The world loves the story of the lone crusader (who happens to be young, attractive, and usually from an elite university). Social entrepreneurs, specifically those from the United States and occasionally Europe who are flocking to the Global South to save the poor while living large, are the latest answer to all the “failures” of the non-profit and public sectors. And there are plenty of “impact” investors ready to fund them, and foundations ready to crown them with admiring awards. It’s all good, except for the fact that many of these (expensive!) ventures fail to deliver any value.
Some investors have set up shop in the Global South so that they have a front-row view of the action and can get their hands dirty. Many other investors are unwilling or unable to do this. As a result, social entrepreneurs sometimes take advantage of the fact that potential investors are not always savvy about the targeted markets and contexts. Over the last few years of meeting a lot of entrepreneurs, I have come up with a few basic rules of thumb that may help investors better separate the truly great ideas from the ones that are pretty unlikely to succeed.
#1 Where is the entrepreneur based? Or spending most of their time?
If you were starting up a new company in Silicon Valley, would you spend most of your time in Tokyo? Of course not! You’d be living and breathing the challenges of getting everything up and running on the ground. Trust me that there are many additional levels of complexity when you try to do this in a developing country—from electricity, to establish occupancy in an office, getting permits, to the informal powers that will inevitably expect a cut if you want to avoid their wrath. None of this can be done remotely.
If the CEO is spending less than 80% of their time onsite, I’d be deeply skeptical that a.) they actually know what’s going on, and b.) that they are qualified to talk about whatever problem they are solving.