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A Nuru energy case and mock exam questions After reading the case you have to answer the questions based on the case and content Questions limit words shouldn’t exceed 300 words (read the instructions fore more info on page 2 in exam questions file and the revision file before answering the questions)I would prefer reading the questions first then the case after that the contents that I attached to answer the questionsIf you have any suggestions or questions to make for my exam I will appreciate that.Not very important (as English is my second language try to make it more easier to me to memorize it and not including tough words )Wish you all the best in delivering a perfect answers and if you need an extension in delivering the answer let me know please.
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Nuru Energy (A):
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Nuru Energy’s Mission: To replace the use of expensive,
polluting, unhealthy and dangerous kerosene as a source of
lighting for the two billion people without access to
electricity.
• Winner of the 2012 EFMD Case Writing Competition in the
category “African Business Cases”
• Runner-up in the “Social Entrepreneurship” track of the
oikos Case Writing Competition 2012
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Financing a Social Enterprise
02/2021-5847
This case was written by Anne-Marie Carrick-Cagna, Research Associate, and Filipe Santos, Associate Professor of
Entrepreneurship, both at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either
effective or ineffective handling of an administrative situation.
We gratefully acknowledge the support of the Andy Burgess Fund for Social Entrepreneurship.
Extra teaching materials are available at https://publishing.insead.edu/case/nuru-energy-a.
Copyright © 2013 INSEAD
COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, REPRODUCED OR DISTRIBUTED IN
ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER.
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“We are a social enterprise that sought to invent and commercialize an affordable
and clean off-grid lighting system for the world’s poor.”
I founded Nuru in 2008 with two colleagues from my former employer, Freeplay Energy. Our
goal was to develop a modular lighting system to replace the dangerous and expensive kerosene
lamps that are common in the poverty-stricken parts of Eastern Africa. We also wanted to create
sustainable businesses for local people who could earn an income through the selling and
recharging of these lights. By November 2010, we had developed an innovative product and
launched field pilots in three countries using three different business models. We are now at a
point where we need to scale up our operations considerably to achieve the societal impact we
aspire to. For this, however, we need to focus our efforts and we need funding. Luckily, I have
several financing deals on the table, including a large bank interested in buying the carbon
emission credits we will produce, a company that would like to acquire us for several million
dollars, venture philanthropists willing to put “patient capital” to help grow the venture, and
several individual angel investors willing to commit smaller amounts of funding for the scaling
up process. All of these financing options, however, have drawbacks that our team is carefully
considering. The fall-back option is to continue relying on grants and prizes to finance the
venture.
On a personal level, I have spent the last three years dedicated to Nuru. I am tired of all the
travelling and spending so much time away from my family. I’ve also grown weary of relying
on donations that require the launch of new pilots. I wanted to alter the status quo but it seems
more difficult and slower than I thought. I need a reliable source of growth capital that allows
our team to focus on realizing our vision of giving the world a clean, affordable and effective
lighting system for poor people without access to the grid. At this stage, however, I don’t know
who I should turn to or what route to take for scaling up.
Sameer Hajee – An MBA Graduate Turned Social Entrepreneur
After graduating with an engineering and business degree from McMaster University in my
native Canada, I worked for four years in different engineering and management roles in the
semiconductor design industry in Silicon Valley. In 2003, I found myself with six months to
spare before starting the MBA course at INSEAD. I moved to Afghanistan to work for a telecom
start-up in Kabul that was looking for people to help expand mobile services to remote areas
throughout Afghanistan. It was during this time that I witnessed the amazing difference that
basic technology, in this case mobile technology, could make in the lives of the rural poor. I
realized then that it was this career path – combining technology and international development
– that I intended to pursue after my MBA studies.
In 2004 upon graduation, I went to Kenya and joined the United Nations as a private sector
Development Consultant. There I worked with a small team of business professionals located
throughout the world who believed that companies could engage with developing countries in
ways that were both pro-profit and pro-poor – a relatively novel concept at the time. One of my
roles was to broker partnerships in Kenya – to help companies conceive and implement business
models that would make money while also delivering value to the UN’s “customers”: the
poorest of the poor. One example was in the fruit juice industry. In Kenya, despite the wide
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Sameer Hajee, Co-Founder and CEO of Nuru Energy
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availability of fruit, the juice companies still imported fruit juice concentrate from abroad that
they then mixed with water and packaged for sale in Kenya. I couldn’t understand why they
didn’t use the fruit from farmers in Kenya itself. My role in this case was to bring together fruit
growers with a domestic fruit juice company by helping them obtain financing to set up a
facility that would take in raw fruit and produce concentrate for domestic sales and for export.
