Impact investing has been an increasingly important approach to support sustainable development, through helping social enterprises gain a significant amount of capital in the early project stage, to scale up quickly under the condition of good social impacts and revenue prediction.
As a result, Change Magazine opens a new column "Dialogue with Impact Investors". The first one to receive our interview is Mandy (Zhang Zhen), senior associate from Venture Avenue. Impact investment is a nascent industry in China and Venture Avenue is one of the pioneers. Established in 2009 as a consulting firm for philanthropic organizations, it has started to explore the field of impact investment from 2012. Diinsider visited Mandy at her office in Tsinghua X-lab, which has an incubator for startup social enterprises, supported by Venture Avenue.
Tsinghua University's x-lab, in collabroration with Venture Avenue in promoting social ecntrepreneurship among young people
Diinsider: Can you tell us how Venture Avenue was started?
Mandy: In 2008, China had a devastating earthquake in Sichuan Province. It attracted many organization and volunteers to do relief work. Mr. Zhang Hongyan, then working for Boston Consulting Group, conducted a pro bono consulting work for One Foundation. He soon realized that many non-profit organizations need consultancy, so he founded Venture Avenue in the next year. NGOs need clear strategies, improvement of operating efficiency, and maybe most importantly, a different mindset that money has a cost so they better use "investment return" to evaluate where they use the donation -- all those issues need knowledge transfer therefore for management consultancy to add value.
Diinsider: It seems that you provide consultancy and assessment services for corporate social responsibility and charitable projects, is it still your main source of revenue?
Mandy: It is still our main revenue so far.
Diinsider: Could you tell us how many social enterprises have you invested so far, and how are they going?
Mandy: Since 2012, we have invested in 6 social enterprises. We invest at an early growing stage. We provide debt and equity investment for early-stage social enterprises. For equity investment, we usually take 5–10% shares with between 500,000 to 2 million CNY.
Diinsider: Is there any particular social issue you focus on?
Mandy: We prefer investment in education, poverty alleviation, information technology and initiatives working for disadvantaged groups. Education and disadvantaged groups are our concerns. We have a team with ICT expertise, so we prefer projects with ICT solutions, such as ricedonate.com and Yixiu Academy.
Ricedonate, one of the investees of Venture Avenue. Ricedonate created an innovative charity platform where users who can raise money through exemplary behavior
Diinsider: From your experience, what are the challenges for impact investment?
Mandy: It is difficult to identify qualified projects. Most of them do not have a concrete business model. It is equally difficult to find suitable founders. Some only have experience with charity and thus lack of business knowledge. Some have strong business expertise, but few want to work for the social sector.
Diinsider: So how do you select which social enterprise to invest?
Mandy: We will look at the business model, the scale of impact, whether it will evolve into a benchmark in the field. Before we make final decisions, we may also interview their clients. The social enterprise must also overcome a barrier of the social problem, which is difficult for other competitors to duplicate. For example, a better understanding about clients, and a stronger founding team may stand out among competitors.
Diinsider: In addition to investment, do you provide other supports for the social enterprises?
Mandy: Sure, our consultants will do many hands-on work for them, including establishing financial model, referring clients, etc. Our work on corporate social responsibility gives us a large client base. We introduce them to the social enterprises we invest in. There is a strong interdepartmental collaboration within Venture Avenue.
Diinsider: How do you evaluate the social impact of your invested projects?
Mandy: Usually the social enterprises will submit the data and we review them. We will look into the scope of their service, such as how many people they serve. We also conduct analysis to see how much improvement they make before and after the investment. For instance, for a poverty alleviation project, we will see the growth of income of peasants.
One Foundation, one of Venture Avenue's client and partner in China
Diinsider: Do you accept online application or the investment is by invitation only?
Mandy: We do both. Although we do not have on-line application entrance on our website yet, we review applications sent to our email.
Diinsider: In China, do you have any policy obstacles to do impact investment?
Mandy: Yes, it is challenging for social enterprise and impact investors to enjoy tax exemption, because you cannot register as either of them. For social enterprises, we encourage them to register as both non-profit entity and enterprise, so it can receive grants or donation, as well as investment. But in the long run, social enterprises should strive to receive all of its revenue from the business side.
Venture Avenue's investment criteria and approach
Diinsider: Many social enterprises have difficulties at the ideation or startup stage, do you have any suggestions for them?
Mandy: My suggestion is to develop the prototype product/service as soon as possible, test it and try to sell it.