800x550 Pioneer Gap

Closing the Pioneer Gap

on December 15, 2012 | in conscious, investment

More money than ever is flowing into impact investing, yet many entrepreneurs creating companies that serve the poor still find it difficult to raise capital, particularly at the early stages of their company’s growth.

(Originally posted on the Stanford Social Innovation Review)

rice_burner_impact_investingHusk Power Systems, a growing social business, burns rice husks to generate power and provide electricity to low-income Indian villagers. (Photo by Harikrishna Katragadda/Greenpeace)

Bihar is far from the economic growth that has transformed Indian megacities like Mumbai, Delhi, and Chennai. It has the lowest rate of economic activity of any Indian state ($430 a year GDP per resident); between 80 and 90 percent of its villages have no electricity; and many of these villages are so remote that the government has declared them unreachable with the conventional electrical grid, consigning millions of people to darkness and poverty.

Gyanesh Pandey, Ratnesh Yadav, and Manoj Sinha knew there had to be a way to address this issue. In 2005, costs for producing renewable energy had been dropping globally, and they believed this represented an opportunity for Bihar to become part of India’s story of economic transformation. They experimented with different sources of renewable power and ultimately settled on rice husks. Bihar is in India’s rice belt, and the husk left over from milling rice grains is not only plentiful, it is generally considered a waste product as well. By developing their own small, low-cost, rice husk-fired power generators, the team believed they could produce reliable, renewable, and affordable electricity for the 70 million people who were off the grid.

The first plant the three social entrepreneurs built in 2007, using their own personal savings, looked modest. It produced just 30 to 35 kilowatts of power, required three operators to keep it running eight hours a day, and delivered power to about 400 homes in the surrounding village over low-voltage power lines strung up on bamboo poles. The economics of delivering power through this system were attractive, and the team believed that this new, small-scale design and mini-grid could be the key to lighting up rural India.

Although excited about the promise of the business, the team’s personal bank accounts were nearly depleted by the cost of developing and building this plant. With a business plan in hand, in 2007 they entered and won three business plan competitions at the University of Texas, the University of Virginia, and the Massachusetts Institute of Technology, netting them $97,500 in prize money. They used this money to construct and operate a second power plant, pay their growing team, and continue their research and development.

The three entrepreneurs also began talking to potential investors about investing in their company, named Husk Power Systems. Although there was some interest, the feedback they got was that the business was at an early stage and too risky for investment. The team was at an impasse. Between their personal savings and prize money they had invested nearly $170,000 into the company. They had two pilot sites up and running, providing about 800 customers in Bihar with access to clean and affordable power. But they still couldn’t raise the capital they needed to grow their business.

Read the rest at http://www.ssireview.org/articles/entry/closing_the_pioneer_gap