“Only do this if you cannot do anything else. If there is a burning issue or problem in your mind that keeps you awake at night that you have to address, then by all means do that. But understand that this is extremely challenging, risky, time consuming work and it can often be a lonely journey as well.” – Scott Lawson, SOW ASIA
Investing better, for impact, has for better or worse become an idea that after the financial crisis was seen as a path to a new economic model that would help facilitate mission driven organizations and unlock new markets. It was an idea, impact investment, that gained early traction in Hong Kong, perhaps because of its status as one of the world’s financial hubs, and very quickly an ecosystem of business professionals was activated to find opportunities and build portfolios.
SOW Asia, led by Scott Lawson, was one of the first entrants, and through this interview we dive into the weeds with Scott about his experience leading the charge for SOW Asia. From looking for entrepreneurs and organizations whose mission, and potential to scale, aligned with their investment models, to the need to learn up the curve and constantly engage and build a community that was eager for impact… but struggling to execute.
It is an interview that I feel offers a lot of insight, particularly for entrepreneurs who are looking to learn about the mindset of investors, but is equally interesting (AND VALUABLE) for investors who are just entering the impact investment space.
About Entrepreneurs For Good Series
Through this series, we speak with Asia based entrepreneurs whose mission it is to bring solutions to the environmental, social, and economic challenges that are faced within the region to learn more about their vision, the opportunities they see, and challenges that they have had to overcome. It is a series that we hope will not only engage and inspire you, but catalyze you and your organziations into action. To identify a challenge that is tangible, and build a business model (profit or non) that brings a solution to the market.
About Scott Lawson
Scott Lawson is the former CEO of SOW Asia, a Hong Kong based, donor supported charitable organization working at the intersection of social enterprise and impact investing. SOW Asia invests in organizations and people intent on creating positive social or environmental impact.
Driven by the belief that change begins with a single step, Richard Brubaker has spent the last 15 years in Asia working to engage, inspire, and equip those around him to take their first step. Acting as a catalyst to driving sustainability, Brubaker works with government, corporate, academic and non-profit stakeholders to bring together knowledge, teams, and tools that develop and execute their business case for sustainability.
Full Interview Transcript
I’m Scott Lawson. I’m the CEO of Sow Asia. I’ve lived in Hong Kong for 16 years. I first came to China in 1981 as a undergraduate student and I’ve been in love with the Chinese culture and people since then. I came to Hong Kong in 2000 to serve as the pastor of a church. In 2008, I moved over to join the South Asia team.
Sow Asia is a Hong Kong based charitable foundation investing in the individuals and organizations that are creating positive and scalable social impact.
Sow Asia was founded in 2009. The founder needed to make a decision whether to establish it as a fund or a foundation. We decided that the focus needed to be on impact, so we chose to establish it as a foundation. As an organization, our priority is impact. We are of course trying to do that through impact investing to create the sustainability and scalability that Asia is going to need to address the big challenges it faces.
Sow Asia was founded in the same year, I believe, that the term Impact Investment was coined (2008/2009). So we really were amongst the pioneers in this part of the world. When the term was coined, there was obviously a great deal of the excitement and anticipation around a concept that people were really struggling to put words and ideas to. We’ve been a part of that development process in this part of the world.
I spent my first two years really traversing China and Southeast Asia looking for investment opportunities. Honestly we struggled to find opportunities that we thought were investment ready. That began, that began a deeper conversation internally to the organization about our relevance and about the impact investment space as a whole. Off the back of that long internal conversation, we made the decision to engage the market at an earlier stage. Really looking at younger organizations that we thought had all things equaled, the potential to grow. But, we’re going to need some capacity building support to make them attractive for investment.
Because the space is still nascent here in Hong Kong and in Asia, we have had to cast a wider net in terms of the opportunities we’re looking at. We are interested in the environment sector, the education sector and the healthcare sector.
WHO THEY WORK WITH
Sow Asia is uniquely placed as an organization that seeks to both invest, but is also functioning actually as an intermediary helping to bring together supply and demand in a market place that doesn’t really yet exist. So on the demand for capital side, we work closely with inspiring and aspiring entrepreneurs who have solutions, have organizations that are creating positive social impact. It’s actually the most exciting part of my job and the greatest privilege for me to work closely with these entrepreneurs. Many of whom are young, but as we are seeing, we are seeing more and more mid career people coming into this space and really applying their experience, their abilities to engage the social impact space.
What we try to do is focus on organizations that have reached the proof of concept level. They have a couple of founders, they have a business model, even if we will change it with them. They have ideally some revenue as well.
Over the past three years, we have worked with closely with over 40 social enterprises. Again, across a number of sectors, the environment, education, healthcare, poverty alleviation. It’s hard to generalize about the entrepreneurs. Some of them come from commercial background, some of them come from a more non-profit background. We have learned in the process that both non-profits and for profit organizations can be successful in achieving their mission and being able to scale their impact. So this has been a great learning for us in terms of how we understand and how we can engage them and help them to grow their ability to scale.
