Episode 109: Interview with Kevin Starr, the founder of the Mulago Foundation

Welcome to the Inspiring Social Entrepreneurs Podcast. My name is Fregel Bern. Every week I talk to inspiring social entrepreneurs and changemakers dedicated to building a better world. Here they tell their stories, the highs and the lows, and share what they have learnt of other social entrepreneurs and changemakers on their journeys. I am very pleased today to welcome Kevin Stark to the podcast. Kevin is the founder of the Malago Foundation, which funds early stage social entrepreneurs devoted to maximum impacted scale in developing countries. Kevin set up the Riner Arnholt Fellows program in 2003 to apply Malago's principles and tools to help social entrepreneurs turn good ideas into lasting change at scale. And 2016 set up the Henry Arnholt Fellows program to add a focus on environmental solutions. Kevin was the primary instigator of Big Bang Philanthropy, a group of funders that work together to direct more money to those best of biting poverty. Over the years, Kevin stored hundreds of social entrepreneurs and other leaders how to approach impacted scale. Maybe just to start if you can tell us a little bit about what you do and Malago. Well, I'm CEO of Malago Foundation and we meet normally just call it Malago. We are a private foundation. We are focused on meeting the basic needs of the very poor and increasingly that includes climate, environmental and even conservation solutions. We fund organizations that are focused on on the same mission and who have what we judge to be a scalable solution and who we think have the chops to deliver that solution to scale. And so we have a portfolio of about 60 active investments, 60 organizations that we are putting money into. And we're super lucky and that we're able to give unrestricted funding and we're able to accompany them long term as long as we see that they are on fact on this a plausible journey to scale. Great. Can you maybe just explain what you mean by unrestricted funding and why does that matter? Well, unrestricted funding is, oh, we like what you're doing. Here's some money. You spend it as you see fit because we have confidence in you that we're headed the same way. And why it's so important is that they need the freedom to make course changes. They know better how to spend it than we do. And if we don't believe that, we shouldn't, shouldn't actually be giving it to them. And it leverages all the restricted funding they get and actually makes them better at delivering on the various things. Sorry, that they've received restricted funding to do. Right. So just contextualize that by and large, the funding they would be getting in most cases would be what got restricted funding, which would be targeted and certainly in the grant part of the funding but targeted very tightly defined where the money's going. Yeah, it might be restricted to one particular activity or one particular program or one particular project or one particular place or even, you know, it gets really stupid when it's restricted to one particular item or or set of items. So for us, we just cut through all that. And sort of is the organization delivering the solution that we really care about. And if so, here's the money to do it. Yeah, maybe come back to that a bit later and some of the questions around funding. I just like to get a sense. You talked about, you know, the target group that you're trying to help the poor, I guess, poor globally. I mean, what would you say? How much progress has been made when it comes to helping the poor or the current state of affairs? How do you look at it? Well, I think that, you know, people like the late hands rosling and that genius behind our world and data, Max Roser, they've shown very, very persuasively that huge progress is being made. I noticed that more progress is being made in some places than others and Sub-Saharan Africa is not seeing a lot of the same. It's seen progress, but not at the pace that some other regions are. Yeah, yeah. And we're clearly basing a series of interlinked environmental, social, economic problems of some time over some time. What in particular is on your mind, Kevin? Well, I'm becoming more and more obsessed with this notion of scalable solutions and that if you have a lot of solutions that prove to be scalable, the result of a lot of them going to scale is this convergence into sort of second order scale, second order impact that really starts to affect whole systems. So I think about it more in terms of is there a solution in front of me that seems high impact and likely to scale to great impact over time and the bigger collection of those we can create the better. And when they're these solutions are really about winning and losing more slowly. And especially in the, you know, projects just aren't going to do it anymore, hopscotch projects all over the place aren't going to do it anymore. And diffuse programs that aren't really committed to scale aren't going to do it anymore. And what is going to do it is scalable solutions and organizations that are utterly committed to getting those solutions to scale whatever it takes. Yes, yes. Now we've talked before, but just for people who may be less familiar with the world of social entrepreneurship and so forth. What when it comes to these solutions that scale and so forth, what do you think? Why is social entrepreneurship important? I mean, what's distinctive about it and what role do they play do you think? I mean, it's a relatively recent, I guess, innovation in a way able to just give it a kind of overview of what you think that the particular