What's emerging from the IAP portfolio?
Making 'deals' with government and partners. Managing innovation. Getting the cost model right. And moving beyond an IAP grant to further finance. These have all emerged as critical issues in the first overview of progress and lessons in the portfolio of Innovation Against Poverty (IAP).
Last week the first Knowledge Exchange Report from IAP was published, entitled Start-ups, Innovation and the Base of the Pyramid. With around 30 projects contracted for IAP financial support so far, and more in the pipeline, there is plenty of diverse experience to share. The vast majority are start-up businesses, many define themselves as social enterprises, and they straddle many sectors with a strong clump of energy and agricultural projects, complemented by a scattering in health, finance and education, and technology as a cross-cutting theme.
Priming the pump for innovation is a priority for IAP. It may be years until these businesses deliver benefits at the base of the pyramid at any scale, but Sida is filling a gap in the market: providing early stage financing for business ideas that are innovative, realistic, but not yet proven. So the report takes a look at their innovation. Most of them have some level of innovation in the actual product or service delivered, and in one third of projects there is high innovation here. For example, bug farming by ICCO, financial system development by Finaccess, nutritional products by elimentaire sarl, and energy services in a number of projects.
But it is not only that kind of 'technical' or R&D innovation. There is innovation in distribution models - for example Sanergy exploring how to make toilets acceptable to slum residents and profitable to entrepreneurs.
Probably because the projects are strong on innovation, they face some big questions on making it work: can they create the consumer demand and cost model that will translate a great idea into a commercial success? The report covers the seven main practical issues that are evident so far, from red tape, to business skills, to distribution channels.
Finally the report shares preliminary findings on the value of IAP support. It is clear that an IAP grant, even a 'large grant' of €200,000 is just a step along the way. Further finance, usually concessional, will still be needed. But it is also clear that by providing early stage finance for proof of concept and piloting, IAP seems to be filling a gap in the market. Or to put it in the words of one applicant:
"private investors have shown great enthusiasm for the business concept but are hesitating to invest the amounts of money that is needed to finance the commercial pilot. ... they argue the risk is very high for an investor. If IAP would support the commercial pilot and share the financial risk, investors have indicated that they are likely to provide additional financial means. They investors would also value the due diligence done by IAP to ensure that this project has potential."
The report was launched at the IAP Conference and Awards Ceremony. More detail and presentations can be found on the event page.
The 29-page colour report is published by Sida (November 2012) and written by the IAP team.