29 Mar. 2016 | Comments (0)
In my previous post, I introduced the idea that some companies are using corporate venture capital (CVC) to invest in businesses that intentionally create environmental or social value. I also featured a case study about the Pearson Affordable Learning Fund (PALF), which invests in “novel educational innovations with commercial potential.” Today’s post continues the theme of CVC, looking at the Italian healthcare company, Medipass.
For Medipass, entering an emerging market came unintentionally. Medipass was expanding its managed, medical equipment business from Italy into U.K. public hospitals. A chance introduction led to Medipass investing in the Indian cancer treatment sector through a joint equity venture with Clearview Healthcare, an entrepreneurial start-up company founded by cancer physician Shashi Baliyan.
Trained in India but working in the U.K., Baliyan was appalled by the lack of cancer diagnosis and treatment facilities available to ordinary working people living far from major cities in his home country. He and a few colleagues set up ClearView to provide affordable, state-of-the-art nuclear medicine in small towns and rural areas. An introduction to Medipass gave Baliyan an opportunity to pitch his idea to the company.
The business model made little sense to Medipass representatives, who were used to a European pricing model for cancer diagnostics. Baliyan’s business case rested on lower operating costs, strategic partnerships and high volume to provide affordable services in the Indian market. Despite the fact that the Italian company was not seeking expansion into emerging markets, it saw the potential and took a 49 percent equity position in a new joint venture, ClearMedi.
ClearMedi grew successfully over four years, yielding Medipass such a return on investment that it has now greatly increased its stake in the business. The investment provided an opportunity for Medipass to learn about the economics of nuclear medicine at the base of the pyramid, and the company is considering expansion into other emerging markets.
Baliyan created ClearView with intentional social purpose—affordable cancer diagnostics for low-income families without the costs associated with travel to distant health facilities. To expand the business, Baliyan needed an investor who understood the technical field and was sympathetic to its mission. Medipass does not describe its business in terms of social impact, but through CVC it has learned to serve the low-income segment of Indian healthcare.
Good timing fuels growth for Pearson and Medipass
For the founders of ClearView and Sudiksha, the Indian pre-school services venture into which PALF invested, venture capital investment by corporations aligned to their respective core business came at the right time to fuel growth. Pearson is open minded about the “exit” options that may materialize once the PALF portfolio matures. Medipass chose the route of gradual acquisition as early shareholders divested.
So far, none of the entrepreneurs we interviewed felt that investment by a corporate had distorted the social mission embedded in their ventures. But one experienced angel investor in Asian social businesses cautioned that CVC investments in base-of-the-pyramid enterprises “are hard to pull off, as conflicts around mission arise. It’s hard for corporates not to interfere negatively, unless they make such investments philanthropically and are completely disengaged.”
While this angel advises entrepreneurs to work “at arm’s length” from corporate investors to avoid conflicts of interest, we feel that CVC can be mutually beneficial if entered into with eyes wide open and expectations well managed. In the next post I’ll explore the benefits all round when corporate employees volunteer their skills to Asian nonprofits.