This resulted in reduced costs and increased economic activity.
After a year in Kenya, I returned to Toronto with my wife. By this time I was sure I wanted to
become more involved in the actual implementation of the models that I had worked on in
Kenya. A colleague from the UN put me in touch with the founder of Freeplay Energy1 who
needed help in creating a distribution strategy for rural markets. I went on to work with them
for two years, helping to sell products to different aid agencies throughout the world, including
the Red Cross and the UN. During this time I visited Sudan, Ethiopia and other poverty-stricken
areas of the globe. We were selling low-power electronic products to the base of the pyramid,
such as radios and portable lights that were charged through hand cranking. I realized, however,
that some of the products just weren’t affordable or effective for the customers we were trying
to reach. I also noted how basic services that we take for granted, such as water and lighting,
were missing in many rural regions of the globe, curtailing the development prospects of entire
populations. I had to do something to address this problem.
By mid-2008, with two ex-colleagues, Simon Termeer and Barry Whitmill, (Exhibit 1) we set
up a venture to address the global problem of lighting. We obtained US$200,000 in seed
funding from the World Bank for the venture we called Nuru (Swahili for ‘light’). The grant
was for the development of a suitable product and subsequent testing in the field. Our multidisciplinary team (which by then included industrial designers, manufacturing experts and
development workers) spent the next few months working on the concept of a portable lighting
solution for rural areas.
The first task for the team was to go into the field and observe how people in isolated rural areas
used light. So we lived in Rwanda for the month of July 2008. What we found was that burning
kerosene was the most common way for villagers to obtain light. However, imports of the
substance were subject to restrictions and the prices were usually high as villagers often bought
it on the black market. A survey in Rwanda showed that rural and urban families spent over
US$8 per month on kerosene even though most of the population lives well below the poverty
line, earning less than US$2/day. The world’s poor spend between 10% and 40% of their
income on kerosene! A 10oz. bottle of kerosene (300 ml) cost about 50 cents and would only
produce six hours of light.
In addition to the high cost, kerosene is known for its great health risks – the fumes from using
one kerosene lamp in a tent or small room are the equivalent of smoking two packets of
cigarettes per day. Many homes have poor ventilation, so fuel-based lighting poses serious
health hazards such as respiratory and eye problems. Kerosene is also extremely dangerous,
with skin burns being a common occurrence as a result of lamps accidentally knocked over. A
1
Driven by its core purpose: “To make energy available to everybody all of the time”, Freeplay Energy seeks
to maintain its leadership in creating and developing the market for self-sufficient energy products
internationally.
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Nuru Energy: Identifying a Neglected Societal Problem
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After the field research, we better understood the costs to society that the use of kerosene for
lighting entailed. It dawned on us the enormous positive spill-overs of replacing kerosene lights
at a global scale with a solution that was less costly, more efficient and healthier. We had found
the mission of Nuru Energy.
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Designing for the Base of the Pyramid
My colleagues and I had seen how fast-moving consumer goods (FMCG) companies such as
Unilever and P&G had successfully adapted their products to sell to base-of-the-pyramid
markets: they began to package their goods in smaller volumes to make them more affordable
to the rural poor. We needed to find the equivalent for delivering lighting to remote rural areas.
There were four specific criteria that we aimed to meet when we began designing the lighting
product it had to be:
•
valuable to the people (had to directly meet their specific lighting needs)
•
something that was a unique product offering (relative to other options available to
them)
•
more affordable than the existing alternatives (and the population we targeted had to be
able to pay)
•
accessible (there was no point in developing a valuable, affordable product if we
couldn’t ensure access and delivery to the end consumer).
After several months working on the problem, we developed the Nuru Light, a small portable
light that can be worn on the head like a miner, fixed to a helmet, or hung around the neck for
reading – the options are numerous. If for some reason extra light is required – the family is
entertaining guests, for example – the lights connect in modules to make stronger lights which
can be hung on a nail to light up a whole room. It is designed to be practical to use and effective
for multiple types of usage.
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quarter of households reported kerosene-related accidents in 2009, including fires and skin
burns. The fuel also emits carbon dioxide (CO²) and is therefore harmful to the environment.
Kerosene burning for lighting produces 100 million tons of carbon dioxide annually. Ironically,
the light provided by a kerosene lamp is not actually very bright and is therefore inefficient.
Studying or reading next to kerosene light is difficult, thus hindering education in these regions.
We also noted that 90% of the needs for lighting after dark were task-based – from milking
cows to doing homework and cooking. Therefore an entire room didn’t need to be lit most of
the time. We also needed to take into account the villagers’ irregular source of income.
