Collaborative Partnering with Villgro to build the Philippine Ecosystem

Creating Space for Intersections in the Philippine’s Entrepreneurship Ecosystem

“Getting to the place where things fall in line for ecosystem building cannot be short-circuited, but Frontier Incubators has shown that it can be accelerated. A journey of thought that might otherwise have taken months or years was done in a week because the necessary touchpoints on the journey were assembled in one place” -- Rico Gonzalez, Managing Director, xchange

xchange joined the Frontier Incubators program to improve their approach to incubation but left inspired to pursue something more — creating the first angel investor network in the Philippines to help build the entrepreneurial ecosystem by improving access to capital and interest in impact investing.

The Villgro and xchange teams, which matched in the Frontier Incubators Program to provide and receive capacity development services, co-designed and developed the Impact Pioneers Network. Frontier Incubators created the space for their collaboration, which led to the first of its kind angel investment network in the Philippines. This is an example of an “intersection” achieved through the contributions of the SFI Program. As one of the key elements of a thriving entrepreneurship ecosystem(1), intersections facilitate the interaction of people, ideas, and resources. The partnership between Villgro and xchange, which was enhanced by Frontier Incubator activity and AUD155,000 in DFAT direct support, is poised to contribute to meet urgent working capital needs of enterprises in the post-Covid-19 world.

“The Frontier Incubators program has given us the platform to build a deeper connection with xchange  and is now setting us on a new path as true collaborators and partners, to strengthen the Philippine ecosystem.”— Priya Thachadi, Co-Founder, Villgro Philippines

Villgro is India’s oldest and one of the world’s largest social enterprise incubators supporting innovative, impactful, and successful for-profit enterprises who are tackling some of the most pressing challenges in the developing world. Villgro recently launched operations in the Philippines, led by Program Partner Priya Thachadi. Villgro was matched with xchange under Frontier Incubators to provide custom capacity building support.

xchange is an incubator in the Philippines that invests in early-stage social enterprises while providing tailored mentorship and support to help them achieve scale. Their mission is to catalyse the growth of the Philippine social enterprise sector by helping individual social enterprises reach sustainability and scale in the shortest possible time.

Thachadi noted, “xchange and Villgro have been strategic in the collaboration and used the FI platform as an opportunity to create specific interventions in the Philippine ecosystem. The synergy and flexibility of the program allowed this collaboration to take place.” Throughout the program this flexibility allowed them to ‘reframe thoughts’ and learn inline with the needs of the ecosystem, ultimately allowing the concept of the Impact Pioneers Network to emerge.

Under Frontier Incubators, Villgro supported xchange to improve their approach to incubation and develop a new organisational strategy currently being implemented and tested. Erika Tatad, Director of xchange, noted, “We absolutely increased our skills in three priority areas and discussed things we hadn’t even thought about ourselves… We completely incorporated everything into our new [organisational] strategy, which we are now testing.”

“It is not unlikely that we would have collaborated eventually anyway, but it may have taken two or three years to build the level of trust. Frontier Incubators gave us dedicated space to make this actionable, and pursuing an ecosystem initiative together was only possible because of this support and space. This we attribute directly to Frontier Incubators.” — Priya Thachadi, Co-Founder, Villgro Philippines

“For us there is a unique benefit – that Villgro is trying to build a presence on the ground here – so it’s been easier for us to reach out to Priya and have a conversation. Both getting involved in ecosystem building here” — Rico Gonzalez, Co-Founder and Managing Director, xchange 

“We have seen a change [in] performance and excitement! Previous to the program we were stuck and trying to figure out ‘how do we evolve as an organisation?’. This process has allowed us to think and learn from others and their experience. Frontier Incubators opened our world. and blew our minds from day one.” — Erika Tatad, Director, xchange

Collaborating to Build the Entrepreneurship Ecosystem in the Philippines

When xchange was founded in 2011, the idea of building the entrepreneurship ecosystem was at their core. They identified the shortage of viable impact-driven market players as the most significant mission-critical need in the ecosystem and set out to develop a startup incubator focused on figuring out getting social enterprises to viability, which they define as the ability to deliver impact and achieve financial sustainability.

