MCEO Concept Paper

MONALISA SETHI, 1511104
Imagine an India, where entrepreneurs and innovators can access the resources
they need to create deep and irreversible social impact!- Mr. Manoj Kumar
Bhatt, Co-founder & CEO, Social Alpha.
The current business space of India is broadly divided into two categories, not
for-profit organizations and for-profit (commercial) enterprises. While the
ecosystem for the enhancement of the start-ups in the commercial segment is
well equipped, there is no such sustainable infrastructure or support existing for
the upcoming social enterprises. Even the underlying philosophy of both the kind
of organizations are in the extreme, while the non-profit organization aims at
doing charity for the base of the pyramid (BoP), the for-profit organizations aim
at selling products and services to the base of the pyramid. While frugal
innovation is a necessity, we should not underestimate the importance of
increasing the purchasing power of the BoP customers. Therefore the need of
bridging the large gap that exists in the social enterprise ecosystem has given
rise to the case for supporting the Undeserving middle. There is an opportunity
to disrupt and defeat poverty at the grass root levels by developing models for
financially sustainable and operationally scalable businesses that evolve at the
intersection of non-profit and commercial organizations.
First, we have to understand the various challenges that are faced by the social
enterprises in the context of starting up. The most prominent problem faced by
social entrepreneurs is the lack of funding avenues to support their ventures in
early stages. Even despite the recent boom in investments, social enterprises
struggle to raise capital because most investors look for lucrative returns in
companies which promise either profits or scale or monetizable assets like
intellectual property and user base. Hence most social entrepreneurs are left
with options where such returns are not the motivation donations, grants, and
subsidies. These sources of funds are limited and not easy to crack without a
proven track record, making it a chicken-and-egg problem.
A lot of social ventures have constraints to profitability built into their business
models. Due to the nature of the problems these entrepreneurs try to solve, most
conventional cost-cutting strategies like automation, cheaper sourcing of raw
materials, etc. cannot be adopted because they would defeat the core objectives
of the venture. This makes it tougher to achieve sustainability of the ventures.
Another challenge for social ventures is competition with mainstream businesses
in their target markets. Due to limited resources, most social companies are
unable to invest in talent, branding, marketing and distribution of their products
and services at the scale and aggressiveness of their mainstream competitors.
As a result, they fail to acquire and retain most customers who differentiate
between businesses based on brand power or pricing.
Growth is a tricky goal for most social enterprises. In an era of internet enabled
businesses which scale rapidly, very few social entrepreneurs succeed in growing
their ventures beyond their established. Mostly this arises due to the uniqueness
of the problem being solved the solution is a highly localized one and hence
cannot be applied elsewhere. Even if the product or service is generic enough to

scale, it takes time to get adopted by newer markets and geographies, hence
leading to a slow rate of growth.
Finally, the most challenging problem for social ventures is the intangibility of
success metrics. Unlike mainstream businesses where net profit and CAGR are
enough to judge how well the company is doing, most social entrepreneurs find it
hard to quantify the success of their efforts because the products and services
create more intangible societal value than tangible returns. This makes it difficult
to evaluate if the resources invested in the venture are being efficiently utilized.
In the quest of finding some of the solutions to the challenges discussed above,
Social Alpha (an initiative of Tata Trusts) has established some of the
infrastructures in place which will foster the disruption that is required in the
social start-up segment. We will now discuss these solutions with Social Alpha in
the context by laying down their success strategies.
About 68% of the profit from the TATA Group goes to TATA Trust, which further
uses this capital to fund research and development works. Even though a huge
amount of money is being spent on R&D, the lab to market commercialisation
and productization is missing. In other words, the R&D gets limited to the four
walls of the laboratory and never sees the light at the other end of the tunnel; it
is not able to reach the lives of those who need it the most. Therefore, Social
Alpha makes a conscious effort discover such socially relevant innovations and
provide them incubation, Go-to-Market strategy, early stage high-risk capital,
impact fund (a new initiative) which will primarily focus on the social impact that
the start-up creates and not only on the returns.
In the vast sea of ideas, finding the right one to support is a tough task in itself.
Therefore, Social Alpha has identified two important parameters for the
shortlisting process, social impact, and financial sustainability. Mr. Manoj says,
operational scalability is not the criterion on which they reject an idea because it
is something that can be worked out later. Social Alpha has primarily two layers
of sources to mitigate the persistent problem of funds, High Net-worth Individuals
and Philanthropic organizations like the Bill Gates foundation along with various
Government organizations. There are CSR funds as well pooling into the capital,
but they are separated to be used only for the not for-profit ventures in the
portfolio of Social Alpha. Social Alpha has partnered with the top academic
institutions of the country, their R&D labs for crowdsourcing ideas, investor
networks to create a sustainable source of funds for its portfolios, other startups, innovators and entrepreneurs who provide mentorship to the new ventures.
Social Alpha has also predefined a set of impact benchmarks which make it
easier to evaluate the performance of the ventures. For example, Rang De, a P2P
microfinance lending platform has set the number of first-time borrowers as
one of the metric to determine its growth.
The main objective of the incubator is to leverage technology and innovate new
products for a new market like the BoP so that there is sustained development
and growth in every segment of the society. For example, there are many EdTech
and FinTech start-ups which are making commendable innovations in their

product space, but all of them are targeted towards the upper echelons of the
society who can already afford these services. However there is no conscious
effort made towards developing a product which makes the formal credit lending
affordable for the marginal and poor farmers, no such product exist which will
make Govt. schools competitive enough to provide quality education to the most
needy. Social Alpha is also setting an example for all those who think that there
can be no profitable social venture. Hasiru Dala on the portfolio is making an
EBITDA of 25-30 percent. Habba.org, another venture on the portfolio is
disrupting the e-commerce ecosystem by providing transparency in the billing
system and fair price to the artisans. Social Alpha has also started a microentrepreneurship program which encourages local entrepreneurs to bring their
innovation to the market.
Social Alpha and many other similar firms are trying to empower social
innovations so that they can enable people to seek their interests and join the
mainstream with dignity and as equals and not as mere charity receivers
because they dont need mercy but treatment as equals.

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What challenges do social enterprises face in raising capital?

How does Social Alpha find and support promising social enterprises?

MONALISA SETHI, 1511104

MONALISA SETHI, 1511104

MONALISA SETHI, 1511104

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