Kerosene was unaffordable for most of the time and further trapped parents and children in the
poverty cycle.
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The light uses a light-emitting diode (LED) bulb that is unbreakable and so never needs
replacing. The lights are the size of a hockey puck. When fully charged each POD light can be
used between 9 hours (high bright) and 28 hours (low bright) – enough light for one or two
weeks’ usage.
The next challenge to address was the charging of the lights. We developed solutions based on
two conventional methods – the AC charger and the solar panel charger. Our first solution used
electricity with adaptors charging up to five lights at a time.
The drawback is that there isn’t always electricity in rural areas, especially in sub-Saharan
Africa, where nine out of ten people do not have grid electricity. We therefore developed a
second solution based on a solar panel that could charge up to five lights simultaneously.
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Unfortunately, this is an expensive unit and solar panels are not an efficient technology – it is a
lengthy operation to charge anything with a solar panel. So we needed another charging solution
if we wanted to have widespread distribution and market adoption. Although cranking by hand
had been used in the past for recharging, we found that people didn’t want to use this sort of
device as it took effort and did not seem natural. We therefore looked at a more natural system
based on pedalling – we have all seen bicycles
whose lights are powered using the energy
generated from pedalling! After some research and
clever design options, we developed the
POWERCycleTM as an innovative method for
recharging the lights. These bike-like stationary
units can produce enough energy to fully recharge
five lights in 20 minutes of pedalling. This is
actually the most efficient way to recharge lights,
as well as being accessible to everyone.
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Once we had developed a promising technical design, we needed a convincing business model
that would diffuse our solution widely.
The Rwanda Pilot: Market-Based Business Model
Providers of technical solutions for the poor usually rely on donor funding and free distribution
through NGOs or traditional rural distribution channels. However, mark-ups along the value
chain often make the end product ultimately unaffordable to poor populations. Although models
based on sustainable income were rare in the developing world at the time, this seemed to us a
more promising approach. So we started a pilot in Rwanda, where we had done our initial field
research.
We decided to set up a network of rural entrepreneurs, which created a sustainable livelihood
for people in the villages and also allowed us to get the lights directly into the hands of
consumers with few intermediaries. Our approach was to help an individual or group to set up
a micro business through which they could sell or rent the Nuru Lights and offer a recharging
service via the POWERCycle.TM
Nuru Energy acts as a “coordinator” between the microfinance
institutions (MFIs) who offer loans and micro-entrepreneurs who are
interested in starting a sustainable business to make money.
Supported by MFI partners, Nuru Energy screens and selects
entrepreneurs from local cooperatives to operate their own microfranchises. Located in the customers’ communities, each microfranchise operator sells lights and can then charge their customers a
small fee to recharge the lights using the pedal generator. Each
entrepreneur can earn up to $13.50 per day. Such an income launches
an entrepreneur comfortably out of poverty, giving them three to four
times the national average income, while still saving customers 95%
on lighting. Indeed, assuming 2.5 hours of light per day, our solution
was 20 times cheaper than kerosene.
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Cost per hour
Cost per month
Cost per year
Nuru Light
$0.007
$0.44
$6.50
Kerosene
$0.13
$10.12
$118
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The business model thus offered two revenue streams: money generated from margins on the
sale of the products (lights and charger), which is initially financed by the microfinance
institution, and recharging fees from the entrepreneur. We had people in the field to support the
micro-entrepreneurs, monitor the number of recharges in the PowerCycle and collect the
recharging fees, but we soon realized that it was costing more to recover these recharging fees
than the actual money due, so we are looking for alternative collection models that are more
efficient. In any case, our model provides two revenue streams and could become profitable
over time.
The Kenya Pilot: Donor Based Model
In our continuous search for funding, in 2009 we received a
grant to supply lights for free to particularly vulnerable
groups with no source of income, such as refugees. To pilot
this model, we donated lights to school children in refugee
camps who had no income, and therefore no means to buy
lights. These children’s only chance to escape the refugee
camps is to do well in the national exam and earn a
scholarship to university. Without a light, however, they
cannot study. By providing Nuru Lights, we can give these
children a future.
Students at the Gihembe refugee Camp
This model was piloted in Kenya, where we put 100 lights into schools with a charger and
monitored the effect on children’s education. We saw a strong adoption rate among children
and had encouraging evidence of impact on their school efforts and educational results. We
could try to secure more donors to expand the programme to other refugee camps or schools or
by serving poor populations. Two of our team members in particular were excited about the
potential growth and impact of this model.
