Conversation with Mana Impact Investment Fund Inequality in Technology and Opportunities

Interviewee: Fan Shiyuan, Founder of Mana Impact Investment Fund

CASVI: Why did you enter the area of impact investing?

Fan: I started my career in the secondary market, firstly working in a security firm. Then I immigrated abroad in the early 2000s. A few years later, I saw what was happening in foreign countries and felt that it was feasible to make my country better. Therefore, I wanted to return home and do something meaningful in the mobile internet era. After returning to China, I participated as a volunteer in some activities funded by Adream Foundation at its early stage. At that time, we didn't know what impact investing was and thought these activities were impactful.

From the angle of the business, what we initially did was to get authorization of content from traditional media, edit the content, and put it on the mobile end. At that time, we provided a lot of content for mobile devices, such as content from Sina, Tencent Finance, Mobile, Telecom, etc. We sold traffic ads to financial companies and distributed the excess traffic to public welfare organizations. We combined our business activities with public welfare in this way. We first incubated Credit Ease's Yinong Loan, and we provided free traffic to them at the very beginning. In 2009, we helped CITIC Credit Card design a public welfare credit card co-branded by CITIC and Adream Foundation. This credit card was distributed on our traffic platform, with the traffic conversion rate reaching 10%. These early activities constituted our genes, namely the combination of mobile Internet and public welfare.

In 2010, someone came to us to talk about impact investing. However, we felt that the public welfare projects did not generate returns, and we could not get equity from these projects. Therefore, they could not be considered as investments. At that time, it was still hard for investors to understand impact investing. The real understanding of impact investing came after we completed a round of financing in 2015 and got several hundred million dollars, which prompted us to think about our future development strategy. Then we really started to focus on impact investing. The public welfare projects we did before are still included in our impact portfolio because we think general welfare projects indeed generate impact.

We invested in a number of projects between 2015 and 2017 when our company was originally called Shanghai Chengtai Technology. These projects are now being managed professionally. Now we make a distinction between commerce and public benefit from our past invested projects. The public benefit is part of our own corporate foundation called Mana Data Technology Development Foundation. It specializes in projects with data characteristics, such as protecting data rights, constructing data systems for public benefit organizations (i.e., non-profit organizations), providing industry training, as well as establishing data backend disciplines and data privacy management systems. After the separation of commerce and public benefit, we raised funds for impact investment by packaging and selling our previous commercial projects. Our previously accumulated capabilities of the project and team management were the basis for the Mana Impact Investment Fund we launched in 2018.

After we made adjustments and reclarified our corporate strategy, the actual conflict between two forces, two mindsets, and two values, was gone and the vitality of the business emerged. The last two years have been the happiest time for our team since we started. Although the pandemic has put some pressure on revenues of our commercial projects that have not yet been divested, the projects in which we make impact investments are all in excellent shape at the moment. Because of the pandemic, all of these projects have grown rapidly in terms of incremental revenue and have contributed a lot to social impact. For example, Liandi has launched a small program that allows people with visual impairment to know where they can buy masks, how the pandemic is spreading, and what new government regulations are in place. Then, people using Liandi often knew the information even faster than their family members. Sometimes these people can even alert their family members, take care of them, and give them better advice. This is an example of technology application to help people with visual impairment integrate into our ordinary lives without discrimination.

CASVI: What are Mana's criteria for measuring impact investing projects?

Fan: We consider three aspects when measuring impact investing projects. The first is whether the project's mission has changed from the very beginning. This point is common to almost all of the impact projects we invest in. Because many new hotspots are generated in the capital market, the startup market, as well as the technology market, and business projects tend to chase hotspots at any given time, then the hot business projects basically vary every year and almost half of them will switch to the next hot business. The second aspect we consider is whether the project's short-term income is strong. For example, Liandi has never suffered a loss in any year and has been generating profits every year. The last aspect is whether the project's leaders understand their service market. The service market and the company’s employee group should be consistent. It is difficult for ordinary people to understand the needs of vulnerable groups. Empathy and consistency are very important. For example, when we invest in insurance companies, we will choose insurance co-ops, where members are shareholders to ensure the consistency of stakeholders’ interests.