“Nine years ago, many people I would talk to then got lost if I tried to talk about building an ecosystem. But startups, they could understand. So we focused on that and immersed ourselves entirely in it.”, said Gonzalez.

However, in the course of the incubation work they kept running into gaps within the current ecosystem. “The first of these was the need for advisory service providers responsive to  entrepreneurs’ needs. We couldn’t find these so we built [them]ourselves. We put lawyers on retainer to give enterprises access to sound legal advice; we hired accountants to provide guidance and structure to building financial systems.” Then, it became clear that without increasing the access to available capital and broader support services from other stakeholders, their efforts to support social enterprises would remain ineffective if there wasn’t opportunity for them to continue to scale.

This realisation hit just as xchange was selected to participate in Frontier Incubators. Then, in  Singapore atthe Capacity Building and Partnership Workshop, the xchange team were exposed to Program Partner Fledge’s approach to building angel networks as a method of increasing access to impact investing capital. This helped xchange make the ‘critical jump from speculative exploration to conviction’.

They saw the possibility to test creative approaches to ecosystem building that would crowd in other players in the Philippines. The first step: building an angel network in the Philippines. And they knew they needed help which is where their partnership with VIllgro played a pivotal role.

As part of the Frontier Incubators program, xchange completed a field study in India, visiting the Villgro headquarters. Erica Tatad noted, “During the study tour in India, we met Angels for Impact; we saw super different models for investing and engaging entrepreneurs…It was so enlightening.”

“In India” Thacadi expanded, “xchange really saw what an impact investing ecosystem could be and how the ecosystem in the Philippines could grow.”

Tatad continued, “ Our objective is to make sure we have a robust ecosystem for impact. There is a critical stage in between starting and raising Series A investment that no one is funding. A lot of impact enterprises fail because no one is supporting this or giving them a chance to make it to a later stage. We want to help fill this gap. In India we started to see what an impact network could look like… and it’s not just money, but also mentorships and support.”

Thanks to the flexibility of the Frontier Incubators program, xchange was able to request working with Villgro and the two organisations were given the opportunity to add initial discussions and exploration around angel networks to the custom support plan for xchange.

Collaborating to Respond to Ecosystem Needs

According to Villgro and xchange, Filipino enterprises serving the poor are often Pioneers. Thus, they face challenges and risks like barriers in operating in a difficult environment, delivering products or services last mile, and generating significant financial returns, especially in their early stages. They find it difficult to find resources, raise capital, and grow their business as few investors are willing to finance and absorb the risks involved in pioneering new business models. This challenge is often referred to as the ‘Pioneer Gap’(2).

xchange and Villgro partnered to provide equity investments to help fill the pioneer gap. In the wake of the global coronavirus pandemic, however, the pair pivoted to a model of a network to help Filipino impact entrepreneurs ‘survive and thrive in a post-COVID world’.  In the Philippines, the pandemic has hampered the ability of social enterprises to reach customers and access investment capital and resulted in revenue loss, closed operations, and inability to retain staff leaving them struggling to survive.

Villgro and xchange aim to mobilise and disburse up to USD 500,000 to meet urgent working capital needs of enterprises in the Philippines between July 2020-June 2021. Coined the Impact Pioneers Network, the goal is to provide zero-interest working capital loans, venture debt, or equity based on social entrepreneurs’  needs to ease cash flow distress, as well as six months of tailored support to build resilience and to adapt their models for a recession year. The Network will structure flexible repayments from enterprises; once collected, return to Impact Pioneers or reuse funds to support other enterprises.

Below is a graphic representation of the model.

Figure 1: The Impact Pioneers Network Model 

 

(1) The concept of “intersections” is taken from the Kauffman Foundation. For the complete list of elements. lease reference https://www.kauffman.org/ecosystem-playbook-draft-3/ecosystems/, accessed on May 29, 2020.
(2) The term the ‘Pioneer Gap’ was coined in 2013 by  Sasha Dichter, Robert Katz, Harvey Koh, and Ashish Karamchandani who found that “that few impact investors are willing to invest in companies targeting the poor, and even fewer are willing to invest at the early stages of the creation of these businesses.” https://ssir.org/articles/entry/closing_the_pioneer_gap