Business overview - Bernard van Leer Foundation

Report
The ECD Ecosystems
Funds of Africa
A regional pilot fund of $50M for East Africa
Potential second generational fund of $272M for Africa
“Investing in Sustainable Businesses
Promoting Early Childhood
Development.”
Team Members:
Brian Dempsey
Chas Gore
Peterson Mutahi
Executive Summary
INVEST
•Early childhood
development
PROMOTE
•Increased accessibility to quality
goods and services
TARGET
•25-30 high impact, innovative
portfolio companies
•Build scale
•Enhance access
•Increase affordability
•Education, early learning
•health and childcare
•Disease prevention
•Nutritious foods
•Clean water
•ITC
•Ancillary goods and services
HOW?
ADDRESS
•MDGs of poverty, maternal & child health
•Infectious and water born diseases
•Malnutrition
•Childhood and maternal morbidity
•Lack of early childhood education
•Preventive and orphan care
•Identified a priority pipeline of
USD 50M of investments
•Commercial viability is central to
fund strategy
Timing Ripe for ECD funding
GDP Growth in Africa
Key Themes
 African population expected to double to 2B by 2050.
 422M Africans currently under age 15 .
 33M babies expected in 2011. All eventually need education,
food, water, housing, clothing
 Private Schools in Africa currently service 10% to 40% plus
of students and up to more than 50% in urban slums.
 Industry with annul turnover of $ 8.4B and one of the
biggest global business opportunities for double bottom
line investing.
Education Expenditures Expected to Rise
Improving economic conditions is enabling
expenditure by governments and individuals
increased
Average GDP growth is ranging from 4.1% in Kenya to
6.9% in Tanzania
Population growth historical average in Africa is 2.5%
Donors and philanthropists continue funding support
Increased access of ECD goods and services through
innovative models
Investment Opportunities in Health Care
 Health care expenditure in SSA is
expected to grow from $16.7 billion in
2005 to $35 billion in 2016.

Annual growth rate of 7.1 percent
per annum.
 $25–$30 billion in incremental
investment required for the increased
demand in physical assets (hospitals,
clinics, distribution warehouses, etc.)
 African heads of state pledged to allocate
15 percent of their national budgets to
health care in 2005.
 The private sector has potential to
deliver between 45 and 70 percent of
the needed increase in capacity.
High Impact Investing
 Government resources and charitable donations are insufficient to address the world’s social problems.
 A new alternative for channeling large-scale private capital for social benefit, aimed at improving the
lives of the poor and vulnerable in emerging markets and mitigating climate change.
 Of a sample of 24 high impact investors, by J.P. Morgan in 2010, a total of 1105 investments were made,
totaling 2.5 billion USD
Who are Impact Investors?
Development finance institutions
Commercial banks
Private foundations
Retirement fund managers
Large-scale financial institutions
Boutique investment funds
Private wealth managers
Companies
•Community development finance institutions
Impact Investors & Business Sectors
Project Demand for
High Impact Investments
Housing, rural water delivery, maternal health, primary education and financial
services — for the portion of the global population earning less than $3,000 a
year, offers the potential over the next 10 years for invested capital of $400bn–
$1 trillion and profit of $183– $667bn.
Obstacles toProvide
ECD Entries
For Private Sector
Development…
 Stagnation
Demand for ECD products outstrips population and GDP growth
 Conflict
Innovation leads to increased productivity and efficiencies
 Weak economic performance

Price reductions and greater proximity due to increased competition will improve service
Fragmented
delivery and policies
increase demand
 Lack of legislation

Population growth and urbanization strain public educational and
Political
Infighting
infrastructure
challenges thwart rural outreach
health systems and
 Lack of political will

