Ecosystem Approach to Investing

Building an Impact VC Fund

I believe, venture investing, and ecosystem building goes hand in hand and should be done more consciously and carefully. I was lucky to be involved in constructing an ecosystem for low-income private schools in India to improve the quality and standard of education in low-income private schools. 

Have you ever imagined yourself as an ecosystem builder?

Introduction

The infrastructure in emerging markets is crippled to provide access to fast WiFi, skilled human talent, equal access to quality education, reliable telecommunications, supply chain expertise, formal & de-fragmented markets, decent transportation links, and financial capital. It inhibits entrepreneurs from starting enterprises in the first place and later becoming a substantial constraint while scaling it up.

There are a few ways in which the underlying infrastructure can be built, which are as follows:

  1. The private company takes ownership of building the infrastructure exclusively for themselves using their resources or buying the infrastructure and controlling it.

  2. The private company sub-lease it to a not-for-profit or an implementation partner to create an infrastructure and engage various stakeholders in the ecosystem.

  3. The most interesting one is the private company emerges as an ecosystem builder, building an infrastructure, which not only benefits them but to the whole ecosystem - stakeholders, partners, customers, employees, competitors, etc. This novel approach is often referred to as open institutional infrastructure (OII) – when a firm invests in a pool of resources that is accessible to their commercial partners, communities, and competitors. OII is not the most straightforward path for firms, but those who do engage with it may reap great success for the organization and community.

    When services are lacking, firms need to take an active role in building institutional infrastructure, preferably an open one (OII). In business, polycentric governance encompasses sharing management ideas, characters, and decisions with partners outside the firm, including governmental actors, NGOs, and competitors. Of course, this requires non-standard types of processes.

    To learn more about OII, watch this.

Video: The firm as an architect of polycentric governance

Impact Investor & OII

I spent a significant amount of time learning and working on the self-regulatory organization model and ecosystem development.

I realized early on that the market in the affordable private school segment is hugely fragmented and immature, which leads to the death of several early-stage companies, and many don't achieve scale. So, we took the approach as an ecosystem builder rather than just being a passive impact investor. We saw ourselves as the Open Institutional Infrastructure (OII) - to make the market a bit more mature, formal, and less-fragmented so that various players in the ecosystem get benefited, including our portfolio ventures.

It also helped us devising a problem-driven impact-investment thesis by determining the right kind of gaps existing in the Indian education system (across the value chain) and all the fillers which private ventures can fill at scale.

Why should Impact Investors act as OII and ecosystem builders?

It's essential to see ecosystem work as an integral piece of any early-stage impact or venture fund, as most of the time, venture funds focus on investing in cutting edge technologies or ventures serving a new market, which might be underserved or unserved.

brown tree trunk on brown soil

There can be several areas where ecosystem development does not only help in creating access to the market but also in shaping policy, creating awareness, and driving impact at scale. It's imperative to learn from nature while being an ecosystem builder because any small change in the system can affect it positively or negatively, so we need to be conscious of our actions as an ecosystem builder.

Do you know, wolves are ecosystem builders? We can learn a lot from them.

“The Wolves changed the behavior of the rivers. They began to meander less. There was less soil erosion. The channels narrowed. More pools formed. More riffle sections. All of which were great for wildlife habitats. The rives change in response to the wolves. And the reason was that the regenerating forests stabilized the banks so that they collapsed less often. So the rivers became more fixed in their course……… So the wolves, in small number, transformed not just the ecosystem of Yellowstone National Park – This huge area of land….. But also, its physical geography.” ~ How Wolves Change Rivers.

It's time to be an ecosystem builder.

We need more impact investors and venture capitalists that act as ecosystem builders, system engineers, and community builders - who engage with communities, governments, not-for-profits, competitors, etc.

Curated resources for further curiosity:


I am continuously looking for first-time funds and fund managers, that are looking to create their impact funds with an edge or a differentiated value proposition in emerging economies. If you are building one, please do write to me. I would love to learn more from you and would be happy to help in any way.

With Love,

Sagar


About

"first followers" is founded by Sagar Tandon, a founding member at Moonshot Ventures. You can reach him at sagar@moonshotventures.org.

Occasionally, he blogs about the responsible investing, tech for good, venture capital, investment thesis, conscious capitalism, collaborative consumption, community, and humane lifestyle.

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