distinctive contribution that social entrepreneurs can make. Well, to do anything like that, you've got to define it. And I define a social entrepreneur as somebody with a good idea about change who wants to build an organization to take that idea as far as it can go. And that definition describes why it's so important. We need new ideas, but even more we need capable organizations to help those ideas, to make those ideas realize their full potential. And so it doesn't really anything that is only a narrow niche. This is anybody with a good idea who really wants to fulfill the dream of that idea having its full effect over time. So you can sort of join that train anywhere you want. I think the sense of these founders with new ideas is really important because it becomes potentially a vast and efficient lab for the whole social sector. And what we need to really work on is the ecosystem that effectively helps those ideas grow and get to scale. And that ecosystem doesn't yet exist in part, in big part because funders aren't really accountable for impact and are driving the sort of ecosystem you see in the commercial sector where everybody's focused on profit. And because everybody's focused on the same thing, you end up with a machine that generates it really effectively. Yeah, and I suppose just starting again in the context traditionally maybe NGOs and charities would have done that. And what do you see as being the distinct, I guess, quality that social entrepreneur brings in compared? That isn't. a real distinction. In other words, social entrepreneurs can't solve problems on their own. They just, they start things and get the ball rolling. And then the, the single most important concept that we try to use and promote is this notion of the doer at scale. So the, the founder has an idea. They turn that idea into a systematic model. They prove that out. They replicate it. They show that it's scalable, but they can't deliver it on their own. They need other organizations to take it up and replicate it themselves for it to actually achieve any meaningful scale. And so that doer at scale question is really important. And there's only three potential doers at scale. It's, it's either lots of businesses or lots of NGOs or governments. And we wrote recently, we, we, we looked, took a little deeper into the role of, of NGOs, which includes what you just called charities. And looked at their, tried to take at least a, an initial look at their track record in scaling up the ideas and models solutions of social entrepreneurship or social entrepreneurs. And it's not very good. And increasingly, we're seeing governments take up some of these, those ideas, especially if they're particularly designed for governments. And governments are included in their evolution. And there are some business models where profit and impact are well enough aligned that they really can spawn industries that, that serve the needs of the poor. Although I'll say there's less of them. And we think and the impact investing industry is, is a mess. So they don't advance as quickly as they should. But in the end, we're wondering if, is it just the market and governments that are the real routes to scale for social entrepreneurs ideas? Should we be even thinking about the NGO sector as a way that things really scale up? Right now, it's a question with different cultures. But the very different cultures, the organizations, and I suppose that's something I'm trying to get at in the sense that, you know, even including the word entrepreneurship, it gives a sense of dynamic, you know, changing, driven in a way which may be culture of some of the larger NGOs or, or at least you dissociate with that, maybe. So there could be a kind of, not a good culture bit between the kind of dynamic growing organization and the, you know, maybe the culture of some of these larger NGOs. Well, yeah, I see it a little differently. In other words, you have a given idea. And you, you become, you know, the socially, the, you found an organization that initially has to become a lab to really flesh out that solution and figure out how to make it into something. Systematic, that could be replicated to scale. And so in that R&D stage, you're a, you're a lab, you're entirely a lab. But then you've got to figure out how replication of that happens. And so you become more of a factory replicating your own solution. But one factory can't, can't satisfy the, the need. And so eventually what happens to happen is a whole bunch of other organizations need to become factories turning out replications of your solution. And so, you know, where does entrepreneurship end there? I don't know. It's organizations actually have to, have to evolve through those stages if they want to be effective. And they, they may be more entrepreneurial in nature at the beginning, but eventually they've just, they've got to be really systematic replicators. And then ultimately recruiters of other replicators. So I don't think of entrepreneurship as some unique thing. It's more of a, it's more of a, almost a personality approach, a personality trait in approach that really gets things going. Yeah, I mean, I suppose the, the question of, of profits and profit of, you know, profit seeking is, is, is interesting as well in the sense that, when you want to scale or bring other people on board to run with your ideas and so forth, having a profitable product or service or model presumably will help in some ways. And yet, as you say, this big question at the heart of it is, you know, to what degree profits and impact are aligned. And, you know, how, what percentage or how many