Crowd-Funding for the Missing Middle (InVenture)

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By Laura Spiekerman (Research Analyst, Kopo Kopo) Shivani Siroya sees potential in entrepreneurs like Ms. Lakshmi, who distributes ice cream to high-end shops in India. Despite the demand in the market, her inventory and staff limit her to only 4 shops.

In the United States, a small business lender might provide financing to increase her inventory and sales staff. Instead, Lakshmi will leapfrog traditional small business lending, which is largely unavailable in emerging markets, and reach for a loan crowd-funded by investors in the United States.

Siroya is the founder of InVenture, the Lending Club-like platform that Ms. Lakshmi uses. She describes herself as someone who expected to be on a straight path for investment banking.

“I thought I’d retire at 37,” she says, an idea she now describes as “hilarious.”

Working in M&A, she loved the qualitative and analytics side of business, appreciated the technology, and enjoyed the competitive nature of banking.

Siroya turned her attention and ambitions to populations that can’t access basic services and remain in poverty. Frustrated by the manner in which NGOs function, she turned to microfinance as an example. The average loan size is still just around $300, with a six month to twelve month repayment period and a fixed interest rate. Siroya understood that small and medium sized businesses (SMEs) were the key to job creation and economic development. SMEs consist of 68% of the GDP in the States and only 32% in developing countries.

Finding a Business Model

Siroya was baffled by the absence of SME-appropriate expansion capital products. Her bewilderment wasn’t soothed by UN advisers whom she had met while previously working with UNFPA and other NGOs. Upon realizing that the market gap was “ridiculous,” she set out on her own in a big way, “I obviously had to solve the root cause,” Siroya says.

Siroya had to find the right model. She looked at micro equity product, but lack of metrics made valuations impossible and potentially unethical. She piloted with four separate, models: buyout in Ghana, profit sharing in India, co-operative in Mali, and step-down in Mexico. A straight revenue sharing model won out.

There are rarely significant technological innovations with small businesses in emerging markets, but Siroya knew that technology was going to play a key role in filling the gap left by a lack of information and data about her borrowers. She started an SMS application InSight, a “quickbooks for microbusiness.” Her fund is crowd-sourced, not unlike Kiva, so that anyone can lend to a compelling entrepreneur in South Asia or Latin America.

Raising Funding as a Social Entrepreneur

After completing the Startup Chile program and having found a lead investor, Siroya is now seeking another round of investment to expand beyond her pilots and create more lending. Somewhat ironically the challenging element of fund raising has not been her gender, it has been her status as a social entrepreneur. Given that the social impact is “baked into the business model,” it’s hard for Siroya to avoid doing good.

Editor's note: Got a question for our guest blogger? Leave a message in the comments below. About the guest blogger: Laura Spiekerman is Research Analyst at Imprint Capital, researching emerging markets investments for social impact. Prior to Imprint Capital, Laura was in Nairobi, Kenya working at Kopo Kopo, a startup related to the back-office integration of mobile payments for SMEs. Laura holds a B.A. in Political Science and Human Rights from Barnard College, with a focus on the evolution of microfinance in international development. Follow her on Twitter at @lauraspiekerman.