Chronic under-penetration levels provide numerous points of entry for new players in segments
Corruption
such as E-Learning, health diagnostics, distribution and retail of nutritious food and
 High
Costsand
andeducation
no Quality and communications
vitamins
 Insufficient
supplypartnerships
and distribution
Public private
(PPPs) increase resources available to the private sector and
 Poor
public
service
delivery
reduce
delivery
costs
and improve service and quality
 Shortages
Mass-market strategies highlighted latent lower income commercial opportunities in various
 Limited
capacity
ECD sectors
including nutritious foods, vitamins, clean water, mosquito nets, alternative
energy for household lighting and refrigeration
Development Impact
 Investing in young children would likely improve the chances of these children to succeed later
in life.
 The completion rates in the primary years, as well as the primary gross enrollment rates, are
positively affected by the level at which countries invest in the early years in nutrition, health,
preschools, and childhood care.
 Improvement in education improves lifelong human capital, investments in the early years
would contribute to the longer-term economic development of Sub-Saharan African countries.
 High economic returns on investments in education
 Enhanced school readiness, enrollment, and completion; Later age of motherhood for young
women (that is, reduced birthrate); and improved family situations, including the empowerment
of women.
 Each year of schooling translates into a 10% increase in an individual potential income.
 At a national level, each year of additional schooling leads to a 1% increase in annual GDP.
 This year an estimated 1.8 million children’s lives in sub-Saharan Africa could be saved if their
mothers had at least a secondary education.
Deploy Mass Market Solutions and Efficiency Gains to increase access
to quality ECD goods and services for lower income groups
Adapting products to accommodate consumers’ cash flow patterns and variations.
Harnessing technological advancements to reduce unit product costs to the consumer.
Maximising product-consumer proximity.
A focus on customer service and marketing.
Enhance market research and intelligence capacity.
Deals
Deal
Flow
Type of Investee
Average Deal
Size ($)
Total Deal Size ($)
5
Venture Capital Seed
0.077M
0.385M
5
Early Stage Private Equity or VC
0.9M
4.5M
8
Joint Ventures for Private Equity
expansion finance
2.125M
17M
8
Private Equity expansion capital for
African Companies
1.9m
15.5M
2
Grants/Debt for FBOs and Non
Profits
5M
10M
28
Total
$47.385M
Deal Flow
Impacting ECD Ecosystem Sector
 Pre and primary schools
 Clean Water and Hygienic Services
 Emerging Educational Technologies
 Mobile Telephony Cash Transfer Services
 Nutritious Foods and Beverages
 ITC and Educational Schools and Training
 Health Services Targeted at Mothers and
Under Fives
 Disease Prevention Services and Goods
Institutions
 Educational and Health Promotion Services
 Media Services for Education and Health
 Communication, Information and Health Care  Microfinance and financial services
Technologies
 Alternative Energy Targeted for Household
Lighting and Refrigeration
 Health insurance for Low income populations
 Telemedicine
Education – Test Prep Provider
Seed Capital
Business overview
 US based company with a wholly owned Kenyan subsidiary
 Led by a UCLA trained NYC charter school teacher who has spent three years teaching in Kenya and is fluent
in Luo,
 MPREP has created a mobile platform for primary school students, schools and parents.
 MPrep couples low-tech mobile applications – widely available to the masses – with top-quality study materials, to
provide poor students with affordable, individualized study tools that track their progress.
 Particular focus on rural students who cannot afford the upfront costs of books and, as a result, fail the primary school
exit exam. Students need more accessible, affordable, and engaging study tools.
 MPrep uses mobile phones to provide radically better study tools to kids in developing countries. These tools cost less
than books, are easier to buy, and are much more engaging.
 MPrep will initially target the grade 7 & 8 students in Kenya.
 Families spend roughly $70 on test prep for 8th graders over the course of the year, a total of ~$140m. This equates to
a market opportunity of roughly 400m students (>$30b) in developing countries worldwide.
Low Cost Education Provider
Early Stage
Business overview
The World’s first network of ultra-low cost, private primary schools planning to education over one million children for
under $4 per month.

Bridge International is a private US Company with a Kenyan subsidiary. Conceived by three Americans including
successful Silicon Glen educational software entrepreneurs
 Began operations in Kenya in 2009
 Expanded to serve 18,000 primary schools children in 60 schools
 Fees of $4.00 per month which enables any low income community to send 85% of children to school
 Bridge currently employs 1,000 staff and hires from the local communities including 200 back office employees. All
payments are cashless, from parents to Bridge, from Bridge to all vendors and all employee pay.
 Bridge buys land, designs, builds, operates, and staffs all its facilities. 90% of its schools are located within 900 meters
of its students homes. Average school size is 400 students.
 Bridge believes operating a network of schools supported by a strong central headquarters provides the scale,
experience and capacity to invest in systems of management, support, training and innovation that allows individual
schools to dramatically increase their effectiveness.
 Bridge is completely IT Driven. From research, to land purchase and construction, recruiting and training,, to
instruction and operations.
Disease Control Textiles
Business overview

European based company focusing on
emergency response and disease control
products.

Aim to reduce child mortality, improve
maternal health, and combat HIV, malaria,
and other diseases.

Current
products
include
PermaNet
(bednets), LifeStraw (water purification),
ZeroFly and ZeroVector to give shelter and
protect against vector borne disease, and
CarePack (interventions for HIV-infected
people).
Proposed transaction

Expansion capital required to improve
regional distribution and reduce costs of
producing key products.

2.5M USD for 25% equity stake

Improve R&D of key products to impact
disease control sector.

Funding required to expand into more subSaharan African countries and impact least
developed and most affected areas.
Joint Venture
Text Book Printing and Distribution
Business overview


Provide access to textbooks through in-country
printing facilities

Aim at providing one book for every child
through locally established modern print
facilities.

Reduce cost of current textbooks by 50% and
improve quality.

Focus
of
creating
employment
and
craftsmanship in an improved graphic industry
in developing countries.
Uganda based plant with expansion opportunities in
Congo-Brazzaville, Liberia, Zambia, Tanzania,
Malawi, Ethiopia, and Rwanda.
Proposed transaction

Capex for plant construction, production,
training, and delivery of books to government
schools.

