One can say the foundation has a different outlook when it comes to ROI. Instead of Return on Investment, a better way to put it would be Return of Impact. Mulago usually stays with organizations as long as it sees increasing returns, in terms of impact.
We had a chance to do a question and answer with Kevin Starr, managing director of The Mulago Foundation. He provides insight into Mulago's world of funding social enterprise, learnings with success and failure of fundees, and also hints to areas of needed attention in social enterprise.
Triple Pundit: What does the Foundation mean by the tagline, "lasting change that goes to scale?"
Kevin Starr: "Lasting change that goes to scale" refers to 1) real measurable impact, 2) lasting behavior change to ensure that impact lasts and continues to accrue, and 3) exponential growth of impact over time, either by the direct efforts of the original organization or by the adoption of the intervention by others (businesses, governments, non-profits)
3p: Where does the foundation get the money to fund social enterprises, and what does it do with a return on investment, if any?
KS: The foundation is wholly funded by the Arnhold family, investment bankers for generations.
The foundation does not seek a return on investment; it is focused on maximum social impact, and the social impact portfolio is more than 95% philanthropic.
We've seen very few solutions that can successfully address the fundamental needs of the very poor and that provide a return on capital, much less turn a profit: we're often trying to overcome massive market and government failures.
[However] if something comes along that promises maximum impact while achieving a market rate of return, we'll certainly consider it.
3p: Entrepreneurship is all about taking risks through trial and error. Funders, whether for-profit or non-profit, assume the financial risk. What is a success story of a organization you funded, and what was their "secret" to success?
KS: One Acre Funds provides extremely poor (meaning often hungry) farmers with the inputs, training, credit and access to markets they need to make a decent living from their tiny plots. They've gone from zero to more than 30,000 farmers in under 5 years.
The secret has been a very disciplined and business-like approach to building the organization. It is extremely well-managed and functions much like a high-performance business, making very efficient use of personnel and infrastructure. They measure impact as an analog of profit and manage toward maximizing it.
3p: Failure is just as important as success, in that we learn lessons from the whole entrepreneurial process. What was a "failed" organization you funded, and what lessons did you learn from its "failure"?
KS: We were angel funders of a start-up based in Kenya with a brilliant idea about how to help poor farmers grow high-value crops that could serve up-scale markets and dramatically increase incomes.
It failed because the organization was committed to the idea in its original form and didn't evolve enough in response to field experience, and because the funder did not have the skills needed to raise capital.
Things never play out as you planned, you have to raise money anyway, and so it is critical to have the right leadership in place from the outset. After this experience we became much more disciplined about passing up even the most brilliant solutions if the right leadership was not in place.
3p: For our budding social entrepreneurs out there, in your eyes, what are the areas in need of the most attention, yet have had little movement or interest?
1. Distribution Channels. We constantly hear about new technologies and products to improve the lives of the poor, but we don't hear much about ways to get those things to them. We need a lot more innovation in distribution channels that get (and market) high-impact products to the poor. Beyond Coca Cola and beer, there are very few things that reliably reach the rural poor.
2. Conservation. Conservation lags behind health and economic development in terms of volume and quality of new ideas. It's perhaps intrinsically more difficult, but it also seems under-represented in the wave of social entrepreneurs.
3. Income for the rural poor. More than 2 billion of the world's poorest are rural agriculturalists. They're the ones who are fleeing to rural slums. Most of the ideas around businesses and jobs are aimed at the urban or pedi-urban poor. We need more ideas about how to help the poorest and hardest to reach.