Kevin Starr of Mulago Foundation:
A businessman in Africa told me that Coca-Cola lost money there for 12 years. In other words, it required over a decade for one of the most competent companies on Earth to break even on the sale of a mildly addictive sugary drink that is absurdly cheap to make. Imagine what it takes when you’re focused on impact. Microcredit, the iconic impact investment of the last decade, required more than $100 million in subsidies before it became a profitable business—and the impact has been disappointing at best.
When overcoming market failure to reach the poor, it takes subsidy to do the R&D, launch the business, build the market, and sometimes even to deliver the product or service over time. Delivering at a price point the poor can afford almost always translates into very small margins. A good example is D-Rev, a small organization designing products that improve the health and incomes of poor people. They use donor subsidies to design products to the point where they are ready for manufacture and distribution at scale by for-profit companies (and sometimes not-for-profits). Because D-Rev can receive royalties via licensing agreements, funders they approach for grants often want them to take loans. Bad idea. To reach the target population, the margins—and hence the royalties—must be small. D-Rev is designing products that would never be designed otherwise: saddling them with loans simply means that they a) have to jack up prices and/or b) produce fewer designs more slowly.
via The Trouble With Impact Investing: P1 | Stanford Social Innovation Review.
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