The Agenda - Social Justice

By: Cheryl DahleWed Dec 19, 2007 at 12:00 AM

The Freeplay Group, based in Cape Town, South Africa, builds products that capture the imagination of the world -- and that change the world.

What they did was to build a company. On the wall of the conference room in Freeplay's Cape Town headquarters are copies of cartoons that Stear and Staines commissioned as gifts for their major investors. In each illustration, there is a caricature of Stear on his knees pleading and one of Staines brandishing the Freeplay radio. Also in each cartoon is the investor, appearing either pleased or panicked (depending on how you read the expression) but nevertheless signing a check or showering the founders with cash.

Freeplay's first big check wasn't an investment per se -- it was a donation. Stear and Staines were called to a meeting with Andy Bearpark, a former aide to Margaret Thatcher and the head of humanitarian affairs at the Overseas Development Administration (ODA) in London. ODA gave the partners £150,000 (the equivalent of $235,000 at the time of the transaction, in 1995) to make a commercially viable model of Bayliss's original prototype (which took two minutes to wind and played for only eight minutes) that would be used by aid groups. "It was unbelievably easy to raise funds at first," Stear says. "We did not even have a product yet, but the idea was so compelling that groups like ODA were willing to finance it. The BBC even shot a documentary about us -- before we had a factory. It was all very heady and exciting."

One of the people who heard the buzz about the company, which was then called BayGen (as in Bayliss Generator), was Hylton Appelbaum, head of philanthropy of Liberty Life, a big South African insurance company. Appelbaum, 45, was intrigued by the radio's potential in Africa, a place filled with people who had no access to electricity. The Liberty Life Foundation offered the company £1 million (about $238,000 in 1995) to build its marketing operation.

But the money didn't last long. Realizing that Freeplay could not outsource its manufacturing (its production runs were too short), Stear went back to Appelbaum for additional funding for a factory. The Liberty Life Foundation's primary goals were to promote job creation and to assist the disabled. Appelbaum saw a chance to address both goals through Freeplay. He offered another £1.7 million (or $480,000) -- not to the company but to a consortium of nonprofit organizations for the disabled. This consortium then gave the money to Freeplay to open a factory. The consortium took a 50% interest in the factory, Liberty Life Foundation got a 25% stake, and the workers got 25%. Freeplay got board control and full management responsibility. A year later, Freeplay used the same financial structure to open a factory to manufacture flashlights. This time the key stakeholder was NICRO (National Institute for Crime Prevention and the Reintegration of Offenders), an organization that helps ex-convicts and abused women.

"It was a perfect investment," Appelbaum says. "We were able to create jobs for people who had the least chance of getting them, while helping to decrease crime. And we did it in a sustainable way."

The next crucial investor was Gordon Roddick, who visited Freeplay's factory and was impressed: "Thousands of good ideas die because the right people are not there to carry them out," says Roddick. "Rory and Chris were entrepreneurial -- hungry. They were also taken with the idea of creating a socially responsible business. My visit coincided with their first big cash shortage, so I became an investor."

Over the next two years, Roddick invested more than $2 million. He also provided a virtual blank check as overdraft security on Freeplay's production. (Which is why Roddick's cartoon depicts him galloping in on a white horse.) "At one time, Gordon owned 42,000 radios," Stear marvels. "He'd buy them at cost, we'd stockpile them and sell them when we could. For a while, Gordon was the world's largest collector of wind-up radios."

But Freeplay's vision was too expansive to be financed by a single investor. So in 1997, it wooed its first big-time corporate investor, the General Electric Pension Trust. In return for a one-third stake, GE provided $11 million. The deal also included a research partnership with GE, whose labs in Schenectady, New York had been working on self-powered technology. The cartoon marking this investment shows Leonard Fassler, head of GE Pension Trust, suspended midshot over a basketball hoop -- Michael Jordan-style -- tossing an armful of cash through the hoop into Stear's arms.

"Ultimately," says Stear, "we all want to make startlingly good profits. GE didn't invest because it wanted to feel good. It invested because it was getting in on a major industry, and it expects to realize extraordinary returns on the investment. We're not asking for charity. This is a commercial venture. But if you can make a huge profit and make a difference, that's nice."