CASVI: What is your understanding of the concept of impact? What are some practical examples?

Fan: First, the impact we are talking about is not the influence of institutions, capital, or people with great fame, but the power generated by the application of technology. For example, accessibility optimization could allow vulnerable groups to live, voice, work and study on the internet and then they are able to participate in universal life without discrimination.

Rejuvenating the voice of vulnerable groups is the main direction of our investment and support. Therefore, via our investment and support, their voices could have an effect on the flow of welfare resources, the optimization of social governance, and public decision-making.

More voices of marginalized people being heard will definitely make the community better. This is the first power of impact we consider.

The second is that the projects we choose must carry the concept of technological solutions, which are not only used to solve a few specific problems but can optimize efficiency and make more people’s voices audible. The objective is to provide social market solutions in an area where market solutions were not available and scaling them, generating social value, and contributing to society.

We are recently working on a project for elderly-friendly retrofitting, which was labeled only a “good” thing without economic value in the past. However, I think this description is very inaccurate. We believe that once a community provides elderly-friendly retrofitting, the elderly will consume less social security funds and medical expenses, which saves medical resources. In addition, the time and financial investment required by families to care for the elderly will be saved. This project is clearly creating both economic and social value, for which we have clear metrics to measure. We are also looking at how to bring the data and metrics into our evaluation process. In our opinion, the so-called impact comes from the above.

CASVI: Do you believe that it is the presence of vulnerable people that raises the need for impact investing? Is Mana's impact investing business only targeting specific vulnerable groups of people?

Fan: These are two good questions that we had always been thinking about in the last two years. Now our answer is "no" to both. We have concluded that we are investing in projects solving the problem caused by the difference between vulnerable groups and ordinary people. In reality, we are solving the problem caused by technological development, which makes it more difficult for vulnerable groups to communicate with others and then makes them more distant from society. We want to help these people who are left behind by rapid technological development and we call them "technology outcasts". The presence of technology outcasts is a rampant injustice brought about by technological development.

People usually do not complain too much about why they have a birth defect, but they complain about the more serious problems caused by discrimination and lack of attention due to their birth defects. For example, an elder might not have enjoyed good education himself or herself. But if his or her children still fail to gain a good education too, this makes people feel devastated. I think people can accept the fact that they have birth defects, but what they can't accept is the feeling of unfairness. Rapid technological development can lead to such problems. In other words, many social problems are caused by "technology outcasts".

Our technology can make cars go faster and farther, it can make clean energy be more efficient, but no research is actually being done on low-speed public transportation systems in communities that the sick, the blind, the disabled, the elderly, pregnant women, and children can use.

More research is for the rich and powerful and to provide them higher speed and luxury. In fact, human beings also need a low-speed public transportation system so that the community can be more harmonious. We are recently building such a project and proposing a new standard to the Ministry of Industry and Information Technology in terms of urban planning. We propose providing the right of way for these especially disabled people, and at the same time, making it accessible for the general public to enjoy a 10km range of mobility in the community. Because we believe “technology outcasts” is the root cause of most of our concerning social problems, any entrepreneurial project that solves the challenges in this field is what we will consider investing in.

In addition, information accessibility is actually a broad concept. For example, people with visual impairment not being able to see each other is a barrier. Moreover, broadly speaking, you can also say that soldiers not being able to see each other in modern warfare is also a barrier. Different kinds of accessibility have something in common, which enables us to change our mindset from the original narrow sense of information accessibility to a broader one. Therefore, we can not only serve vulnerable people but also serve more people by applying a barrier-free optimization technical model. In this way, our investments can be divided into two stages. The first stage is to make products in an extreme environment (narrow sense accessibility). The second stage is to transfer the product genes formed in the extreme situation into general products for more people. The first stage is where our investment focus is. The second stage is where we share with other large organizations and scale up rapidly.

