Case Study 38 - Incores and Actis Acts - Consolidating a Proven Model in Order to Scale

Case Study No. 38: INCORES and Actis Acts – Consolidating a Proven Model in Order to Scale Introduction In April of 2011, a group of people sat around the conference table at the Offices of Actis in Sao Paulo listening to a woman recount the many challenges she had overcome to launch her social enterprise INCORES. The young and bright investment staff of Actis listened intently, asking pertinent questions, and providing sound advice on how this entrepreneur could grow her enterprise without compromising the quality of its services, nor the impact on the youth that it employs.

Early stage support: Capacity: USD 27,000 Financial: Grant: USD 15,600 Consolidation Grant: USD 35,000 Total: USD 77,600

In 2010 Actis, a private equity company that exclusively Supported by Actis and other philanthropists. invests in the emerging markets of Africa, Asia and Latin America, entered Brazil with the view to building a portfolio of investments and engaging with local communities. Actis Acts is the company´s philanthropic, social impact and community outreach division which focuses on social entrepreneurship, education and leadership. In addition to its philanthropic giving, which is a fundamental component of its vision as a responsible investor, Actis Acts strategy is to encourage its local teams to make a direct contribution to the societies they work in through mentoring, volunteering and a grant giving program.

Actis Acts vision was a perfect fit with NESsT and its Private Equity Shares Program. The Program invites private equity companies to provide their intellectual, social and financial capital to its portfolio of NESsT Enterprises. Actis Acts took the decision to join the Program and has been supporting the Brazilian portfolio, including INCORES, ever since.

INCORES In the city of Salvador Bahia, a young 20 year old woman Alessandra is on her way to work.

Unlike the millions of young people in her city and her country that find themselves unemployed, particularly those living in low-income communities, Alessandra has a full time position at the local Ford Company Plant. Alessandra smiles as she remembers how she arrived timid and cautious from the Brazilian under-resourced public school system a year ago to begin her apprenticeship with the Ford Corporation. With training from INCORES, a

Case Study No. 38: Incores and Actis Acts

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social enterprise that offers training and support to at- risk youth and places them with local companies, today Alessandra is a confident young woman who independently figured out a way to communicate with senior managers at Ford and keep all tasks moving along when her corporate mentor was absent. According to her mentor, it is hard to put into words how valuable the social enterprise is for both the corporate mentors and the youth, many of whom come from homes whose parents had to work from an early age and where money for college or to learn a foreign language was not an option.

“When I joined the Incores, I was at the base. I was a person full of dreams. I sought to develop myself, seeking knowledge. Now that I have passed the learning stage with INCORES, I feel like I am climbing quickly to reach my goal.

Because of INCORES, the learning and employment opportunities they gave me – opportunities that I couldn’t have ever dreamt would be possible, I want more for my life. Now that I have my certificate, I want to reach the next stage of my education . And then, when I reach the top of this ladder, I will build another one to get even higher. I want to grow more every day, use the opportunities offered to me well, so people can recognize me because of my skills and talent,” says Alessandra smiling.

INCORES is a young social enterprise created in 2010 when its parent organization, that had been training and preparing Brazilian youth for formal employment for eight years, decided to leave the country upon termination of its US Agency for International Development grant.

The founder Tanya, determined not to let these efforts dissipate, worked with her small team day and night on a volunteer basis to establish the organization, fundraise, and complete a business plan for a social enterprise that it would launch the same year. The enterprise takes advantage of the law on apprenticeships in Brazil which requires that 5-15% of employees of private companies with more than seven employees must be apprentices in training, and that companies must pay for the training and mentoring of these apprentices by a certified training agency.

INCORES´ experience in working with at-risk communities qualified it to become a certified agency, and today, in just under two years, the enterprise has placed over 300 young people with local companies, and is soon to place 700 more. The training program offers 1840 hours of hands-on training and 460 hours of in-class theory over a Incores trained youth receive their certificates

Case Study No. 38: Incores and Actis Acts

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period of two years. The fees paid by the companies are for the training and mentoring services, the salary payments of the youth, and the day-to-day running of the social enterprise.

Today INCORES is 96% self-sufficient. Needless to say, through the training the young people begin to experience a new way of viewing the world, as they learn to become responsible, reliable and needed members of a corporate team. The life changing impact that this has on them and their families, as well as on other young people in the community who see them as role models, has tremendous implications for overcoming poverty in Brazil.

The procurement policy in Brazil provides a very sound opportunity for growth, as more and more companies are beginning to seek INCORES´ services. However, rapid growth has risks implications for INCORES, since it currently does not having the team and systems in place that would allow it to meet this demand. The social enterprise must first consolidate its model, to ensure that it is well-positioned for this type of growth. The need for strong leadership and governance, as well as a staff that is trained and ready to respond to client demands becomes fundamental at this juncture.