of the big problems we're trying to solve, you know, are aligned with, with profits. And you do hear stories of, you know, organizations that start with an impact kind of mission and end up becoming more profit oriented. And I suppose there's, you know, ideas of impact first. What's your sense? I, I, I think you're, you're the way you view profit has changed over time. Now, you, you're in, in, in, in, in different, in some sense, whether it's a profit or a non-profit, but can you just talk a little bit about where profits fit in? Because I suppose that some people might say, well, hang on, if you're really dealing with the very poor, you know, should there be profit at all? Oh, well, that all depends on the dear at scale. If you want to scale up via the market, then profit really matters. And so if we're looking at a for profit investment, we have fairly simple heuristic that looks like kind of a Venn diagram, which is, it's got to have a big addressable market. It's also got to be profitable enough to attract annotators. It's got to be an attractive business, or it's just a one-off business, which isn't, that isn't about scale. Scale is about creating a whole fleet of businesses that, that, that embody the same solution. And then, in order for profit not to get it off base, impact and profit, impact in the lives of the poor, and profit need to be aligned so that the more profit you generate, the more impact you're generating in vice versa. And that's a pretty rare quality, but you have to have all three. And so if you think of that center of that overlap, that three circle overlap of the Venn diagram, that's where Milagos trying to find for profit organizations, and it shrinks your pipeline quite a bit, because those are unusual. And when you find it, and it's like a precious gem that you need to get to the point that it's worthy of investment of real money defined as money seeking market rates of return. Yeah, very interesting. And you mentioned that the kinds of organizations you're looking to fund now are dealing with a broader set of issues, maybe then 10 years ago, including conservation, including climate. Can you talk a little bit about that, how that plays in? I know your singular lens and the dealing with the poor, what kind of projects, organizations, and you can just talk a little bit about that. Well, we've always had a portfolio that is focused on scalable solutions to the various issues of poverty, and what it takes to get people out of poverty, be it livelihoods, agriculture, education, health. But then another basic need of the poor is safety. And so we found a scalable solution to sexual violence in slums. We found an approach to a systematic approach to making roadways safer in India when we found out that most of the burden of this carnage on the road in India falls on the very poor. We've taken on some infrastructure where it's shown that the right bridge and the right place in Rwanda makes a huge difference in terms of community prosperity. And in fact, you can kind of get a government to take that very systematic approach to building the right infrastructure in the right place. And then climate solutions, you know, relogues too small to really make any huge impact in in climate. But at the same time, we felt like we needed to get involved because it's affecting everything else we do, especially the small holder agriculture that is the underpinning of mud. the most still the underpinning of most African economies. So what are you seeing there Kevin? What are we seeing? We're seeing things that change land practices a lot. Like if you use farmland differently, if you manage grasslands differently, you can sequester huge amounts of carbon. And so silver culture and things like that. Is it called silver culture, silver posture mixing? Yeah, there's a lot of different things you can do. And providing economic incentives for people to manage. Per a specific approach that sequesters a lot of carbon. Can accomplish enormous things. You know, another thing we're doing is supporting Indigenous people to manage their own forests and create their own future on their terms. So that involves making sure that they have tenure and control over their lands. But it also means the same time helping them develop, helping them achieve their own aspirations and needs in terms of education and livelihoods and health. So from from keeping forest standings to getting carbon in the ground to finding new ways to motivate corporates to to minimize their missions and get to to zero and negative emissions. Any solution we can find that looks like it fits our rubric of scalability. We're trying to get involved in if what we have to offer in terms of our teaching and money proved to be useful. Yeah, that's very interesting to what degree are there projects, you know, you mentioned the trees, the Indigenous people keeping carbon in the ground. How scalable are they? Hard to generalize, I'm sure, but dealing with small holders and so forth. It's just interesting to see how you think, you know, projects can be scalable. Well, it's scalability is actually you can systematically look at it. So a scalable solution has to have a systematic model that can be replicated efficiently over and over again. That model has to be have to have proven impact. It has to be clear on who the doer and the pair are at scale. So who's going to replicate it really big scale and who's going to pay for that replication. And if you know those, then you can systematically look at whether this is big enough, in other words, are there enough places where this solution would work to that there's a, you know, that