India – Learning Good Lessons the Hard Way
In the summer of 2009, we made our first move out of Africa to India, home to over 580 million
people without electricity (40% of the population is off the grid). The size of the population we
believed could be targeted was as large as that of sub-Saharan Africa (Exhibit 2). Moreover,
with India we would be dealing with only one large country and therefore potentially only have
to deal with one microfinance institution, one set of import duties, and similar procedures
involved in setting up operations. Given these considerations, we were convinced that it would
be easier to expand into India, where we could reach as many people at a lower cost than setting
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Nuru targets mainly female entrepreneurs, whose earnings are more likely to be spent on the
education, health and feeding of children, therefore creating a broader social impact. We also
decided to offer training to our entrepreneurs in basic book-keeping and accounting, and to
provide them with marketing materials to help set up and expand the business.
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up operations in several different African countries. This was important given that at the time
we still had no stable source of funding.
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On further investigation, we learnt that their customers were only using the lights for an hour
or two at night, during power cuts. We hadn’t realized that the two pilot villages actually had
access to the power grid. Thus when we spoke in more depth with the customers we discovered
they didn’t really want to pay someone to pedal; they would rather purchase the recharger and
charge the lights themselves.
With this in mind, we suggested to the two pilot entrepreneurs that rather than selling in their
own villages, which had access to the grid, they look further afield for customers. Perhaps they
could go to the nearby villages with no access to electricity and set up the POWERCycle in the
weekly markets, offering to recharge lights for the locals for a fee – thus earning an additional
income. While they initially agreed, it was soon apparent that these particular entrepreneurs
didn’t actually like pedalling since their other income-generating activities, which included
mobile phone, music downloads and providing internet access, offered higher margins with less
effort. The demand for Nuru Lights among end customers, however, was great as we found that
the villagers were coming to the entrepreneur and recharging the lights themselves using his
POWERCycle for a fee!
The pilot in India proved to be a learning exercise as we realised that we needed to adapt our
products and business model according to the geography. In mid-2010 we hired an MBA
alumnus, Deepak Punwani, to lead our efforts in India from Mumbai. Another person has been
taken on and is spending six months in the field to discover exactly what works in the Indian
climate and conditions. With this valuable information, we can then adapt the model
accordingly.
Kenya – Scaling Up Too Fast
As we had already piloted the school-based donation model in Kenya in 2009, it seemed
obvious that Kenya should be the next African country (after Rwanda) where we would set up
our commercial micro-franchise operations. Although we didn’t have funding for this
expansion, I was confident that it would be forthcoming. Therefore, in January 2010, I recruited
a recent MBA graduate from the Spanish school IESE to launch Nuru Energy Kenya. Her first
job was to find local MFI partners – once an MFI was on board, the next step would be to find
entrepreneurs and organise the logistics of the operations. After six months, however, my
forecast of closing a financing deal by early 2010 proved to be too optimistic. We had several
options on the table but no obvious or ideal choice. Since we hadn’t secured financing for the
Kenyan expansion in due time, our Kenya manager became frustrated and finally quit, forcing
us to interrupt our expansion plan into the country.
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In September 2009, we partnered with the microfinance company BASIX and, based on their
recommendation and using grant funding, set up a pilot with two entrepreneurs and 100 lights
in two Indian states. They were monitored by BASIX over a four month period. However, when
we received the monthly reports on the entrepreneurs, we were disappointed as they were
making about one fifth of the revenues that the African entrepreneurs were making with their
recharging activities.
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Financing Nuru Energy
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We were working with an annual budget of US$200,000 at the time. This covered local field
staff salaries, office rental, and transport to and from the field to identify, select and train service
entrepreneurs. It also included all the manufacturing and shipping costs of the lights and
POWERCycles and international travel for the management team, who were not all based in
the same location. By this time, the staff had expanded. There were the three co-founders –
myself, Simon Tremeer (our Manufacturing director) and Barry Whitmill (our Design director).
In Rwanda, there was a country manager, a grants manager and three field staff. There were
also two staff members in India: a country manager and a field manager.
I had spent most of my time and energy in the last two years building awareness of Nuru Energy
worldwide in the hope that it would lead to suitable and sustainable financial backing. With this
goal in mind, I had been pursuing different types of investors.
Angel Investors
I started out thinking that an easy way to raise financing quickly would be to look for money
from high net worth individuals, especially given the interest that Nuru had generated over the
last two years. We were looking for finance partners who could add value beyond the capital. I
considered several angel investors and discussed different options with prominent wealthy
investors throughout the world. However, we were looking for more than US$250,000 and none
of them were willing to invest sufficient capital into Nuru on their own. The pre-money
valuation I was discussing was US$750,000 or US$1 million post-money (i.e. US$250,000
investment for 25% equity). If we syndicated several angel investors it would have met our
financing needs, but I didn’t want to deal with multiple stakeholders and the different ideas for
the company’s future they might have.
