Can selling odd-shaped footballs, guided tours led by homeless or organic iced tea work as scalable business models? The Investment Ready Program‘s first Warm Up event in Vienna last week aimed to help social entrepreneurs build their capacities and connect them with the right people showing that impact investment is on the rise.
19 startups from six different countries qualified to develop and pitch their social business ideas before peers, coaches and investors, including impact investment pioneers Lisa and Charly Kleissner at the Investment Ready Program’s (IRP) Warm Up event last Friday at HUB Vienna.
Providing social startups with the opportunity to develop their potential while bringing them together with investors is particularly important in CEE, as Nikolaus Hutter, co-founder of the accelorator program emphasises. “The region is underserved and underconnected. Also, the venture capital market in CEE is immature. That includes Austria, which is closer to Hungary than to Germany or Switzerland in that respect”. In more developed markets, “deals are like instant coffee, you just add money and stir.”
Money, however, is not the only issue for startups in CEE: “Usually, it’s more than just the capital that’s missing – it can also be about finding the right team, a good business model, networks or a combination of all that are needed to help an idea scale.” IRP aims to provide just that through capacity building and catalysing investment into the social business sector. “We want to turn the startups’ need for cash into a demand for qualified investment capital,” Hutter states.
Iced tea and odd-shaped footballs
As first part of a series of Warm Ups to the IRP Academy, which will take place in spring next year, the one-day event in Vienna introduced the idea of the program in a nutshell. The social businesses participating included early stage startups as well as more developed enterprises, like Austrian organic iced tea company Makava, who after five years in business are now operating in the black, as co-founder Jan Karlsson says. “Makava turns you on” is not the only selling argument of his confident pitch.
Mario Sinnhofer’s odd-shaped footballs are innovative training tools produced under fair conditionsWhat were the founders’ expectations for the event? “I hope to find out about my possibilities and about how I can define my company and product to succeed”, says Mario Sinnhofer, who has has been selling odd-shaped footballs with his company Rasenreich since 2010. With the footballs, which are used as training tools by major football clubs and are produced under fair conditions, his vision is to establish the FairTrade system on the sports goods market.
He does not consider his status as a social entrepreneur, who gives part of his profits to social projects as more difficult than that of others, “Every startup has to find the right match as far as investors are concerned. We just have a smaller target group. So, it’s just a matter of time,” he declares optimistically to later earn several investors’ praise for the 90 second presentation of his business model, while also getting one or the other piece of advice on what to improve.
What is impact investment?
There remains a sense of doubt among some of the founders consideringthe market potential of their impactful ideas. Tereza Jurečková, founder of Pragulic, an initiative that offers guided city tours through Prague conducted by homeless people, which won her the Social Impact Award, says she has come “to get a better understanding of impact investment and of how it can work.” She has the feeling that in her native country, the Czech Republic, “social enterprises still cannot exist as profitable companies”.
In an open discussion round with Lisa and Charly Kleissner, participants discussed impact investmentAccording to Lisa Kleissner, who has invested 10 million dollars in social business with her husband Charly since 1999, there is reason to be optimistic. Not only is it a myth, that social enterprises perform worse than purely commercial ones, “venture capitalists are increasingly turning towards impact investment. You’re at the right place and time, so keep doing what you’re doing!”
But what exactly differentiates an impact investor from an ordinary one? “We don’t just look for financial returns but for a positive impact of our investment,” the Kleissners point out, while acknowledging that the term is controversial “because other investors also have an impact”. Thus to them, being left with the 10 million dollars that they started out with more than a decade ago, is a success, “because we supported many great projects that had a positive impact.”
More sizzle than steak
As Hutter, who is also European Director of the Kleissners’ impact investors network Toniic states, “Impact investment is still ‘more sizzle than steak’, as we say at Toniic.” Still, he notices “signs of it turning into a sizable industry. Impact investment is real.” Moreover, there is increasing interest in the subject among European investors. “Everyone thinks it’s exciting, but the important thing is that they don’t just do so for philanthropic reasons anymore. They see it as an actual investment opportunity.” As one of them, serial entrepreneur Martin Ruckensteiner, has been investing in social business since 2009, “after a pause of thought,” as he says.
Social entrepreneurs presented their ideas in 90 second pitches sand got direct feedback from investorsThe rise of social entrepreneurship is exemplified by the Investment Ready Program itself. One year after its foundation, it is scaling: the Warm Ups are now hosted in six different cities across CEE. Although, as Hutter jokingly remarks, “IRP is using the Eurovision Song Contest definition of CEE” referring to the fact that Istanbul is among the hosting cities. Hutter is happy with the program’s outcome, so far. “Out of the startups that have participated in the 2012 Academy, including Soulbottles (see profile on co-founder Paul Kupfer here) and Gebrüder Stitch, 30% have already found investment and we’re expecting a 50% success rate.”
Stay tuned for more information on the program and its participants.