Investment opportunity

"Investment opportunity" Continued...

Issue: "Your right to vote," July 31, 2010

In Karachi, Pakistan, another enterprising man bounds into the room with his shirt off and pumps the hand of a befuddled salesman. Then he asks, "Were you able to pay attention to what I was saying?" He stands at the front of the room and delivers today's lesson: first impressions count. The scene comes from The New Recruits, a documentary that shows three business leaders (fellows with the Acumen Fund, an investment fund much like SEAF) fanning out across the world with their stellar resumés and good intentions. Their task is to help launch social enterprises, enterprises with that "double bottom line" mentioned earlier: They provide the poor with a needed service and also sustain themselves by making a profit. Joel Montgomery, the shirtless fellow teaching about first impressions, went to help Pakistani salesmen sell Micro Drip irrigation systems to poor farmers.

Montgomery-a Christian from Tuscaloosa, Ala., and a graduate of Yale and Thunderbird School of Management-went into the project with missionary zeal. One scene shows his skeptical Alabama family gathered around the dinner table, trying to dissuade him before he leaves. Montgomery's mom chides them, "Joel feels like he's on a mission, that the Lord's sendin' him to Pakistan." His dad replies gruffly, "The Lord sent Jesus on a mission and He ended up dyin'."

Montgomery's mission wasn't easy either. The documentary shows farmers dozing during one of Micro Drip's presentations and shows Montgomery out in the fields, struggling to guide his salesmen as they explain to the farmers how Micro Drip can save them money. Montgomery tells his dad on a video chat that he used to believe the market could solve all problems, but now he sees its limitations: "You can't come into a developing country with a perfect plan and expect it to work perfectly." Montgomery told me his sales people had master's degrees but couldn't take a calculator and find 90 percent of 100. And while locals formed the sales team, Montgomery couldn't expect them to completely understand the Pakistani consumer like he thought they could. It would be like grabbing someone off the street and saying, "Tell me about American consumers!" Montgomery said.

Montgomery told me for the first half of his nine months in Pakistan, he wondered, "Why in the world am I here? It doesn't feel like we're really making a dent in what we're trying to do here." But Montgomery says he took comfort from the book of Job, when God steps in and chides Job for his arrogance. When Montgomery read that, it lifted him out of discouragement.

Micro Drip came in where corruption and exclusively profit-based capitalism left gaping holes. Montgomery said the Pakistani government earmarked $2 billion to develop drip irrigation in the country. But thanks to corruption and a faulty program structure, poor farmers had no access to the subsidies. Nineteen of the 20 companies marketing drip irrigation decided to follow the major profits and focus on the richer farmers with large plots. Micro Drip was the only one that focused on the poor farmers-the ones who needed it most.

Montgomery and Micro Drip began with a focus on one-acre irrigation systems-at $300, which is one-fifth the cost of a normal drip irrigation system and still far too expensive for poor Pakistani farmers. Since the farmers were skeptical about irrigations' ability to improve their crop yield, Micro Drip had to adjust its approach to convince the farmers the technology would work. Montgomery's team focused on selling family nutritional kits-a mini drip irrigation system that could water a small garden. The farmers could pay for this $11 system in just six months with their increased crop yield. During Montgomery's time at Micro Drip, the company finally started to see progress in selling the mini-systems.

Acumen Fund chose to invest in Micro Drip since the technology saw success in India and a community of Pakistani business leaders committed to make it happen. Rajan Kundra, director of the Acumen Fund's portfolio, said its investors don't mind if the salesmen sell large or small irrigation systems. The key is building a company that can sustain itself-a process that can take two to five years. Is Micro Drip there yet? "They're getting there. They're getting there," he said. Sometimes Acumen Fund will decide to give a company more capital to bring it to the point of sustainability. He added, "We've also decided that certain ideas aren't going to work." In early stage investing, you're successful if half your investments pay off, he said.


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