CASVI: When screening investment projects, what are your specific requirements or expectations for financial returns?

Fan: We have two portfolios. One is grant-making, which is completely donation-based without seeking financial returns. As long as the project is to solve the problem of "technology outcasts", we are willing to fund it. The funding amount is not large, between 50,000 and 200,000 yuan, which is the amount for our public welfare angel program. Once the project grows well, it may constitute an investment opportunity for us, and help us avoid finding other suitable projects by burning money. Although this financial contribution may have no returns, there must be a return of social value. Because it helps solve social problems, which is the first level of our current impact investment.

The second level is that we form a company out of small projects, such as merging organizations producing clean energy, organizations solving battery charging, and organizations operating in battery disassembly.

We support their transformation into impactful entrepreneurial projects through our services and funding. We promote them to improve their social responsibility reports, establish a social responsibility perception, and put "doing well, doing good" and "sustainable development" in their charters.

Once the company has completed its transformation, it can be invested commercially, meaning that impact investments can be made. After a while, if the financial return is right, we will introduce the project to impact investment foundations. Before being funded by the impact investment foundations, the project will have generated impact in the angel stage and seed stage, like M&A restructuring.

CASVI: What is your consideration for the exit of investment projects?

Fan: Our professional configuration and team prefer early-stage investment, and we are better at discovering early-stage projects. We do not have capital such as billions or tens of billions of RMB to take those projects to late-stage, which are better taken by family offices or large enterprises with enormous capital. These institutions will bring more help to the enterprises in the late stage than we could do.

Our impact is mainly reflected in the early stage. Therefore generally, we exit before the A + round, B round and leave the latter opportunity to that more powerful capital with love, care, and goodwill. We boost capital for good, making such a good project with impact, smaller risks, and clear direction that the subsequent money could be invested in. After our exit, we will also provide five years in impact services. This is our exit strategy.

One element of impact services is to help financial institutions train their impact investment teams because those institutions currently do not have professional teams in general. Service is important to us. Creating good cooperation can help our project exit. Simultaneously, service is also important to financial institutions. Because if they manage the project completed in a commercial way, it would hurt the project. So, we continue to help these projects or businesses by providing a period of post-exit consultancy. Through this post-exit cooperation, we hope to promote a consensus between the founders of the company and its funder, namely those financial institutions in terms of the values, mission, and vision.

CASVI: What is the current practice of impact assessment? What are your insights?

Fan: We now have the Impact Asset Institute under our foundation and have some internal criteria for evaluation. Our first negative indicator is the UN's 17 Sustainable Development Goals (SDGs). The project with anything that doesn't fit the sustainable development will be removed. Besides that, we should evaluate projects based on whether they can affect the formulation of industry standards or even whether they can promote relevant legislations. When we initially look at a project, we see whether the problem it solves can become legally acceptable in the future. If so, this means that we can not only solve the problem for a small group of people but also improve our understanding of the matter from a legal perspective, providing a sustainable growth space for a broader definition of the product. With this sustainable growth space, we are able to start the first trial version. On top of the trial version, we will also consider whether the projects can help others create more value while enjoying the service and whether they can give back to society while getting help. We have a scoring table, and those projects with high scores are ranked first. In addition to the SDGs framework, we refer to B Corp the most. But our version can be interpreted as a simplified and localized China’s version of the B Corp because the original version is too complicated for a start-up company to do everything.

In the future, we would like to share our internal standard and make it a public product. But our basic value is that there can be many standards, and more standards should be encouraged because standard-to-standard communication is what drives cognitive development. We don't think we provide an authoritative standard, but just one type of standard. Therefore, we will definitely be open to others. The more people think about the problem of "technology outcasts", the more people think about industry standards, industry norms, and construction of relevant industry legislation, during which social progress can be promoted.

