CGI: Lemelson Foundation -- A Philanthropy Investing in Market-Based Solutions

imageIn a private meeting with Julia Novy-Hildesley, Executive Director, the Lemelson Foundation, I found out what went on behind closed doors at the Clinton Global Initiative (CGI) when the media were not present. Novy-Hildesley was the track leader for "Strengthening Market-Based Solutions," one of CGI four key tracks. I also learned from her about the Lemelson Foundation's extraordinary financial innovations in investing in for-profits; this is a new twist for philanthropies at the forefront who fund for-profits as well as nonprofits.

"Foreign aid will never be enough ... there need to be market solutions"

Let me explain first that CGI's four track leaders are selected for their stellar depth of experience and knowledge and relationships in the field, through a highly competitive process--a process that began last January. In Novy-Hildesley's proposal for consideration, she recommended that "foreign aid will never be enough to solve development problems so there need to be market solutions via innovation. If the innovation is seeded in the triple bottom line, then these will become sustainable enterprises."

Once Novy-Hildesley was chosen, she worked closely with her colleagues at the Lemelson Foundation and was also joined by Philip Auerswald, Founder and Editor of "Innovations: Technology, Governance, Globalization," published by MIT Press, to develop the focus and content, create plans for the plenary and the breakouts, and identify the speakers and panelists for CGI's track on market-based solutions. Novy-Hildesley told me that CGI had an iterative planning process throughout which President Clinton was directly involved with the four sector leaders through personal meetings and discussions.

Behind closed doors at CGI

At CGI, stepping in at the last minute to moderate a closed door session was one of Novy-Hildesley's responsibilities when the scheduled moderator was a no-show. Novy-Hildesley shared with me what was discussed during this meeting.

Participants included entrepreneurs from FON Wireless and CellBazaar, and investors from SNV Netherlands and Endeavor. In total, a group of about thirty entrepreneurs and investors discussed whether high-growth firms need help, and if so, of what type. They also discussed the interests of investors. Here were the key points of the discussion, according to Novy-Hildesley:

  • Entrepreneurs need financial investment but also technical assistance and business development support to ensure their success.
  • Investors need clarity on financial return and social impact of entrepreneurs in order to make investment in small and growing businesses in developing countries.
  • In addition, we need to develop the capacity of in-country fund managers in developing countries--people with all the skills needed to be successful fund managers who will also know government officials, local banks and the local language, thus likely to be more effective than fund managers from outside the region.

Lemelson Foundation: experimenting with new financial innovations

"In the 21st century, we will see the nexus of for-profit and nonprofit models," declared Novy-Hildesley, and she described a number of the ways that the Lemelson Foundation is experimenting to help establish sustainable enterprises that provide solutions to address global challenges. Ultimately, the Foundation's goal remains the same, whether it is granting philanthropic dollars to nonprofits or investing funds in for-profits: "to ensure that people everywhere have access to the benefits offered by technologies that make lives better, healthier and more productive."

One of Lemelson's promising new financing devices is First Loss Capital; this is designed for new for-profits that are precluded from investments from banks loans or private sector investments because the enterprises are too young to have audited financials, or they're too high risk, or low return (for example, solar lighting that seeks low profits in order to be accessible to poor people). Through First Loss Capital, Lemelson lends money to the bank for loan to the enterprise, and the bank, in turn, lends the enterprise double or three times the amount; if the enterprise loses money, the first to go is Lemelson's. "First Loss Capital corrects for the market failure, lowering the bank's risk," explained Novy-Hildesley. Once the new business enterprise is sustainable, and able to attract investments on its own, then Lemelson can take their money and invest in a new for-profits.

Here are two examples from Novy-Hildesley:

  • d.Light was created to deliver low-cost, solar-powered lanterns to individuals in Africa and Asia who lack electricity. They were created to deliver a triple bottom line to 1) provide the lowest price possible for their product so they could reach the poorest of the poor, 2) substitute solar energy for polluting kerosene lanterns, and 3) increase opportunities for the users of their products who would be able to study at night or do other productive activities, thus improving their incomes and livelihoods.
  • Selco--the Solar Electric Light Company was founded to deliver low-cost solar home-lighting solutions to people lacking electricity in India. They built a triple bottom line from the beginning by focusing on 1) designing products for the most marginalized communities in India, 2) pricing the products at the lowest possible price, 3) providing employment to youth in communities where there was demand for their products, and 4) substituting highly polluting kerosene with a cheaper, cleaner alternative.

The Lemelson Foundation's impact was felt throughout the conference. Twenty-five of the companies and nonprofits in which Lemelson has invested participated at CGI to make Commitments to Action; ten spoke on panels on various tracks. And many CGI participants recognized the innovative work of the Lemelson Foundation.

Better world

It's impressive to see so many corporations retrofitting CSR into their business strategies decades after they were founded; Novy-Hidlesley featured excellent examples on panels throughout the "strengthen market-based strategies" track at CGI. At the same time, Lemelson is helping to build tomorrow's green corporations by investing in companies that embed a triple bottom line into their core DNA from the outset.

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