For-profit or non-profit: who would you give $1m to?
Capricorn Investments, Root Capital and One Acre Fund duke it out in Oxford at the 2016 Skoll World Forum.
The Skoll World Forum offers plenty of food for thought annually and none more so this year than a debate entitled ‘For-profit or non-profit, which wins the social ROI (return on investment) contest?’ The audience was asked, if they had a $1m, who would they put their money with?
Speaking for the non-profits was Andrew Youn (pictured above, speaking), founder of One Acre Fund, which supports farmers by loaning them an $80 package of seeds, fertiliser and training to maximise their output and sales. Alongside him was Willy Foote (pictured above, speaking), founder of Root Capital, which also provides loans to rural businesses in poor, environmentally vulnerable places, but at a bigger scale ($50,000 to $2m).
The for-profit side of the argument was given by two partners from Capricorn Investment Group, Ion Yadigaroglu and Alan Chang. Capricorn manages the investment portfolio of the forum's head honcho Jeff Skoll.
The terms for-profit and non-profit turned out to be confusing. Both One Acre Fund and Root Capital offer loans that have interest rates, so money is being made. Both are also registered as charities however. Youn was transparent about One Acre Fund having around 80% of its income from loan repayments, with the rest being made up by grants.
Chang remarked on the similarities between the two teams. He told the audience he’d checked out the One Acre Fund annual report: “There’s a line called ‘revenue’, there’s a line called ‘expenses’, turns out there’s a ‘net’ line; it seems my opponents here also focus on making profits work and you’re actually part of us because we focus on the profit side.”
Initial rounds of the debate saw the two teams trading blows about the scale of their impact. Foote gave the example of a cashew nut company in northern Togo that was struggling to honour a contract without investment. Root Capital stepped in and revenue has now increased four fold with employment rising from 100 to 900 people. “This is about a non profit working at the financial frontier where capital is scarce and impact is abundant,” said Foote.
Responding, Yadiagaroglu gave an example of one of Capricorn’s investments in the Kilombero Valley in Tanzania, which he described as “an extremely poor area that has never seen a penny of investment: 9 hours, 450km from Dar es Salaam, via mainly dirt roads”. Capricorn established a central farm that served as repository for equipment and expertise. “We are now addressing 10 villages in a 65km radius, we’ve trained 7400 smallholder farmers… we have seen a tripling of smallholder yield,” Yadiagaroglu concluded.
Beware the for-profit making false promises to generate outsize return in the hardest to serve markets on earth
The good-natured debate saw plenty of light-hearted jibes and attempts to dispel myths. “Beware the for profit making false promises to generate outsize return in the hardest to serve markets on earth,” Foote said, to laughs from the audience. “For profit doesn’t mean ‘for greed’,” noted Chang in response.
Before closing arguments, Foote pointed out that agriculture is rarely fully commercial given the subsidies that exist in many first world countries. Organisations like Root Capital level the playing field. He argued: “The reason the missing middle between micro finance and the bank exists is because for-profit capital markets could not solve it. The beauty of the non-profit social enterprise is it gives us the ability to navigate in that area.”
Yadiagaroglu was having none of it. “My experience is that we (referring to Capricorn and organisations like them) put up all the risk capital and absorb the initial uncertainties and as things get more understandable and plannable, development finance and non-profits have a home in which they can operate and do things.”
The audience was asked to vote on which team they would give their $1m to before and after the debate. At the outset it was a pretty even split; by the end the non-profits had won the day.
Photo credit: Skoll World Forum