Jason Ballet ’11Journal #1
I’m working this summer for Acumen Fund in Hyderabad, India. Acumen Fund is a venture fund based in New York that invests in businesses that serve low-income people in the energy, water, agriculture, and health sectors in East Africa, India, and Pakistan. It invests patient capital — capital with affordable interest rates and longer maturities — in for-profit businesses that have the potential for scale, financial sustainability, and impact. The organization has a wonderful culture; it is collaborative and constantly searching for innovative business models, entrepreneurs, and partnerships in the social enterprise field.
This summer, I’m concentrating on investments in the agriculture portfolio. India has 480 million small and shareholder farmers, approximately 50 percent of the population. However, the sector is inefficient, producing only 20 percent of GDP. I’m going to evaluate different investment opportunities and conduct due diligence on select businesses. I’ll likely focus on three potential investments: a dairy venture in eastern India; a software firm that provides information services to farmers through cell phones; and a business in southern India initiated by a leading microfinance bank that coordinates extension services to farmers.
I spent last week in the Eastern state of Orissa evaluating the dairy venture. The entire region is underdeveloped and has a huge amount of economic potential. I spent two days in the sleepy capital of Bhubaneswar interviewing the entrepreneur and the senior management team and one day in the rural areas around Puri observing how the business proposes sourcing milk from farmers. I also had the opportunity to tour a government cooperative’s milk processing plant. The business wants to establish a vertical dairy business, including procurement, processing, and marketing and distribution.
This past Sunday, I woke up at 4:30 a.m. to go with the software firm and my manager to a large vegetable market in Hyderabad. The business is a division in a leading US software firm that is expanding operations in India. It developed a cell phone application that communicates real-time price information to farmers in local languages. (Cheap cell phones have proliferated across developing countries, even in rural areas). Many markets do not operate efficiently because of imperfect information. Prices signal to both buyers and sellers the value each attributes to a good. Without access to correct pricing, farmers lose potential income by selling their goods below market price. We went to the market to observe and interview the farmers using a trial of the application. Even before dawn, the market was chaotic. Farmers and buyers congregated between piles of chili peppers, tomatoes, and eggplants, shouting out prices and talking about the harvests.
On a personal level, I’ve enjoyed living in India — its simultaneously chaotic, frustrating, and exhilarating. Hyderabad is a mix of people who are Hindu, Tamil (a distinct ethnic group with separatist aspirations), and Muslim. I’m sharing an apartment with three other Acumen interns from the United States.
In Hyderabad, we’ve explored the fascinating old city market and weaved through the city’s twisting streets in rickshaws. In Orissa, I took an afternoon off from work and saw the ancient Sun Temple in Konark, one of the iconic structures in India, and explored deserted beaches near Puri. There were waves! But unfortunately, there were no surfboards anywhere to be found. I’m looking forward to the rest of the summer.
Journal #2
I am entering the last month of my summer internship and am continuing to evaluate businesses in India’s agriculture sector to determine if Acumen should invest capital. My two main investment projects — a dairy venture in eastern India and a proposed joint venture with an IT firm that uses mobile phone technology to disseminate price information to farmers — have continued to progress.
For the dairy venture investment, I developed financial projections and a valuation and wrote and presented an investment thesis to the investment committee. Acumen evaluates potential investments based on their potential for financial sustainability, ability to scale, and social impact. The firm aspires to build a vertically integrated dairy business that procures milk from small shareholder farmers, processes it, and markets and distributes value-added milk products to urban middle class consumers. Establishing a procurement system that collects milk at consistent intervals, measures quality, and provides transparent pricing is a proven, powerful mechanism to increase farmers’ productivity and incomes. It demonstrates that dairy production is a profitable activity that generates a reliable cash flow, and by linking higher price to greater quality, it incentivizes farmers to invest in activities that can increase yield, such as higher quality cattle feed and veterinary care. Milk production becomes a preferred alternative to the subsistence farming of rice paddy, which generates lower, less consistent seasonal income and is directly tied to the amount of land farmers own. The firm’s vertical integration — its vision to link a rural procurement network to a stable, higher-margin market — enhances its social impact. Demand for quality milk products among urban middle and upper class consumers is growing and inelastic. This market stability is beneficial for the rural farmers who supply the milk, as it ensures consistent collection rates and the higher margins that come from selling value-added products. While the investment committee expressed concerns that the business was a start-up and needed an abundance of capital expenditure for the procurement, processing, and distribution network, it decided to continue due diligence on the investment.