The Impact Investment space faces a number of challenges. I liken it to the old story about the five blind men and the elephant. We have conversations about impact investing and realize that although people are all using that term, we may actually very well be talking about different things.
So one thing that we have become much clearer on, is the need to not necessarily define that term, but to define what ones intentions are around that term. What is one seeking in terms of a return? Either financial or the impact of social or environmental.
There are a number problems across the globe that we run into again. On the one side, we face a continued lack of demand for Impact Investment capital. That to say we are not really seeing enough investable opportunities coming into the market place. At the same time, we are also seeing a lack of interest and attention and awareness on the supply of capital side. So whereas I see in Hong Kong, a number of individuals who raise their hand and say yes I’m interested in Impact Investing as an investor. In fact, they are really not doing that. The reasons are clear, but I think there is certainly a gap between supply and demand as they currently exist that needs to be bridged. It’s one that we are trying to address at Sow Asia, but that I would say is our biggest challenge going forward.
Those who are interested in investing into Hong Kong projects, find that even the most interesting opportunities are limited in their scalability. Hong Kong is a big city, but relatively speaking a small market. So there are have not been a lot of opportunities for people who want to invest locally and scalable impact. The bigger problem, here in Hong Kong, but I think globally is that what the space really needs now to bridge that gap between supply and demand is what I would call high risk, low return capital. Which is something that any rational investor is not going to appreciate or understand. This is why we believe there is a need for what has been called flexible finance, capital that is more philanthropic in its nature that would be that early first loss funding that allows for these enterprises to grow and creates real impact investment opportunities going forward. We have to identify that capital for the missing middle.
IMPACT INVESTING IS DIFFERENT
Potential investors bring to the conversation a number of preconceived ideas about the impact investing space. Especially if the opportunities that they are looking at are self described as social enterprises. Often times social enterprises are understood to mean a lower return financially. So immediately they’re considered with I would say, greater suspicion, greater skepticism, unless the investor has said that their intention is to invest in the impact. Most investors in Hong Kong and I think elsewhere are very much interested in the idea of receiving a certain level of financial return as well the impact. But those opportunities haven’t come into the market yet.
LABEL & MODELS MATTER
Social enterprise is an umbrella term that can be used to describe a number of different organizations with a number of different purposes. If we’re looking at an opportunity that does have the ability to compete and scale in the commercial market, then we would advise them not only to, not describe themselves as a social enterprise, but to build their business model accordingly. In some instances, where the revenue might include earned income, but may also include government subsidies, and rightly so because these are opportunities that require government support, then I think the social enterprise label is more appropriate, if you will.
One of the things we have built into our capacity building work is immediately identifying with the social entrepreneur, what their end game is and helping them to understand a strategy around that end game and to really leave as much as possible, their preconceived ideas about how this should be working just to sent those aside. So often times we find social entrepreneurs have a preference for earned income, which is not a bad thing per say. But again, it depends on what they are trying to achieve, the market which they are trying to operate, the stake holders or clients which they’re trying to serve. For instance, a social enterprise that is addressing a challenge around poverty alleviation, we’ve become clear that most of the models don’t work or don’t work well. By that I mean they are not scalable.
In Hong Kong, many of the B-C social enterprises struggle to reach sustainability because they’re competing against every other coffee shop in town, for example. So we’re interested in working with organizations…really rethinking their business models from the inside out. Thinking about b2b models for example. B to G to C business to government to consumer or client. But it means being willing and able to look at everything again including the legal status for a profit, non profit, in light of the end game or the overall strategy objective of the social enterprise.
ADVICE TO ASPIRING ENTREPRENEURS
My advice to any potential social entrepreneur, first of all I would say only do this if you cannot do anything else. If there is a burning issue or problem in your mind that keeps you awake at night that you have to address, then by all means do that. But understand that this is extremely challenging, risky, time consuming work and it can often be a lonely journey as well.
Secondly, I would say that most of the social entrepreneurs we talk to, do have a great passion about their solution and because they have a great passion about their solution, they automatically assume that everyone else also understands the value of their solution. But in fact, you need to demonstrate that. You need to prove that and we will ask you, if you work with us to prove that to us. You make hypotheses about your value proposition, your customers, we want you to prove that to us. I think that is a growing process and a strengthening process for you to get real about where this product would actually be demanded and creates a real value in the market place.
HOW INVESTORS CAN IMPROVE
I would describe my journey with Impact Investing , I would liken it to repairing in the airplane as we fly in it has sort of exhilarating, but also slightly scary feeling at the same time.
When it comes to the Impact Investment community I’m not sure it really exists yet. We have a number of people who have expressed interest. They come to the Impact Investment space with a point of view, a certain mind set. I think we are still trying to understand one another. We’re trying to figure out, for example. How we can communicate across different mindsets, across different boundaries. We are also trying to figure out how we can effectively measure social impact in a way that will be necessary if we are going to grow the space.