this scope and the potential of the idea is great enough to be interesting. And is it simple enough that that doer could do be at NGOs or government or business and is it cheap enough that the pair would pay whether it's a cook stove that a mom has to decide whether she's willing to pay for or a community health worker system that a finance minister has to decide is cost effective enough that they want to put it in the policy. And big enough simple enough and cheap enough for tools that help us understand finally whether a systematic model is really part of a scalable solution. And are you seeing more social entrepreneurs looking at these areas of climate change and related climate kind of questions and also the interest of NGOs. I know you've raised some questions about there. There are actual track record of supporting and scaling these solutions. But do you feel those momentum, I mean, firstly at the level of the social entrepreneurs are there, you know, motivated skilled entrepreneurs keen to, you know, are you seeing good, good projects is, I mean, I know your particular focus is on on scalable projects, but do you feel there's some momentum there. Well, we've been doing, you know, we have two fellows programs looking for social entrepreneurs that we think have scalable solutions and the one we've been, we've had for many years is the runner on hold fellows that been focused on poverty solutions. And then we started having the Henry are the whole fellows focused on on the environment and increasingly we don't see those as different, but our experience in conservation and the environment climate are it is, you know, only about five years old and I will tell you in those five years, either we've gotten better looking or there's a lot more, but we're just seeing a much bigger pipeline. Coming into our process. It's great, it's great, I can you talk about how the kind of funding you provide, I mean, you mentioned and explained the it was unrestricted, but this idea of being able to fund over a period of time and the mix of of grants and how you an equity investments presumably as in the in the poor proper area. But well, if it's a nonprofit, then we're getting unrestricted funding based on our assessment of whether they're, we're still persuaded there's a scalable solution in that organization has what it takes to get it there. We get in when we believe that we stay in when we're still persuaded, I think we get out when you don't buy anymore. And for for profits, kind of a little different where, you know, you, you provide equity or debt, depending on what their needs really dictated a given point in time. And then you're, you're kind of done with them, you know, you, you, you put an equity stake into something and you're not reevaluating it at regular intervals to see if you put in more it's more like you, you bought it and watch it. We don't go on boards, we don't take a real activist role with them. And sometimes we might do a second round of equity or debt, but mostly we're about early stage organizations and getting them on the path to scale. And if the thing really works, the market will take care of its, its, its eventual path to scale. And what would you say is the balance near portfolio for profit and nonprofit, about 80 20 nonprofit. It's just this, just, you know, as I described that that kind of approach to screening, it just turns out there aren't that many for profit solutions that will scale up to serve the particular population that we're focused on. Which brings up the question, I know you the strong views on this, which you mentioned a little bit earlier, we, that seems to be tremendous. Well, I'm not sure, well, yes, momentum in the world of impact and besting and certainly a lot of rhetoric and a lot of talk and movement and monies indeed going into funds and so forth. What's your sense of how, how, how, how much of that money is really getting to kind of social entrepreneurs. I mean, I suppose the projects that you work in in particular, but more generally, it does seem to be an area where there's a lot, a lot of, a lot of optimism and talk. Well, increasingly I just see it as there's for an idea for business idea that truly benefits the poor to get to problem solving scale. It eventually needs to become worthy of and attract real money, which is risk-adjusted market rates of return money. And so I think of that as real money and then there's free money, which is grant money and then there's cheap money, which is what I think impact investing money is supposed to be it's supposed to be what gets you to real money. And so ideally, I love to see it when there's an idea that has huge potential in our view for impact at scale, which is to say we think it's profitable and we think profit and it potentially profitable and profit and impact your well aligned. Well, we just want to get it across the finish line all the way to where it's worthy of real money, because that's the only way it's really going to take off and benefit the enormous numbers of people that we want to benefit. and so we'd like it to end. If the business model or the end or the technology really is improved but seems to have a huge potential we're happy to give it free money to get it as far across that desert toward the finish line as we can get it. But at some point we need cheap money to move at the rest of the way i.e. impact investing money. And there's never as much of that as people have been led to believe there is. And to strain the desert analogy it's almost as if it exists in Oasis here and there but it's hard to find and those Oasis are hard to get into and take a long