 "Returns will take longer: Ravi Venkatesan")
The aim behind impact investing is to create social impact, while simultaneously making financial gains. As a concept, it is slowly gaining acceptance in India, says Ravi Venkatesan, chairman of Social Venture Partners and partner at Unitus Seed Fund. Edited excerpts:
How popular is social or impact investing in India?
While there exists a grey area in people's perception on the kind of companies that fit the investment criteria of funds in the space, people are definitely more comfortable now with 'impact' and 'social' going hand in hand with investing. Evidence of this can be seen in the growth of impact funds in India - Aavishkaar (rural), Omnivore (agriculture), Infuse (clean technology), and Unitus Seed (healthcare, education, etc) are examples. This is different from five years ago, when impact was almost always linked with corporate social responsibility or non-governmental organisations, not with investing. The fact that an increasing number of entrepreneurs specifically approach impact investors to back their businesses is indicative of a growing appreciation of the concept.
What is the profile of such investors?
There are two fundamental classes of impact investors - impact-first impact investors, who look for returns in the businesses they invest in but are more focused on the impact the business creates and second, finance-first impact investors, who look at extremely promising business models that can create impact by scaling as a very profitable business. These could be individual angels making an investment of two per year to multi-hundred-crore funds to Ultra HNIs.
What returns do such investments give?
A finance-first impact investor could expect the same kind of returns as a mainstream investor in a similar asset class. That said, many impact investments are going into assets that have long payback periods, which reduce the potential return by comparison with, for example, real estate.
What kind of companies qualify for such investments?
The key sectors that have attracted such investments are microfinance/financial inclusion, energy and clean technology, education, healthcare, agriculture, retail and e-commerce.
What other sources of funding do these companies have?
Typically, impact businesses start through self-funding or money from friends and family. They could also access angel investor funding. When they have achieved a certain amount of traction, they can look for institutional impact funds coming in at an early stage and/or series A and B. An additional late-stage funding option is debt funding from banks and development agencies.
How popular is social or impact investing in India?
While there exists a grey area in people's perception on the kind of companies that fit the investment criteria of funds in the space, people are definitely more comfortable now with 'impact' and 'social' going hand in hand with investing. Evidence of this can be seen in the growth of impact funds in India - Aavishkaar (rural), Omnivore (agriculture), Infuse (clean technology), and Unitus Seed (healthcare, education, etc) are examples. This is different from five years ago, when impact was almost always linked with corporate social responsibility or non-governmental organisations, not with investing. The fact that an increasing number of entrepreneurs specifically approach impact investors to back their businesses is indicative of a growing appreciation of the concept.
What is the profile of such investors?
There are two fundamental classes of impact investors - impact-first impact investors, who look for returns in the businesses they invest in but are more focused on the impact the business creates and second, finance-first impact investors, who look at extremely promising business models that can create impact by scaling as a very profitable business. These could be individual angels making an investment of two per year to multi-hundred-crore funds to Ultra HNIs.
What returns do such investments give?
A finance-first impact investor could expect the same kind of returns as a mainstream investor in a similar asset class. That said, many impact investments are going into assets that have long payback periods, which reduce the potential return by comparison with, for example, real estate.
What kind of companies qualify for such investments?
The key sectors that have attracted such investments are microfinance/financial inclusion, energy and clean technology, education, healthcare, agriculture, retail and e-commerce.
What other sources of funding do these companies have?
Typically, impact businesses start through self-funding or money from friends and family. They could also access angel investor funding. When they have achieved a certain amount of traction, they can look for institutional impact funds coming in at an early stage and/or series A and B. An additional late-stage funding option is debt funding from banks and development agencies.