It’s incumbent upon organizations like Sow Asia working with strategic partners, like JP Morgan for example , or the Hong Kong government, to be intentional about building the eco system that I think is going to be necessary to grow the impact investment space. We’ve done a pretty good job her in Hong Kong about providing support for social
enterprise, investment opportunities from seed stage straight on up. Sow Asia happens to serve the growth stage market. We need to continue the work with investors well.
At the end of the day, my sense where in Hong Kong is that there are a lot of people who are not willing to engage until they understand it and my counter argument is we are not going to understand it until we engage. We are going to need more people who are willing to jump into the space as both entrepreneurs and investors, make some mistake, learn in the process and build the space accordingly.
PAIN OF INACTION WILL DRIVE ACTION
Hong Kong, the city displayed behind me, is one of the most prosperous in the world, in this world. At the same time, nearly one in five Hong Kong residence live below the established poverty line. There are one in five adults in Hong Kong who are not getting enough food to eat every day or experience what we call meal gaps. There are a number of issues in Hong Kong related to poverty, specifically around housing, around healthcare, and around food. Basic services that any civilized city, such as Hong Kong, should be able to provide for its citizens. We need to address those issues.
The other obvious change in Hong Kong is the demographic bulge and the rapidly aging population in Hong Kong as we have seen in Japan and as we will see in China as well. There are currently inadequate facilities for aging, for the aging population and also its not just about healthcare facilities, it’s about some of those things that we take for granted. The companionship, battling loneliness and depression. There are a number of places where innovative iterative solutions are really going to provide a huge difference in a place like Hong Kong.
There are a number of complex questions about how we can move the Impact Investment space forward. It may be that its really not going to move forward until the pain of not acting, of not doing because more acute. Whether we are talking about the environment, whether we’re talking about the income gap in Hong Kong and China, the education gap, etc. Those problems are only going to increase. The need for Impact Investing is only going to increase as we realize that neither traditional charity or traditional public resources are going to be sufficient to address these issues.
In terms of the first mover, my sense at this point is that the government certainly has a role to play. We’ve seen private capital expressing an interest, but the first movers are likely to be those who are more philanthropically orientated who can provide that first lost capital. Also, the thought leadership that is required to begin to move this space forward by creating examples that work and really, I think, instilling a new kind of imagination into the minds of people about what is possible through the Impact Investment model.
WHERE IMPACT INVESTMENT IS WORKING
We already know that the Impact Investment model is performing well in particular sectors. The agriculture sector, for example, across less developed countries in Asia and Africa. For example. Its working in clean tech or green tech for opportunities that are perhaps more socially oriented. I think there’s going to be a lot more activity and a lot more growth around solutions, innovations with regard to healthcare and education as the cost of education continue to spiral really beyond the means of most people in Hong Kong and that gap opens, I think, you’re going to see a lot of innovation around those solutions as well.
The other obvious one for all of us in Hong Kong would be around the environment as well and this is a place where an enormous amount of work is to be done. We two years ago made an investment into a small recycling company in Hong Kong. Really the only company in Hong Kong that is recycling glass sand plastic, believe it or not, and this is a company that is experiencing some growth, but I think in the next year is gong to be well-positions to really grow and create some positive impact in an area of great need in Hong Kong.
I’ve long believed that each of us has really one fundamental binary decision or choice and that choice is between hope or cynicism. And I think it’s one that we need to, I need to make almost every day because there’s obviously a lot of evidence to suggest that cynicism is well-placed. But I’m a father, I am someone who is attracted to big challenges of someone who fundamentally believes that although the impact investment space isn’t working in an optimal fashion yet, it has to work. That it is indeed our only solution that bringing more private capital and investment performance into organizations, movements that are creating positive measurable social impact.
GOODBYE AND GOOD LUCK HONG KONG
I’ve been at Sow Asia for nearly eight years. I’m stepping down at the end of June to return to the US. I leave with very mixed motions. I’m obviously excited about returning home and being closer to family, but Hong Kong is a huge part of who I am and…I, looking back on my experience, I obviously would have liked to have done more. I would like to have seen more deals done. I now understand that like these extraordinary buildings behind me, there’s a lot work that needs to go into building the foundation before the structure can actually come up. I understand that we’ve actually done a fairly good job at Sow Asia at building the foundation and that’s not just us, but our desire, our willingness to work with a number of steak holders in Hong Kong to really develop what I think is a robust ecosystem to support the growth of the entire space.
We face some real challenges. We need more investable opportunities, which requires smart, young entrepreneurs coming into the space as opposed to going into investment banking or other opportunities. That’s going to happen. I think they need to know as they come into the space that they’re going to be properly supported, they need to do the heavy lifting themselves, but I think they need to know that Hong Kong is a place where if they work hard, if they are true to their mission, that they have a solid chance of actually growing their enterprises.
It’s my conviction that great social entrepreneurs need the best support we can provide for them.
Hopefully Sow Asia will continue to do that.
I certainly hope that that is the intention of my successor and I wish him or her all the best.
For more interviews from the “Entrepreneurs for Good” series, check out the playlist here.
Stay tuned for more clips and full interviews in the coming weeks.