time and meanwhile you might die of thirst in the desert. So you look at the reason why there's not as much money as all the hype would lead you to believe and increasingly i believe it's because it's all huddled on the market rate of return end of the returns spectrum. So it's not really high additionality money it's just it's it's it's almost indistinguishable from private equity money that's just trying to do a little better things. And the only study I know was one in in Latin America where they looked at the self self reported kind of returns that that so called impact investors were interested in and it was almost all market rate of return or approaching market rates of return. Just convinced that of the half trillion dollars people say is out there most of it isn't cheap money it's it's real money disguised as impact investing and so it's just not that useful or interesting to us. That's very interesting I mean I did see that solar company I interviewed a few years ago has apparently raised nearly two billion dollars and something so presumably that would be more like that kind of end of the returns are expected. Let me be super clear if they are really serving the poor. And raised two billion dollars of real money I think that's fantastic it's just a question of who are they who are they really serving my I would be surprised if they weren't serving the middle class. But I don't know well this is a question I was going to ask as well as saying that you know you've got a particular focus on on the poor but you're also you know very embedded in the community so you're talking about your experience but presumably applies this is something you're seeing more generally. This lack of you know as you say cheap cheaper money does this impact the kind of projects that that that get developed or that get you know that social entrepreneurs you know try and get off the ground that they if they if that's where the money is they they try and deliver projects that will satisfy what the funders are looking for. Well everybody always tries to satisfy with the the payers of paying for. Yeah but I mean the kind of projects that they're doing you know that the projects that are well he just take for example where you're focused on getting you know you're drawing in as many people because if there's not the funding for it they're they're going to go where the funding is some degree. Well that's usually a little further down the line entrepreneurs have an idea and they want to explore and build out that idea and they seek money and if there is money they get a little further and if there isn't they don't but they tend to they tend to have an idea and they really. Fight for that idea and that is one thing that characterizes them but when you start to get to the replication and scaling and and you you're just looking at organizations that do what they are what they can get money to do and they tend to fight more for money than for ideas and that's really the opposite at the beginning they're fighting for ideas and they're trying to get the money to drive those ideas. Yeah what about hybrids Kevin. I hate most hybrids because they're just trying to offload some costs onto a nonprofit and because the two elements really can't grow at the same time they're too complicated and unwieldy to scale. But the one time it makes sense for a for profit to be associated with a nonprofit is if there are sort of research costs where you could develop a technology that might serve the whole sector but is also central to your business model. So for example we've got a very interesting emerging fuel and cook stove company that might actually provide the breakthrough that we need to get high quality stoves to to the poorest people which has always been the huge problem with that whole industry is the cheap stoves aren't good enough and the good stoves aren't cheap enough. So they may have a real breakthrough in terms of a business model but they're not quite there with the stove and if they can actually bust through that challenge they can open up the whole industry. And so it makes perfect sense to provide them with grant money to do that that really critical R&D that's going to make things better for a whole sector but is also a key element of their business model. And there may be things like that in a lot of business ideas where some grant money going to a well designed nonprofit can both help that company and help the whole sector. And it makes sense but they're not really a hybrid they're like they're a business that actually has a grant funded lab that is more open source and benefits the entire sector. That's very interesting very interesting and do you see much business model innovation are there business new business models are merging business models that are innovative or interesting presumably that's something that's transferable as well different kind of certainly at the earlier stages I mean you've mapped out that you know payers later in the scaling as it were but in the early stage other. And they're interesting. I'm not quite sure I understand the question are there are there interesting for profit models. I think about the business model of this particular organization and you know presumably for social entrepreneurs they operating and challenging environments where you know the simple idea of selling something someone might not work you're talking about you know different ways of structuring that and part of the organization. So generally is that something that you you think about business models or is that not well we don't we don't generate ideas or business models we look for where