CASVI: What are your observations on the domestic impact ecosystem? What is your comment on the trend of impact ecosystem development in China?

Fan: The domestic situation is much better now than in the past. But the contradiction has also emerged. Namely, people's desire to participate in impact investments is high, but there are far fewer enough projects that can make people feel assured.

There are two main problems standing out. One is that the institutions cannot find good investment targets due to the scarcity of such good entrepreneurial projects. The second problem is that some international opinions on China cause the inability of foreign investors to see good projects in China. When overseas capital flows to China, it is influenced by political factors and it is hard for them to understand or pay attention to China's innovation, like seeing through the fog.

In terms of industry trends, as mentioned in "The New Frontier of Philanthropy" written by Professor Salamon, the industry's maturity requires the introduction of many financial tools. Without the introduction and research of financial instruments, no matter how well local projects are doing, they would all rely on real investments. No matter how many impact funds there are, people are just using their own money to make donations without impact bonds or a variety of different views and investment strategies. The biggest feature of financial innovation is designing products with less risk exposure. Financial products with lower risk and higher reliable returns than the general investment targets are particularly needed in China. Only when these innovations are created, can large institutions' capital enter the field. Large capital generally will not accept the simple equity investment in the primary market. For example, we did an impact insurance project during the pandemic, and we used a public welfare fund we donated to do the underlying design and provided resumption insurance for more than 300,000 teachers who resumed classes. If they get sick, they can get hundreds of thousands of RMB as compensation. The total insurance amount is more than 80 billion. Strictly speaking, we could not have the capacity of more than 80 billion insurance, but we used the design of financial products, and then we could serve so many teachers. Teachers can feel safe when they are in class. Therefore, functional product design can add a lot of value.

In my opinion, for the current situation in China, one problem is not enough investment targets, and another is that the targets are not regarded as the underlying asset when designing financial products.

This makes it difficult for domestic and foreign large capital to understand what the potential targets are doing. A future medium to long-term goal is to make multi-layered products and market structures in the domestic market. Now there are impact investment products with relatively more multi-layer overseas, but not yet in China. Therefore, the product-oriented consensus is the road to future development. I think product design is the biggest and most urgent issue now in China.

CASVI: Are there any incentives for companies and financial institutions in the mainstream market to enter the impact investing field?

Fan: There are two realistic pressures. The first is that in China, a socialist country, profit-making institutions are so large in asset size that they actually need to create social value to win government recognition. The second is that public opinion in China is now so strong that companies need to build their image in front of the public.

When I went to help some organizations transform, I found a particularly big problem. These organizations have their own family foundations, but the public does not trust what the family foundations do, even though the foundations provide significant public benefit. Because the public thinks the original intention of those family foundations is to serve their business, which is a way of managing the strategic branding in the long term.

The public is very sensitive, and they know which business is controlled by the family and then do not regard this business as the activity serving the community. The public thinks what is handed over and not controlled by the family-related organization creates social value.

The public only recognizes those impact investing and philanthropic behavior handed over to an independent institution to run. As long as the organization is not an independent institution, such as official institutions covered by the local government or corporations, the public will think of it as a transaction that does not generate public good. Thus, they will not support it. From the above, we can see that public perception is one of the most critical factors for organizations to make impact investments, which can drive companies to generate better social branding.

CASVI: In China's market environment, do you think it is possible to promote the establishment of some areas such as impact investing by market-oriented forces?

Fan: Yes, we are typically market-oriented. It's true that some institutions, especially the mainstream ones, think it's difficult to do impact investing establishment within the scope of regulatory rules and regulations or within our current system. However, we have solved this problem. We have a good relationship with the government and all parties because we earned their respect for what we do. Only with real-life examples can you demonstrate what you're doing to others.