Socially Responsible Investing
a new trend to know about
It is becoming an important factor for the investment industry to assess the social impact of businesses and not just the return on investment therein.
While in the North American and EU investment advisors, portfolio manager or equity funds alike tend to include the social responsibility impact of their asset’s investment decision making process on a bigger scale by the year, in Russia, it is still rather a novelty.
Westland Finance Advisory (WFA) has recently closed a small VC equity deal for a Moscow based start-up company “Budu Govorit.RU” (BG). BG is an aggregator of professional speech therapist services.
In the last decades demand for a private speech therapist has grown rapidly due to two factors: cuts in public spending for the free of charge speech therapists and growing number of children that need such assistance. According to our research, up to 50% of kids aged 6 years need assistance of a speech therapist.
Main reasons for such growing number of children is too much and too early interaction with gadgets, which more and more replaces conventional communication with parents and friends. Furthermore, ever growing stream of information that inflows infant’s mind when it is not ready therefor. It is a side effect of modern technology revolution to say in a word.
Most of the commercial speech therapist services are provided by small private firms, free lancers, or as a part time activity delivered by speech therapists on a payroll in their free time. The commercial market is unconsolidated, with about only 5 to 10% of lessons provided by privately owned companies. 50% of such companies are not specialised in the speech therapist industry, but rather generic skills developments centres for children.
Most of the free lancers promote their skills via on-line marketplaces such as avito.ru, profi,ru and so on.
Hence, the business model of BG is to go beyond being just a webpage grabber with thousands of speech therapists CVs and prices.
WFA liked the business model of BG, the market potential and the fact the BG is a socially responsible business. Language is a cornerstone foundation of any nation. Investing into a project that plays a significant role in forming a conscience of little yet a person, who later on would become a parent, a doctor, or president, is an example of SRI.
All funding for BG came from Russian based investors and that was not an easy task to arrange. General atmosphere within investing community with regard to Russian investments in equity or debt is not exactly at its peak point, to say the least.
Even in its hey days, Russian VC equity market was very small in relative and absolute meanings thereof. The number of VC equity funds based in Russia even 5 years ago was way too far insufficient to cover demand. Now, there are hardly VC equity funds in Russia.
Consequently, WFA opted to approach professional investors, who manage small portfolios for themselves or a trusted circle of friends.
Now, WFA asks some of current BG investors, if SRI profile of BG deal had any impact of the decision making to invest therein.
WFA: Alexander, what factors do you take into account when making a decision about investing in a VC project?
Alexander K: As a rule, I have to understand the team behind the project and get a right chemistry with the people. I am not actively involved in day to day operational management VC project, yet on a strategic level I am part of the team and have to share same values. Trust is one of the important ones here.
Second issue is the idea and the risk return analysis. Even though a VC project implies high risks, I must feel comfortable with a downside risk potential. Usually, I do not go into seed phase, I prefer to enter VC project at a later stage, where a target company shows a track record a proven business idea.
Thus, BG fits into my first two most important criteria. I know the people who run the business and have seen the results that supported BG business presentation and forecasts.
WFA: Have you been familiar with a concept of SRI previously?
Alexander K: I know that such angle is gaining momentum in the world, yet, it is my first investment in a company with a clear SRI profile.
WFA: Did SRI factor of BG project played any role in your decision making?
Alexander K: The first two factors mentioned above are still most fundamental for me. However, having an SRI project in my portfolio gives me a good feeling, something special, that I can tell about my friends in the investment community.
I like the idea that we create value for the society in the moment, right now, by helping kids to articulate themselves, their consciousness. The better communication, the better society.
I am not so focused on getting the highest possible yield on this one, as long as I do not lose money and make a moderate profit, I still would consider that as a good investment. But do not tell BG team about it, let them work and make money as hard as possible)!
WFA: Thank you for your story.