Social Venture Capitalists/ Venture Philanthropy
I also contemplated social venture capitalists – they were less demanding on time and had
“patient capital”, realising the value of the investment over time, unlike traditional venture
capitalists who want results and a return on their money quickly. However, this is a relatively
new type of investing. I found that many players in the space had just left their traditional
banking/corporate careers and, although they wanted to do something impactful, the majority
lacked the experience and know-how required to build a pan-African or emerging market
business. I was adamant that I wanted a business partner, not just someone I reported financials
to each quarter.
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Nuru Energy’s growth up until November 2010 had been a somewhat frustrating stop-and-start
process, dependent on awards and grants obtained from a variety of organisations (Exhibit 3) –
which were the lifeblood of Nuru Energy. The total amount (over US$400,000 to date) had
enabled us to pursue what was perceived early on as a risky idea and make it tangible. We had
scaled up to a certain level and done several pilots so that commercial financiers could see our
progress and have the confidence to make an investment. Although we were delighted with the
interest generated among the donor community, we didn’t think we could rely on grant funding
to scale up and reach profitability.
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I also noticed that we were often ‘stuck in the middle’, being a for-profit enterprise with a social
mission. For venture philanthropists the social mission often takes precedence over the financial
mission. Most of the investors were concerned about impact first. The impact drivers that they
looked at were varied. Three typical metrics they used were: how many jobs were created,
income generation for franchises, and environmental impact. Ironically, sometimes capital is
too patient and can curtail efforts to make the business profitable as soon as possible. In
addition, I had not witnessed many exits among the venture philanthropy community, which
also had difficulty in dealing with profit distribution to shareholders. I was thus a little reticent
about opting for this sort of funding as it would limit the founders’ potential upside. At the other
extreme, I was afraid that traditional venture capitalists would put profitability ahead of impact
and aim for a quick win and early exit.
I also investigated the possibility of financing through the relatively new carbon credit markets.
The emission of gases such as carbon dioxide and methane from manufacturing, deforestation
and energy generation is generally believed to be a source of climate change. Nuru Energy,
with its CO² reduction impacts, could be eligible for carbon emission credits that had a monetary
value and were tradable on the international market. To qualify for these credits we needed to
be approved by the United Nations “Clean Development Mechanism” (CDM). The carbon
credits could be earned through the replacement of CO²-producing kerosene lamps with LED
lighting technology (Exhibit 4).
In July 2010, I decided to approach some of the carbon credit brokers to see whether Nuru
Energy could make a financial deal. What I found was that while many carbon brokers were
open to discussion, only Bank of America Merrill Lynch (BAML) was willing to consider
advancing capital against non-guaranteed credits – a unique deal in the carbon space at the time.
BAML proposed a multi-million dollar deal whereby they would provide funding upfront for
the right to buy a certain volume of credits from our Eastern Africa operations.2 BAML was
taking a risk by offering capital without a guarantee of credits in return – they would have the
right to buy the credits over a ten-year period at a pre-negotiated, market-pegged price. They
could then resell them at a higher price in the future. For BAML, the deal could be both
commercial and brand enhancing (as a socially motivated project).
Unfortunately, in the midst of negotiations with BAML, we discovered that the design of our
light would require some revision. According to newly adopted CDM technical specifications,
our lights did not meet the approved level of brightness. Although it was inconsistent with the
lighting needs that we had witnessed in the field – our brightness level was correct for our users’
needs – if we wanted to be eligible for the credits, we had to redesign the light accordingly,
probably with an increase in the cost of the units. If we were unable or unwilling to meet the
specifications, the BAML deal would be a non-starter. In any case, this would be an unusual
deal and I was nervous about being reliant on a large investor such as BAML and whether they
would neglect the social mission of Nuru Energy.
2
Precise figures cannot be disclosed due to confidentiality agreement.
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Carbon Financing
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Selling Nuru Energy
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I decided to test the waters and see if there were any potential buyers for Nuru Energy. I
approached a company that I knew through Freeplay Energy, my former employer, to see if
they might be interested in acquiring Nuru. It was a global consumer product business that had
recently acquired an alternative energy business so they might be interested in making a deal.
The company’s response was positive – they believed that Nuru Energy was moving in a
promising direction in tackling the energy access problem. By November 2010, I had met them
several times and negotiations were progressing well, with a US$5 million valuation and a lockup period of two years during which I had to remain in the company. This would give me a
good pay-out and alleviate some of
