Impact Investment: Just 1% – 2% of Venture Capitalism, says Arun Gore
Esha Chhabra chats with Arun Gore, the president and CEO of Gray Ghost Ventures, about impact investing movement.
Arun Gore is at the helm of Gray Ghost Ventures (GGV), a venture capital fund targeting technology initiatives and social impact. Some would say they’re part of the new “impact investing” movement. But Gore is not so concerned about the semantics. In their Atlanta-based office, removed from Silicon Valley and designed with frugal innovation in mind, the focus is on bolstering companies in emerging markets that have the power and capacity to develop the communities they serve. At Gray Ghost, business meets tech meets development head on.
Started by Bob Pattillo in 2003, the fund has now committed in excess of $100 million to “social investments.” Gore, who was part of the executive team at T-Mobile USA for over a decade, joked that he came out of retirement after meeting Pattillo to do another startup.
Q: You lived in Seattle during your time at T-Mobile. How did you get involved with an Atlanta-based fund?
A: I always wanted to be in the social space, not knowing what exactly I wanted to do after I retired. At the time, the Gates Foundation office was just getting started in Seattle and I reached out to them. But then I was introduced to Bob through a friend. We met in 2005, and by 2006 I was working with GGV, doing consulting work and identifying portfolios. And things just grew from there. So, I moved from Seattle to Atlanta to run the fund. For me the social impact world was relatively new, but I knew from my days at T-Mobile how to scale a business, how to create a company, and how to manage a team. That’s what I was bringing to GGV.
Q: What was that learning curve like for you?
A: In terms of understanding the development issues, I was born and raised in India, largely in Chennai before migrating to the U.S. in the early ’80s. My family had always been involved in charitable endeavors—in fact, they had their own foundation. And my mother was, and still is, carrying out some of these projects. So, it was not too far-fetched for me.
But one thing, I learned quickly on the business end of it was that social impact needs scale. While at T-Mobile, I learned how to scale a product, a service, an idea. My parents had been doing philanthropy in a small way. But rather than it be a peripheral issue in the commercial world, impact has the capacity to work within business and scale. Scale, I think, is what GGV can help with. Here’s an organization that can bring that impact to scale.
Q: In the last seven years, what have you learned about the impact investing world? Any challenges that you think need to be addressed but are currently being overlooked?
A: Impact funds should spend more time on developing businesses and entrepreneurs. They shouldn’t just be consumed on the growth side of investments. There’s also a lack of local market knowledge, given that VCs are distant from the markets that these companies are working on.
We also really need to start engaging people who have actually run companies and are not just out of school. You can be an entrepreneur and have an idea, but can you turn into it a successful business? Can you manage a team of people? That requires some experience.
Also, more broadly, in this coming together of the social and the commercial world, there needs to be greater understanding and trust between the two spheres.
Q: Do you think that incubators have the power to scale these social business ideas?
A: If you really want to make inroads, incubation groups are as good as a startup—a place to get the seed idea and get the ball rolling. They are not going to move the needle though.
Q: Any mistakes that you’ve made along the way in your development of GGV?
A: I don’t know if I would classify this as a mistake, but I wish we could have more people working in the local markets. For instance, in India, we would like to set up an office but the regulatory conditions are not favorable and we would be paying tax twice, which would be too costly. Yet, it’s never too late. We ought to work harder to make sure that we’re integrated at the local level as much as possible.
Q: Speaking of local markets, a lot of your investments have been in South Asia. Do you find that there is interest locally, in the business community, to invest in such home-grown enterprises?
A: The VC community is still really small there and the corporates tend to engage in traditional philanthropy. Why are people in India not as open with their wallet? There’s an evolution that will need to take place. It will take time because the accumulation of wealth is still quite recent.
Q: What are some flaws that you see in the “social impact” space?
A: There are few things that I’ve noted. The fund managers are put under a lot of pressure to just be successful. So, there isn’t really an appetite for early-stage investing and taking a risk. If I were going to be judged on how much money I was going to bring in, it would be hard to take those risks. We take chances. But they’re educated chances.
“Impact investment” is not an overrated term but a misunderstood one, perhaps. It’s not purely about looking at financial success, but more about creating opportunities.
Q: What portion of the VC world would you estimate is “impact investing”? Just an idea from your experiences. This isn’t scientific.
A: I’d say about 1 percent to 2 percent. It’s a really tiny segment.
That’s why I think it’s import for funds like ourselves to also work with traditional mainstream sources of investment and finance and bring them in. We shouldn’t just work within this small community of impact investors, but try to expand it by bringing in more commercial partners. For instance, the National Venture Capital Association (NVCA) just asked us to be on a panel about social impact investing. It’s great to see an entity like the NVCA—which is about commercial investment—take interest in this.
Q: You’ve seen hundreds of business plans. What do you say to an entrepreneur fundraising for their company? Any tips?
A: I think entrepreneurs should think big. They should think beyond raising $25K. They should understand that the business should be a scalable model. They should be better acquainted with the terms of financial details and the language that comes with it. Do not rush to take the first money that comes to you. Have like-minded people support you. Wait for a good investment. And also, I’ve noticed that some social enterprises are not as professionally presented as their commercial counterparts. So, those are some points to improve on.
Most of all, though, I would suggest spending a couple of years in a startup environment, learning on the ground. An MBA can give you a good introductory experience and the tools. But it’s like having all the parts of a chair and the tools to assemble it, but not really ever having the experience of doing it yourself. An MBA doesn’t tell you how to put it together, it doesn’t reveal all the problems you might have along the way.
So, get a real hang of what it takes. This is not a job. This is your life.
Q: Many social entrepreneurs complain of a funding gap. Is this true?
A: I think there is a funding gap but also there is some misunderstanding between both parties. It’s like being in a five-story building: the social entrepreneurs are on the first level and the investors are on the fifth level. They’re both out on the balcony in the same building but can’t see each other.
Entrepreneurs have to keep in mind who they are talking to. They need to know what the moving parts are in making a deal. They should be willing to do a little taking and giving, and be flexible. They should also know the language and how to raise funds. And most of all, look at your own goal. Don’t look at what other people are doing. You’re not Zuckerburg. A good business plan should have a substantiated area of growth.
For funders, they need to realize that the idea is more important than the analytics. And with social entrepreneurs, especially, the idea is important. The business plan will change—it always has with the entrepreneurs that we’ve supported. They should also realize that they have the potential to take it further. They themselves should have a vision of the company.
So, it’s a bit of managing expectations on both ends to get them to meet somewhere in the middle—like on the third floor.
This originally appeared on partner site, Forbes.com
(Photo Courtesy Bindalfrodo/ Creative Commons)