It is here where Actis and its program Actis Acts, has make the largest difference. As a firm that invests and positions companies in emerging market countries for growth, Actis Acts is very familiar with INCORES´ challenge, and understands the kind of support that will allow the enterprise to make the right strategic and planning decisions. After meeting with NESsT to review its portfolio capacity support needs in Brazil, Actis Acts placed its staff as volunteers to offering relevant training and mentoring support to INCORES in key business management areas.

In addition, INCORES has been provided with a USD 35,000 consolidation grant that will pay for the enterprise to develop the right organizational structure, human resources and governance capacity to respond to growth. The social enterprise currently has a very small staff, and the Executive Director is trying to attend to many day-to-day tasks, while also managing the growth needs of the business. The consolidation grant gives INCORES the needed financial support to hire external experts who can help INCORES to quickly develop the structure and system it needs, while growing and training the appropriate staff and developing a strong board and governance. As with any business that is growing quickly, it becomes imperative that the leader gains trust in her staff and begins to delegate important tasks. The consolidation grant will also go toward the development of capacities in communications, finance, planning and administration.

Once this in place, INCORES will be able to continue its scaling process and reach even higher numbers of at-risk youth. Although grant funding might be necessary to pay for certain scaling costs, the enterprise will also be able to take on loans, particularly bridge loans to help float possible delayed payments from clients. Key to its success will be the diversification of

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its client base, not only to new targets, both private and public, but also to new geographies.

Interestingly, a venture capital company approached Tanya to discuss a potential equity investment, a possibility that INCORES will contemplate only once it is consolidated and can manage an investment such as this would imply.

“The NESsT methodology is incredibly thorough. It addresses all the key concepts, steps and procedures for building a business with high potential for success. We appreciate the opportunity to grow and learn with NESsT!” Tanya Andrade, INCORES Actis Acts Actis Acts requests each member of its local team throughout the world to dedicate five days a year of their time to provide strategic business advice and support to local communities where they work. They do this because Actis investors, partners and staff all agree that the company´s greatest value-added is the knowledge and skills of its people.

The value of this support has been very evident in Brazil where Actis employees have provided many hours of support to the NESsT Portfolio. Social enterprise is particularly interesting to the local staff given that it provides an opportunity to apply their skills to solve social problems, something that they normally would not have an opportunity to do. Each year the Actis team sits down with NESsT to decide on the specific support areas that they will offer. The team has read, evaluated and provided feedback on numerous feasibility studies and business plans. They have participated in the Selection Committee to invite social enterprises to the NESsT Portfolio. They have led management workshops on governance, finance and accounting, and have held one- on-one mentoring sessions with the portoflio. They also helped to find clients for portfolio members – certainly in the case of Actis’ member Amaury Takaki at training workshop for NESsT Portfolio

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INCORES, this has been key, since the enterprise is actively searching for new client companies. Actis´ own portfolio of companies in Brazil could be an interesting target for INCORES. In addition to the capacity support, Actis Acts realizes that many social enterprises do not have access to capital that they often need to start-up and consolidate their business. Actis provides philanthropic capital to help early stage social enterprises get their business off the ground and prepare for growth while also responding to their social goals. A grant such as the one given to INCORES to develop the structure, talent and systems needed for scaling is critical. The timely and careful use of this funding will strengthen INCORES and make it more feasible for the enterprise to consider investment in the future.

By working through intermediaries like NESsT, Actis believes that they are able to reach more social enterprises that have already been vetted and have stronger business plans. The capacity and funding that they provide is also tied to clear goals and impact, which the intermediary, NESsT in this case, can report on. The consolidation grant given to INCORES is incorporated in a Memorandum of Understanding, with very expected outcomes which is being monitored on a regular basis, and tied to increasing both the enterprise and social performance of the social enterprise. Actis receives regular reports on this impact, as well as areas that are not working out and need to be improved.

In many ways, Actis is treading very new ground in the countries where it works, since this type of involved philanthropy and volunteering is not always a common practice among private equity firms. However, the company believes that this is a fundamental part of their core business, and that it’s important to model this and engage local staff while making sure that it does not run counter to local culture. They realize that they must also become a reference for this locally, and have begun to consider field-building activities, including the possibility of partnering with local business schools.

Tanya Lobel, the Actis Acts Director, shares her thoughts on how best to do this:

“Look at your organization and best determine what you can offer. Don´t get swept away by a quick social return on investment. Patience is important.

Be experimental and take risks.”

Case Study No. 38: Incores and Actis Acts

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Copyright 2013 NESsT. All rights reserved. NESsT encourages the use of this case for practical and educational or research purposes but asks that users quote and cite NESsT accordingly. No part of this publication may be sold in any form or reproduced without prior written permission of NESsT.