Following our recent blog on a strategy re-fresh, we have also reviewed and revised our internal processes, spending time considering how we identify, analyse and fund enterprises.
In parallel, we also reviewed and revised our internal processes, spending time considering how we identify, analyse and, hopefully, fund exciting new opportunities in the sector.
We adapted our grant or investment analysis, developed some short but focused templates to use and, perhaps most critically, established a set of key questions to guide every investment decision.
Out of this process have emerged what we have called our “golden rules”. This sounds a little grand when you write it down, but essentially these are three criteria that we and our Board use when considering opportunities.
These three rules don’t represent the full list questions we ask when analysing an enterprise, but they are the starting point: we are unlikely to proceed with an opportunity unless we feel we can reasonably confidently answer ‘Yes’ to each of these three points.
Rule 1: Strong and engaged management
We place a lot of value on the management of the enterprises we support. We look to develop engaged and meaningful relationships with our grantees and investees, which are built on trust and good, two-way communication.
We hope our grantees and investees see us as more than just a funder, and that these strong relationships will enable enterprises to ask us for support, advice and connections where we can help.
The foundation of this golden rule is confidence in the management of the enterprise. This extends to understanding the capabilities and track record of senior management and their board to develop a sustainable enterprise and execute plans well. How data is generated and used to inform strategy and decision making is also important to us.
We also consider whether there is alignment with senior management in vision and with the Foundation’s guiding principles.
And, as much as a strong CV is good to have, the ambition, tenacity and entrepreneurial flair of senior management to succeed is also crucial part of our decision making.
Rule 2: A compelling service or product
Our vision is for ‘financially sustainable water and sanitation enterprises delivering high-quality, affordable and reliable services’ to underserved customers.
This means that the enterprise must have a compelling and innovative service that represents a significant improvement on current options for low-income customers.
The product, service and enterprise should also be aligned with the Foundation’s strategy and thematic areas and we believe it will have transformative impact on low-income households in Africa and Asia.
The critical element here is that there is a product or service that is needed, that a customer base exists that can and will pay for this service, and that this will have a positive impact on the lives of people daily.
Rule 3: There is a potential for breakthrough
As with most in the sector, we are impatient for impact at scale.
To achieve the Foundation’s vision in water and sanitation, there will need to be significant breakthroughs in the sector in the coming years.
And we are focused on the role we can play in that as a relatively small, private foundation looking to provide risk capital and support to achieve that.
So, the final golden rule we have is enterprises and their models should represent a breakthrough for the sector, with the potential to disrupt how things have historically been done.
We look for innovative business models and clear visions for how scale and financially sustainability can be achieved. We also look at the environment the enterprise operators in as we believe that operating in a favourable context will enable this breakthrough, as will the risk capital the Foundation is able to provide.
While these rules guide our thinking and analysis, we know there will need to be compromises and trade-offs—elements of some rules will be more relevant than others.
That said, these rules have added rigor and focus to how we are assessing opportunities, doing our due diligence and forming successful relationships with exciting and innovative enterprises in the water and sanitation sector.