PEI article on Asian VP investments

Date

March 19, 2013

Asian VP investments on track to perform(For full article, subscribe to PEI at: http://www.privateequityinternational.com/)Asia’s venture philanthropy investments have not yet beenexited, but industry sources believe they are set to generatesatisfactory returns.Michelle PhillipsAlthough venture philanthropy as a business model only made its debut in Asianprivate equity three years ago, IRR is already set to equal those of venturephilanthropy in the West, according to industry sources working in venturephilanthropy.One partner of a global venture philanthropy firm says that his fund’s global IRR,which has at least four Asian investments, is about 15 percent. The IRR of theAsian investments, of course, is unrealised, but in terms of profitability and scale,he believes they are already set to generate about the same returns as the fund’sWestern investments.There are differences across the Asia-Pacific region, he added. For example,China and Southeast Asia are showing slightly lower returns, while India hasboth more opportunities and higher returns, because the venture philanthropymarket there is slightly more mature.One of Asian venture philanthropy’s biggest barriers is a lack of track record,according to Ashish Dhawan, ex-senior managing partner of ChrysCapital andcurrent chief executive of non-profit Central Square Foundation, who recently lefthis private equity firm to devote all his time to India’s education sector.For example, Dhawan spends much of his time with third-party donors, who haveonly recently begun to see venture philanthropy as a sensible investment. Thesedonors have to meet with the entrepreneurs and see the quality of their businessproposals to be convinced.“They’re only just beginning to see proof of concept – you have to show themsomething tangible,” Dhawan says.Given that most venture philanthropy investments were made in 2010 or after,exits can’t be expected for some time. LGT Venture Philanthropy, for instance,expects to exit its Asian investments over the next two to five years, according toWolfgang Hafenmayer, managing partner at the firm.LGT has 8 investments across Asia, including Driptech in both India and China,which works to provide poor farmers with more affordable irrigation and helpthem save water.However, Hafenmayer suggests that most private equity professionals would notget involved in venture philanthropy for the financial returns. The pitch is insteadthat rather than “dishing out money” to a social cause, they can use their privateequity skills to scale their impact and still get small returns.The scale of venture philanthropy in Asia can be staggering, Hafenmayer insists.For example, just introducing electricity to a village can help thousands of peoplestart up their own businesses and go from struggling on $150 a year to beingfinancially independent – simply because they can make small products in theevening. In Asia alone, Hafenmayer estimates that there are millions who livewithout electricity.He says the magnitude of the impact private equity can have is spectacular.“These companies depend on small margins, but have a vast number of peoplethey can reach.”