Harish Hande says small-scale, stand-alone solar installations are a better way of reaching poor, remote villages. Thatís why he wants to seed and mentor local enterprises in this field
Profile: MD of solar lamps company Selco Solar
His New Mission:
A fund that will seed other enterprises in sustainable energy
Replicate Selco’s experience and share best practices, technical knowhow and field experience
• Look for entrepreneurs in states (Bihar, MP, WB, Rajasthan) where Selco is not present
• Selco’s senior management will mentor and groom these
• Raise money from philanthropic foundations and high net worth individuals around the world
In October 2003, Harish Hande travelled to London to meet his largest shareholder, Gaia Kapital. It owned 90 percent of Selco Solar, Hande’s commercial venture to sell solar lights to the rural poor in India. It was an extremely bad time for Selco.
Large government subsidies for solar energy in Germany and Japan had diverted supplies to these developed markets, driving up prices of solar panels by 47 percent. Selco’s customers couldn’t afford the price hike; sales were down by almost half and projections were looking worse. Gaia was unhappy and Hande was hoping that the meeting would ease some of the tension. What transpired next left him shocked.
According to Hande, the Gaia representative told him that he didn’t care, that he was expecting the same returns from Selco that he was getting from the wine gardens of France. Angry, Hande left the conversation midway and returned to India the same day. “I told him, I have no patience for you. Come to India and we will talk,” he says.
Hande is telling me this story on a particularly warm October evening. There is no air-conditioning in his modestly furnished office in Bangalore. The reason he is recounting this incident is because he is raising a $10-million fund, which will seed other enterprises in sustainable energy. He knows very well that running a for-profit business while looking at the larger social good requires a very delicate balance.
This year (ending March 30, 2012) Selco will clock revenue of Rs. 17 crore on which it will make a profit of Rs. 1.2 crore. It has so far sold solar lighting to more than 100,000 households, many of them in extremely poor hamlets. Thanks to a reversal in the subsidy programme, solar panel prices have come down to half of what they were in 2003. Hande believes the time has come for him to replicate the Selco model of decentralised energy—he says small-scale, stand-alone solar installations are a better way of reaching poor, remote villages, than using large, centralised thermal stations.
Through the fund Hande will invest and mentor other entrepreneurs around the country to start Selco-like ventures.
Hande is raising his first million dollar from Halloran Philanthropies, an organisation that among other causes, supports clean energy. This money will be used to seed the first five startups. Hande expects to make the first investment in February 2012. In time, he will fund 18-25 startups. Once they reach a certain stage and start becoming viable, he will connect them to bigger social funds like Aavishkaar.
He will be joined by Selco’s head of finance K. Revathi, who will manage the fund and COO Ashis Kumar Sahu, who will help him train the new entrepreneurs. Selco will not get anything from the new fund.
There’s a lot riding on this fund. “We have been criticising how funds are run, how ecosystems are managed, and we want to prove that our success is not one-off,” he says.
In 2006, at the height of the subsidy crisis, Selco had only two months of cash remaining and Gaia had told Hande to start retrenching employees. If Hande couldn’t raise money, he would lose control of the company or would have to shut it down.
Hande got a meeting with one of the world’s largest social investors. It was ready to sign a $1 million cheque, but had one condition: Selco should scale to a million households in the next few years. Hande refused the offer. Scaling up for the sake of it had never been his belief.
(He took International Finance Corporation’s help to get Selco out of the mess. IFC had given a $1 million loan to Selco, and was also funding another project with Gaia in Vietnam. Hande used his personal relationship and goodwill at IFC to get Gaia off his back. He then raised $3 million from investors like Good Energies and E&Co who were better aligned with Selco’s mission. This reduced Gaia’s share to a minority and eventually it exited the company.)
Social investing today operates on two ends: Grants which are free, and equity investors who expect a return of 8-10 percent, which is expensive for a social venture. The gap in the middle is what Hande is trying to fill.
Hande now insists on doing a due diligence on funds before he takes any money from them. “People think we are being arrogant, but if they can do a due diligence on us, we also want to talk to their portfolio companies to see if they are happy after taking the money,” he says.
“Money is English, it only funds English business plans. How many Hindi-speaking entrepreneurs have received funding? We will work as the intermediaries, funding local entrepreneurs,” says Hande.
There are enough philanthropists, he says, who made their riches from being entrepreneurs. “We can convince them to convert the money that they give as grants into taking equity in the venture,” he says. This lowers the cost of capital for the entrepreneur and since the money is not free, forces him to think of sustainability. The idea is to allow enough experimentation and lower barriers to entry for entrepreneurs.
The response from the market is encouraging. “Harish has an advantage over just a fund because he is a very successful entrepreneur who is going to provide money, support and linkages in addition to real time mentoring,” says Vineet Rai, CEO of Aavishkaar Fund.
But most of all, the reason for setting up the fund is that despite all that Selco has managed to achieve (in scale it is second only to Grameen Shakti, a non-profit social energy enterprise), the Selco model has remained confined largely to Karnataka and a few states like Tamil Nadu, Gujarat and Maharashtra.
