In search of poor customers

Stanford design program turns venture economics on its head. Can the trend ripple up to investors?

For the last decade, corporations have tripped over each other to establish their “eco-friendly” credentials. The idea is consumers will pay for the warm fuzzies from “conscience marketing” with pocket-book loyalty. The same concept inspires labeling like organic, free-trade and Product Red.

What about investment firms? Venture capitalists have to act in the financial interest of the institutions whose money they manage, and that shouldn’t change. Hot-item entrepreneurs, however, have a bit more freedom. The ones everyone wants to fund--the Foursquares and Twitters and Zyngas--could play the part of “consumer” putting pressure on investment firms by seeking out portfolios with good “social” track records, making it economically attractive to include more do-gooder companies in their portfolios.

What would the credentials look like? For starters, they could include companies like the three listed below. These are the fruits of Stanford’s Entrepreneurial Design for Extreme Affordability program that matches up major world problems with the brains and chutzpa of Stanford students.

I spoke with each of these companies at the Cool Product Expo Wednesday at Stanford University. All have their own sophisticated intellectual property—secret sauce that could have many commercial applications—that the entrepreneurs are using to solve problems like poverty disease and hunger. One of them (Embrace) has gone the non-profit route, but the other two are open to raising angel or light VC funding.

Driptech
There are 600 million poor farmers who lack access to irrigation control who need a means to grow crops more efficiently. Growing more crops is their only foreseeable way to climb out of poverty.

Founder and CEO Peter Frykman discovered a way to create cheap slow-drip irrigation systems by cutting tiny holes in plastic tubes made from the same (cheap and widespread) material used to make plastic garbage bags. The method of making those wholes is the secret sauce that the Stanford mechanical engineering major and former PhD student keeps safely locked in his head. Creating a tube that emits water at equal pressure all the way down the tube (it’ll work up to 100 feet) is more difficult than it sounds—uniformity of pressure (check out the picture above) is not something you can get by poking needles into tubes. The use of such systems can not only reduce cost and friction in water-scarce areas, but can also help prevent deaths like to which Frykman was exposed when he traveled to Ethiopia during its worst drought in 20 years. The trip was part of the Extreme Affordability program

Driptech is currently funded in convertible debt by individual angels, the most well-known being Postini founder Scott Petry. The company is open to receiving more angel funding—somewhere under $1 million.

Anzaga
Over 90% of the population in East Africa lives in rural areas, where electricity is scarce. Twenty-four percent of a household’s income in Tanzania goes towards compensating for this lack of power. Kerosene, the primary light source used inside at night, causes harmful byproducts and is insufficient for reading.

Co-founder Bryan Duggan, currently pursuing a mechanical engineering masters degree at Stanford, said that every person he met on his trip to Tanzania had a cell phone and radio, but that electricity costs made their use extremely expensive. Angaza is aiming to produce its solar-powered lighting system for $45 a piece, about half the annual electricity budget for a household in Tanzania. The system can provide electricity for several years. The initiative is one of several tackling the problems of bringing light and electricity to the developing world. Others include d.light and BoGoLight.

Duggan says the company is currently producing its prototype and is seeking an angel or venture capital round of funding to manufacture test units and conduct field tests.

Embrace
Of the 20 million low-birth weight babies born each year, 80% don’t have access to modern incubators. Four million of these die each year, and many more go on to develop life-long health problems like diabetes, heart disease and low IQ.

One of the biggest problems for these babies is hypothermia: they can’t keep warm. Embrace’s Lavanya Ashok says she saw women holding babies over fires to try and keep them at healthy temperatures.

Embrace’s infant warmer looks like a small sleeping bag. There’s a slot for the “phase change pouch” that contains material which, after being heated in water, maintains the 98-degree temperature ideal for babies for four hours. The pouch can be reheated hundreds of times. Currently, the company can produce the warmers for $25 a piece at scale. For twice that amount, Embrace creates an electric version.

Ashok, who is pursuing her MBA at Stanford, says Embrace decided to go the nonprofit route because governments are “more willing” to help. Asked what the greatest challenge to getting these devices to the people most in need, Ashok says it’s the 200%-300% distribution margin. And the biggest hurdle to solving that? Government bureaucracy. It can take years to be approved, and governments tend to be risk-averse, which makes them shy away from innovation.