they're emerging we're like a DC firm or something. Sure sure are you seeing you know is there innovation there are there models emerging that you that that you know that would apply different kind of funding structures or payment structures or you know within an ecosystem dealing with a problem. Yeah it's just any business eventually scales from customers as the pair so you might you might need debt and equity investors. You know you might need equity investors really get going you might have an ongoing need for working capital debt but eventually the thing is powered by customers. And we're just seeing we're seeing more and more solutions that are more and more realistic about about about that whole picture and you know the especially technology has enabled a lot of new has generated a lot of new ideas that are more scalable in part because. Because they are technology enabled but they still have to work and you you. Organization or model that's not very good. With technology layered on to it is just a not very good solution that's digitized. Yes yes he talk a little bit about impact and as you said earlier that having one way of measuring or once simple goal in the world of four profits can have tremendous advantages impact. challenging to measure traditionally. What's your approach? Well, it's increasingly for us, we finally realized that rigorous ongoing measurement of impact is a drag on the bottom line and nobody's really going to do it in the four-profit sector. It's just not what drives it. So, our initial analysis of the alignment of profit and impact is becomes critical. So what we want to do is prove to our satisfaction that what drives profit also drives impact and that is iron clad. And so we can have some confidence that if the thing really does take off and makes a bunch of money, you're going to see a bunch of impact. And that's probably that's the only point in which we can apply the kind of rigor that really gives us confidence. And down the line, that's not going to, if that hasn't been established at the outset, it's probably never going to happen again. And how well established is that idea? I mean in the industry, yeah, the connection between profit and impact. Oh, I don't think, I don't think it's pretty rudimentary. I think investors tend to just sort of look at it and buy it and then everything becomes about the business and the profit. And so, if that turns out to be right, it's great, and if it doesn't, it's not so great. So, a lot depends on how rigorous impact investors are and how rigorously they demonstrate that alignment between profit and impact and how clear they are and what they mean by impact, you know, what for whom and sometimes it works out really, really well. And a lot of times it doesn't because a lot of the time investors are buying a story and not anything that's been proven. Have you any thoughts about what kind of changes would help have the impact sector, investment sector more focused or enable more funness to, you know, to go in the areas with the higher risk, I suppose, risk adjusted returns? Well, it really strikes me that if you're not giving cheap money, in other words, if you're not concessionary in your quest for impact, for moving it across the deserts to where it's finally worthy of real money, then you don't care about impact that much. You're not, you're not making any sacrifice for it. So for example, we give free money to nonprofits is mostly what we do. And the only reason we give them free money is because we're looking for impact, so if they don't have impact, you've totally wasted our money. If you're providing cheap money, the difference between what you could have made with that money and what you're going to make that money is essentially philanthropy. It's essentially a subsidy. And so if you don't get impact for that subsidy, you've wasted your opportunity cost there. So you should really care. But for profit investors, if there's no impact, they don't have impact skin in the game, except maybe emotionally or in terms of branding. But they just, they don't have that impact skin in the game, so they're just not, it's not structured that they would care as much. Yeah, how long have you been in this cabin, in this, in this world? And what's next for Malago, you mentioned the second string of fellows, the more focus on the environmental, the climate kind of side of things. Your work and clarity around scaling and you're thinking around that is very interesting. What was Malago up to next, or what are you up to next? What we want to advance this notion of scalable solutions and continually understand for ourselves better and better what that means so that we can be more systematic and looking for it and managing toward it. And then making ourselves transparently accountable for it. And then leveraging that transparent accountability to say to the sector, you can be accountable for this. And funders should be accountable for impact because that's where most of the, the ills of the sector come from is the fact that, that we funders are not accountable for impact. And try to, try to drive the whole sector forward in terms of scalable solutions and funder accountability. That's a dream. That's where we'd like to go. Quite how to do it yet, but that's what I'm thinking about a lot. It's day by day, every day focused. Well I wish you the very best success with it all, Kevin. And thank you so much for sharing your insights and telling us about your great work you're doing, Malago. And I wish all the best for Malago. Well, thanks for going and thanks for what you're, you're setting out to do with this podcast.