Few social enterprises anywhere in the world have managed to achieve scale without diluting their social objective. Hande and his team have struggled with this as well. Hande believes that it is better to replicate the idea and create many Selcos, rather than build one large organisation.
Hande had the perfect means to live a middle class dream: He has an IIT degree from Kharagpur and a Master’s and Ph.D in sustainable energy from the University of Massachusetts. Instead, he came to India in 1995 to set up Selco.
The initial years were tough. Hande lived in villages without electricity and did the first 300-400 installations himself, using money from the sale of one system to buy the next one.
He now lives in Bangalore from where he manages Selco. His wife Rupal and two young kids live in the US and he sees them a few times a year. He has never owned any shares in Selco, except for a miniscule 0.5 percent given as gifts to each of the directors.
His efforts to “put solar technology in the hands of the poor” won him the prestigious Ramon Magsaysay Award in August 2011.
Selco’s biggest success, he says, was to bust the myths that the poor cannot afford and maintain technology and that it was not possible to run a commercial venture that fulfils a social objective.
Selco has achieved this in two ways: One, it gave the poor what they needed instead of selling what was available. Earlier, manufacturers would sell only two-light or four-light solutions. But if a consumer wants, or can afford just one light, that’s what Selco sells him. Two, Selco made financing available at the customer’s doorstep by tying up with banks to extend them loans.
Hande never considered giving away the solar lights for free. Charity, he says, distorts the market. At most, he says, philanthropic money should be used to fund the 15 percent down payment required to get the loan. This way, he says, the same money can be used to benefit many more households.
But the reasons that have made Selco so successful in Karnataka are also the reasons why it has been difficult to take Selco to new markets.
“The poor is not a monolithic structure and what worked in Karnataka will not work in West Bengal,” says Hande.
“We have succeeded in Karnataka because there was a strong financial system. That may not be the case in the North or the East,” says Revathi.
What the market needs is a local entrepreneur who knows local financial institutions, understands market linkages and can provide on-ground support. The entrepreneurs Hande will fund could work under the Selco umbrella or use the company brand name if they choose.
One way in which Selco balances its commercial and social objectives is by monitoring how many small systems (which typically go to the poorest customers) each branch is selling.
But didn’t organisations like Amul find a way around these problems, and find a way to scale, lifting millions of poor farmers out of poverty?
Selco’s Vice President Thomas Pullenkav, (who is on a sabbatical now) met Hande in 1996 and was one of the first to join the company. He says there is a crucial difference between Amul and Selco’s model. “Amul was selling a product created in a rural [centre] to urban consumers. There scale made a lot of sense. In Selco we are selling a product made in urban centres to rural consumers; the situation is very different.”
Trilochan Sastry agrees: “I find a lot of wisdom in what Hande is saying. Past success is not a guarantee. Amul’s co-operative model was successful in milk but didn’t work in oilseeds.” Sastry, dean of academic affairs at IIM Bangalore, teaches a course in social entrepreneurship and has founded a co-operative for groundnut farmers in Andhra Pradesh and Karnataka.
By grooming other entrepreneurs, isn’t Hande creating competition for Selco?
“We need to create hundreds of Selcos, not in another 15 years but in three-four years. The market is enormous. There is not a real competitive situation likely in 5-10 years,” says Christine Eibs Singer, a Selco board member and CEO of E&CO that has invested in about 200 energy organisations around the world.
By creating more such enterprises, Hande also gets some leverage with policymakers. For a man who has met two American presidents, Bill Clinton and Barack Obama, and is a prolific speaker at the World Economic Forum, Hande is virtually unknown in India. He got his first meeting with an Indian minister (Jairam Ramesh) only in November 2011. The Magsaysay Award has brought recognition and Hande is capitalising on that. He has hired a London School of Economics graduate to help him write two policy documents each year. The UN has declared 2012 as the year of sustainable energy and Hande feels that India can take a leading role in creating a model for decentralised energy.
It is rare for founders to step down from operational roles in organisations, especially in the social sector where the enterprise is often dependant on the passion of its founders. Hande is out to prove that Selco is not such an organisation.
It was a board member who asked him the question that set him off on this journey. “He said how long are you going to look at the balance sheet of this 16-year-old company?” says Hande.
Pullenkav says that Hande always understood that he wasn’t the best person to run a large setup. In the early years, it was M.R. Pai (who joined Selco in 1997 as General Manager – Operations and in 2003 became executive director) and Pullenkav who handled most of the operational responsibility.
Two years ago, Pullenkav, Pai and Hande decided to step down from operational roles and leave the running of the organisation to younger colleagues Sahu and Revathi. “My condition for joining this company was that I would get operational freedom. Harish does not interfere with day to day matters,” says Sahu.
Although Hande discussed the idea of replicating Selco’s model three years ago, he didn’t dive into it straight away. “I wanted to see if I would get pulled back. Over the last three-four months, I have hardly been called. Selco is functioning pretty much without me, and has a deep leadership layer,” says Hande.
“Selco will never leave Harish, this is the only way for us to test whether Selco is ready for it,” says Sahu.