5M USD for 49% of equity
Joint Venture
Nutritious Foods Manufacturer
Business overview

Manufacturer of

Fortified Foods

Local provider of Plump Nut product
from Nutriset

Manufacturing Facility in Nairobi

Focus on providing solution for acute and
chronic malnutrition in refugee camps, school
feeding programs, public schools, and HIV
Proposed transaction

Support production and distribution of RUTF
product to famine affected areas

Expansion capital with equity of 2.5M for 35%

Possible income note of 1M
Private Equity expansion capital
for African Companies
Maternal and Pediatric Care
Grants/Debt for FBOs and
Non Profits
Business overview

10 year old independent non profit operating two hospitals

300 beds serving over 350,00 patients p.a.

Men’s and women’s wards, surgeries, pediatrics, neonatal ICU, perinatal and
eye and dental clinics.

35,000 admissions per annum

Delivers 12,000 babies per years with 14,500 maternity admissions

Conducts 390,000 lab exams, 17,000 major and minor surgeries, 8,000
endoscopies, 30,000 X-Rays, 34,000 ultrasounds, and 25,000 eye and dental
exams with 360 staff including 30 Doctors , 18 clinical officer and 85 nurses in
the two hospitals

Low costs, slim margins and high volumes lead to 11.6% operating surplus for 2011.

Admissions, Consultation, Lab Test and Generic Drug= $ 4.00

Deliveries at USD 35.00 and C-Sections at $ 75.00 with two-night stay.
Proposed transaction

Expansion Capital of $5.3M sought for Construction of 120 bed Maternity and
Pediatric Center

Grant or soft loan sought in local currencies based on performance repayments.
Maternity Hospital
Grants/Debt for FBOs and
Non Profits
Business overview

Non-government/non-profit organization providing medical, preventative, curative and
rehabilitative as well as community based services to people with disabilities. Up to
120,000 people with disabilities and their caregivers are served by CCBRT each year.

Comprised of:

Disability hospital (eye and orthopaedic departments, physiotherapy, plastic
surgery department for burns and cleft lip/palate, orthopaedic workshop) and an
extensive community based rehabilitation program.

Main target group are lower income groups who cannot otherwise access quality
services. CCBRT subsidizes high quality services to the poor on a sustainable basis
through higher fees paid by those who can afford it (7 per cent of CCBRT’s patients).

CCBRT Maternity and Neonatal Hospital, ( Baobab) will be a referral hospital to the
DSM region and the eastern zone. CCBRT will also develop the capacity of existing
key health facilities to offer specialized services focusing on preventing disabilities.
Proposed transaction

Seeking $ 4,2M in expansion capital to complete 1st round of $16,5M financing for
construction, project implementation and HR of 60 bed
obstetric, 34 bed
gynecological and 110 cot neonatal wards with 12 delivery sutites and 6 operating
theatres.

Grants or soft commercial loans with six month grace period sought over five year
term with declining balances based on “equity kicker” performance fees.
ECD Fund of Funds. What is it?
 Four separate asset classes have been proposed with total demand
for capital estimated on a regional East African basis at $47.38M and
$272M Africa wide.
 Each type of asset class, ranging from seed venture capital to private
equity early stage and expansion capital, to debt
financing, deal structuring, and exit characteristics.
 Characteristics of a fund of funds:
 Separate asset classes
 Pool of capital
 Different returns and risks
 Provides portfolio diversification
 Allows investor choice between assets
 Provides balanced returns
has distinctive
Fund Structure
Regional
Fund of Funds
Seed Capital
Faith Based NGO
Early Stage
•
Venture & start-up capital •
•
0.385M USD fund
•
Grants and low interest debt •
•
5-10 Companies
•
0%-5% targeted return
•
5%-10% targeted return •
16 joint ventures and
•
12%-15% targeted return •
10 million USD fund
•
5-10 companies
expansion opportunities
•
1.75 x return on capital
2.5M-5M average
•
1x return on capital
•
Average 50K-100K
investment size
•
Average 250-500K USD •
Average 2.5M USD
investment size
investment size
Investment size
•
Expansion Capital
•
Expansion Finance
Early Stage Expansion
•
Expansion Capital
4.5M USD fund
•
32.5M USD fund
Total of 28 – 50 Companies
Estimated total return: 7-14%
•
15%-25% targeted return
ASSET CLASS SIZE & RETURN
.385 M
Expansion Capital
10 M
Early Stage
Expansion
4.5 M
12-15%
15-25%
Debt/FBO
0-5%
32.5 M
Start-up/Seed
Asset Sizes
5-10%
Asset Return
Other Investment Structure Options
Development Windows
 Pioneered by AECF, its supports business innovation through open ‘windows’ of business plan
competitions.
 AECF has invested 120 M in three years in 140 companies representing different sectors
 ‘Windows’ target a specific sectors in education and health development
 ‘Call for proposal’ to a geographic region, where companies can apply with a business plan for
a project.
 The widest possible range of businesses are eligible for support
 All
windows are competitions, open only to for-profit companies. A third party runs the
competition over a set period of time. Successful applicants will receive donor supported
capital up to a maximum dependent on the window they are applying too.
Regional funds
Create local endowment fund of 25M invested in Government Treasuries. Use
earning of 16% per annum to fund businesses.
Donors determine investments
Hire Asset Manager and your own team / or do deal with locals.

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