The IT firm has developed a sophisticated mobile phone application that disseminates price information to farmers based on crop and location and connects them to buyers. I have helped the team develop a customer acquisition strategy, generate ideas to monetize the service, and create a business plan and financial projections. Over the next week, I’m going to write an investment thesis to present to the investment committee. I believe that the investment is a great opportunity. Investing in the company can have broad social impact and improve farmers’ incomes by ensuring fair pricing for their products.
In addition to these two main projects, I have been evaluating pipeline investments in the agriculture sector, particularly firms in the bio-nutrient and fertilizer space. I have found that many entrepreneurs have very innovative ideas, but struggle to translate their ideas into sustainable businesses that serve the poor in emerging markets. In particular, they need assistance developing growth and customer acquisition strategies and creating sustainable revenue models that can simultaneously serve the poor while also generating income.
Personally, I have continued to enjoy living in India. Over the past few weeks, I have traveled to Mumbai, Bangalore, Kerala, and Hampi. It’s hard to believe that I’ll be back in New York in three weeks.
Journal #3
During my final month at Acumen Fund, I continued to conduct due diligence on my two main projects — a dairy venture and a proposed joint venture with a IT firm that uses a cell phone application to disseminate price information to buyers. For the dairy venture, I finalized the financial projections and valuation. For the IT joint venture, I benchmarked possible competitors in India, continued to help the promoters develop a customer acquisition strategy and revenue model, and wrote an investment thesis for Acumen’s global portfolio team. Acumen should determine whether to invest in the two companies later in the fall.
Acumen only launched its agriculture portfolio in India this past year. Investments in its other sectors — health, energy, and water/sanitation — have almost a five-year record of performance in India. Consequently, over the course of the summer, I not only had to evaluate particular companies, but also had to research entire sectors to determine if they are worthwhile for Acumen to enter. During my due diligence exercises, I spent a large percentage of my time researching the dairy and ICT sectors in India to determine opportunities for Acumen Fund to invest. In the dairy sector, I concluded that investing in businesses that provided access to markets, supply chains, and inputs such as veterinary services and cattle feed aligned with Acumen’s investment criteria. In the ICT sector, I believed that mobile phone applications that could communicate price information to farmers could be profitable and have social impact for the poor.
Through my work over the summer, I saw the challenges and opportunities in investing in firms that serve the bottom of the pyramid in emerging markets. The same products and services that are successful in the United States often have no use in different countries. Distribution to rural areas is prohibitively expensive because of poor infrastructure and disbursed population bases, capable local managers are hard to find, and accurately pricing services is economically difficult and ethically complex.
The most fascinating obstacle to me is the most human one; behavior and culture. Acumen has this investment in an incredible alternative energy company called Husk Power that generates clean energy in remote rural areas without access to the electricity grid. It builds and operates small power plants that use discarded corn husks as fuel. The technology powers light bulbs, displacing traditional kerosene lanterns. On my manager's last visit to one of the villages, he saw a family grouped around a kerosene lantern, 10 feet away from a bright light illuminated by one of the new power plants. When he asked the family why they did not sit under the newer and brighter bulb, the father responded: "Because this is what we have always done."
However, despite the difficulties, my experiences during the summer affirmed my belief that investing in the sector and promoting sustainable businesses is an essential model for economic development.
