Choosing investors: Matching money with mission
Hande had created SELCO to provide sustainable energy to the poor in an affordable way. Crises with distribution and suppliers had challenged the company and brought the management into conflict with its investors. “We’ve gone through mistakes,” Hande explained. “We were nearly thrown into the fire, just like any other start-up, taking moneyfrom investors we thought understood our mission. But I think those are mistakes that we have learned from. Today, we do equal due diligence on investors, as much as they do due diligence on us.”
Using the possibility of default on an IFC (International Finance Corporation, the World Bank’s lending arm) loan as leverage, SELCO-India was able to change its capital structure and seek new investors. During this round of investment, SELCO investigated prospective investors closely. “That, for us, is very important,” Hande noted. “We wanted to leverage the experience our investors had gained from investing in other social enterprises and other supply chains. We wanted them involved in our operations and to become our partners. In time, we found three investors who are committed to be in this space for a long term with single-digit ROIs.”
Displacing previous investors wasn’t easy. In order to make way for new investors, the company had to cross many legal hurdles to ensure the transfer of ownership could be approved by the Indian courts. SELCO’s new investors were, in fact, waiting in the wings long before the official announcement in December 2008. “The new investors were waiting patiently," Hande noted. "In some instances, the loan officers had already approved money to SELCO and were just waiting for the green light.”
At the end of 2008, SELCO secured $1.4 million in financing from an international consortium of social investors led by the Good Energies Foundation and including the Lemelson Foundation and E+Co. When the investor triumvirate did come aboard, SELCO-USA’s position was reduced from 90 percent to between 4 and 5 percent. Good Energies took a leading 54 percent equity position, with the Lemelson Foundation holding a 22 percent stake and E+Co 17 percent. Management (including Hande) retained between 1 and 2 percent of the company. The IFC remains the leading debtor with a $1 million loan outstanding.