a
houses Socially Responsible Investment one-way flow of capital. The promise of
(SRI) funds, which seek commercial levels of impact investing is to create social value by
return on investment while targeting socially investing in socially focused enterprises with
and environmentally positive businesses. sustainable business models, which, when
Typically, venture philanthropy uses grants, successful, preserve capital and even offer a
but may also seek to recycle capital by using return on investment.4 Returns are reinvested
other tools, including loans or devices such as in new ventures and create a virtuous cycle
quasi-equity. Impact investors tend to choose of socially minded investments.
financing tools that at the very least preserve
capital, but preferably give modest, risk- While the term may be new, the practice
adjusted rates of return to their investors. is much older. Impact investing has its roots
The impact investment community is broadly in Program Related Investment, a device
characterised as comprising impact-first and pioneered by the Ford Foundation in 1968
finance-first investors – terms used to express that allowed endowed U.S. grant-making
their relative priorities in blending social and foundations to invest their corpus in support
financial return. Impact-first investors prefer of quasi-commercial entities that potentially
to maximise the social or environmental fulfil the foundation’s charitable objectives.
impact of their investment. To do so, they In 2009, the Global Impact Investing
are willing to cap any financial gains. They
4 For overviews and analysis of social enterprise developments in the
explore the return on investment range of region, see Prakash and Tan, 2014 (Singapore); Lam, Dela Cruz, Seah and
Jacob, 2012 (Philippines); Lane, 2012 (China); Suprapto, 2006 (Indonesia);
between positive five percent and negative
Asian Development Bank, 2012 (India); and Au, 2014 (Hong Kong).
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Impact Investing
Network (GIIN) was launched by J.P. Morgan, address their communities’ most pressing
Rockefeller Foundation and USAID as the challenges.
impact investing movement’s advocate. The
same year, Monitor Institute published its • Private sector players, such as Goldman
seminal report on investing with social and Sachs, Bank of America, and Morgan Stanley,
environmental impact (Freireich & Fulton, are developing business units dedicated to
2009). Several quantitative analyses followed impact investing. Goldman Sachs has been
over the next three years predicting the integral in developing and executing the
astronomical potential of the impact investing early social impact bond/pay for success
market. The 2011 report from J.P. Morgan deals. Bank of America sees increased
and GIIN estimated US$4 billion of potential client interest in impact investing, as high-
impact investments for the following year net-worth individuals are seeking ways
and up to US$1 trillion in the coming decade to integrate their values with investment
(O’Donohoe, Leijonhurfvnd, Bugg-Levine, strategies. (Aspen Institute, 2014, p. 18)
& Brandenburg, 2010) – a figure supported
by Credit Suisse in 2012 (Clark, Emerson, Avantage Ventures (2011) optimistically
Balandina, Katz, Milligan, Ruttmann, & estimated the potential demand for impact
Trestad, 2012). investing in Asia alone to be as much as US$74
billion in the 10 years to 2020. For wealth-
A recent survey of 32 institutional creating, entrepreneurial philanthropists,
investors by the Aspen Institute (Kempner venture philanthropy has opened a new world
& Pan, 2014) assessed activity and interest of opportunity where they need not abandon
in impact investing in the United States in their business acumen when donating money
education, economic assets, and health to build stronger nonprofits. Impact investing
and well-being. About half of the investors offers the same but more: a business-like
measured investment performance using approach to philanthropy where capital could
both financial and social metrics. Of these, be recovered or even enhanced by investing
80 percent said their investments had met or in social businesses.
exceeded financial objectives and 90 percent
stated that their investments had met or In recent years a new investment
exceeded social targets. The report notes construct has emerged whereby investors
that: seek to maximise the impact of their capital
through a unified investment strategy, which
Impact investing in the U.S. is coordinates grant-making with impact
transitioning from a phase of exploration and investing to generate financial performance
experimentation toward maturity. Demand with social and environmental returns. Such
for impact investment capital is shifting and an approach is challenging the traditional
moving beyond philanthropy toward market fiduciary-led position of foundations, family
rate expectations. Signs of activity include offices and others with assets to invest and a
the following: social mission to maintain.
• An increasing number of foundations are But the impact investment movement is
becoming active impact investors. The not without its critics who suggest that the
F.B. Heron Foundation began developing stellar figures used to describe the market
its mission-related investment strategy in opportunity are inflated by the longstanding
1997, and by 2011, 100 percent of its capital flow of funds into developing markets for
was made available for impact investing. industrial development, infrastructure and
newer sectors such as clean technology.
• The McKnight Foundation recently committed Even more distorting, argued researchers
[US]$200 million, representing 50 percent from Acumen Fund and Monitor Institute, is
of its endowment, toward its mission. The the claim that only a tiny fraction of impact
Silicon Valley Community Foundation and the investing capital flows to pioneering social
Greater Cincinnati Community Foundation enterprises whose innovations are aimed at
are among the community foundations that serving the poorest (Dichter, Katz, Koh, &
are incorporating impact investing to help Karamchandani, 2013).
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