🎙️ Elevar Equity Partner Sandeep Farias
The Elevar Method — a quantitative approach to measuring doing good, the COVID Crisis, Portfolio Companies, DWDG as an investor, and advice for the listeners
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Welcome to another episode of the Doing Well by Doing Good podcast! This time we’re trying something different — chatting with those that fund the founders we’ve chatted with in the past.
Founders have a unique passion for their craft, but what about the investors that exclusively invest in these types of companies? How do they think about quantifying the combination of financial, social, and environmental impact of these firms? In this episode and subsequent ones we will hear directly from the people making these funding decisions.
In a previous post on the blog, we defined Impact Investing and described how it is Doing Well by Doing Good because it is focused on generating positive, measurable social and environmental impact alongside a financial return.
One of the early stage impact investment funds we highlighted in that post, Elevar Equity, serves emerging economies in India and Latin America and has a unique approach to evaluating their companies called the “Elevar Method”.
We had an insightful conversation with Sandeep Farias, a former lawyer and Managing Director at Elevar Equity — so much so that we broke it up into two episodes.
Part 1: The Elevar Method & the COVID crisis in India
Check out the full episode below, click below on the key sections to listen to those snippets, or read the key points from each section for details 😀
[1:32] Elevar’s Starting Journey and Ethos
- Began ~10 years ago as a collaboration across Indian & Latin American markets
- Hand’s on and focused on in-the-field learning via field visits with customers
- Innovation realized by distribution rather than just product or service
[7:22] The Elevar Method asks the question”Can you deliver something effectively, profitably, and affordably?” and comes in 3 parts
- LAhWS framework — Low Average Revenue per User [ARPU] (LA), high Wallet Share (hWS) which means high affordability while also being essential for the end user
- Customer Business Model — Profitability (profit margin), affordability (customer margin) and distribution (impact leverage) together enable businesses to best position themselves to be a sustainable business while also making an impact. In other words, the business imperative and impact imperative are inextricably tied together.
- Scale — Twin flywheels for customers and business working together enable sustainability over time. Positive accountability, great unit economics, and distribution working alongside product enables companies achieve scale.
[20:23] Impact vs. Non-impact businesses
- Non-impact businesses are purely based on maximization of profitability
- Impact businesses additionally have affordability as a key differentiator
[21:45] COVID Crisis in India and its Impact
- The second wave has been a tsunami — everyone in the Indian diaspora knows at least one person who has passed from COVID.
- Elevar’s portfolio entrepreneurs have come together to help their customers and employees. Seasoned entrepreneurs can better handle the volatility of the market caused by COVID.
- COVID has created lots of stories that will motivate new entrepreneurs
- COVID has unearthed new opportunities in the healthcare and finance sectors
[28:20] Can impact investing help prevent or avert crises like COVID?
- Impact investing cannot avert the crisis, but it brings together communities, and COVID has shown the strength of the community through collaboration between the entrepreneurs, employees, and customers.
[31:57] Can entrepreneurs help customers and employees during crises like COVID?
- Organizations have limited options short-term options, but human ingenuity still comes together to provide immediate relief.
- In the long-term, organizations can help by supporting their customers via their products (e.g. high quality two-wheelers, loans for agricultural farmers)
Part 2: Examples of DWDG companies in Elevar’s Portfolio and Advice for Listeners
Check out the full podcast episode below, click below on the key sections to listen to those snippets, or read the key points from each section for details 😀
[1:19] Edutech example of a DWDG company in Elevar’s portfolio
- LEAD School works in the mid-market education market fitting both the low ARPU and high Wallet Share criteria (LAhWS) of the Elevar Method and the founders have experience running their own schools in India.
[6:42] Can LAhWS type businesses sustain as the middle class grows?
- While more groups are moving into the middle class and aspirations grow, LAhWS customers are simply demanding more services opening opportunities for new businesses.
- As this happens, standard investors and impact investing are quickly converging driving more capital to impact investing.
[13:14] What is Elevar’s key differentiation among others in the space?
- Elevar Equity is differentiated in their adherence to the Elevar Method for evaluation and a focus on a limited number of investments per year in the Indian and Latin American market.
- Markets Elevar invests in are not winner-take-all markets meaning that there are lot of opportunities for new capital making it less competitive and more collaborative.
[18:40] Transportation example of a DWDG company in Elevar’s portfolio
- WheelsEMI provides second-hand scooter (commonly referred to as “two wheelers”) financing for the Indian market.
- Scooter availability is a key driver for economic mobility for low income communities and WheelsEMI is making them more affordable
- WheelsEMI also has a leg up on the coming electric scooter revolution since they can start from scratch rather than worry about existing infrastructure in India.
[22:36] Community dynamics at scale is as important as technology at scale in emerging markets & the DWDG portfolio companies that embody this
- Sammunati helps farmers in India join farmer producer organizations by leveraging social capital within those markets to develop partnerships driving growth in their businesses.
- Nuvemshop is a Shopify for the LatAm market leveraging unique community dynamics to help SMBs to better connect to their customers.
[25:28] Business flywheel and customer flywheel of the Elevar Method are a good map for Doing Well and Doing Good
- Customer value (driven by value value and affordability) is critical to continue the business flywheel due to the dependence on social goodwill
[27:52] Conflicts between creating shareholder value and Doing Good
- Conflicts always come up, but can be minimized by analyzing the company via the Elevar Method to identify alignment between business and customer value
- There is no standard metric for impact, Elevar looks at each company’s business to determine the ROE for the fund. Doing that work up front is key to minimizing conflicts.
[32:18] Advice for founders and professionals looking to build a DWDG company
- Founders + Professionals: To help low income communities, focus on bottoms-up understanding of the market through field visits to understand the customer pain deeply.
- Professionals: Understand your individual tradeoff between impact and income and come in with an open mind about business models in the impact space.
In the above we decided to stray away from full transcripts of the podcast in light of the volume of episodes we are planning to release.
Hope you enjoyed this new format as a way to summarize key points to give the reader the opportunity to navigate as they see fit!
Wishing you all a fun Sunday and an amazing week ahead 😀
If you have any feedback reach out via email or tweet us at @dwdgsf.
Until next time
Originally published at https://dwdg.substack.com on August 1, 2021.