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Want to make money while helping the people around you? Well, who doesn’t? Funds that promise to put money to work for the good of society are growing fast and impact investing is the hot new buzzword to throw around.
Impact investing is a form of socially responsible investing, in which investments are made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return.
According to Vineet Rai, Managing Director of social impact fund Aavishkaar, impact investing is one of the hardest areas to venture into. “Attitude is key,” says Rai, explaining that those focused either on making a profit or changing the world in a day would do well to stay away.
“Impact investing requires catalytic entrepreneurs who have the drive to challenge social dogmas,” says Rai. “In this field you’re focusing on creating jobs, introducing products or services in difficult areas and targeting low income people.
Those simply interested in philanthropy may find that impact investing requires more of an entrepreneurial drive than they imagined. According to Rai, large firms such as Unilever can make far more of a difference in terms of social betterment, simply because they work on a much larger scale than social impact organizations like Aavishkaar. However, corporate social responsibility (CSR) and impact investing have two very different end goals.
Larger firms may focus on helping artisan handicraft makers via CSR. Those working in impact investing would instead focus on helping those artisans become the owners of their business. In that sense then, says Rai, impact investing can be much harder than simply working a corporate job.
For example, in 2007 Aavishkaar invested Rs 25 lakh in Vaatsalya, which pioneered the idea of asset light hospitals, something no commercial investor was interested in at that time. Today, Vaatsalya has 15 hospitals and has raised $25 odd million. Similarly, Aavishkaar has also invested in Milk Mantra, the first investment in dairy in Orissa, and Mera Doctor which focuses on providing medical services to low income people in Uttar Pradesh.
Rai used to work in forestry until he realized he was looking to do more with his time.
“I had a degree in forestry so I was possibly the worst candidate for a venture capital position,” he explains. “I didn’t have any experience so I just started my own venture capital.” And considering he will have raised nearly $200 million by next year, impact investing seems to have suited Rai well.
In keeping with Rai’s advice then, here are five reasons not to go into impact investing.
1) You feel passionately about an idea
We get it. You have been frothing at the mouth and feel a need to eliminate poverty, save women from being exploited and bring healthcare to all. Passion is good. It will help you muster up the courage to quit that well-paying job and get your friends, family and fools to invest in your idea.
But only passion is fleeting. Once the flames sputter do you have the gumption to fight all the familiar problems that entrepreneurs face? Hiring a team, raising follow-up funds, mundane paperwork and multiple initial ideas failing are common situations to find yourself in. If you lack entrepreneurial chops might as well go back to that comfy desk job right now.
2) Seeking a $357 million SKS Microfinance type IPO
If you want to become a social entrepreneur because you want to make a pot of money, and are hoping for a big exit, you might want to think twice.
First of all, not all ideas make money: there are quite a few social enterprises that are not for profit, and the ones that are for profit aren’t always swimming in cash.
Remember that impact comes before investing and that profits, though vital for the survival of an organization, never come at the cost of impact.
3) Corporate life has left you jaded
Ever hear of that corporate big shot who made millions and also attained peace of mind? Me neither. If all you are is frustrated, impact investing is probably not for you.
However, if you’ve given the corporate life a shot and put away a fair amount of savings, perhaps you’re ready for new, more meaningful challengees.
But keep in mind that becoming a social entrepreneur may not replace your need to substitute corporate drudgery with a challenging and meaningful second career. Most of your time will be spent trying to convince various stakeholders to invest, without corporate resources at your disposal.
4) You want to give back to society
Founding a social enterprise is not the same giving to charity or volunteering your time. Unlike traditional entrepreneurship where it is easy to find a co-founder or two, social entrepreneurship is different. Most ideas are born in isolation, and unlike selling an e-commerce idea, finding a founder who will share the same vision is no mean feat.
Social entrepreneurs are a rare breed: most of them will give up family, friends, money: face ridicule, criticism, bankruptcy and still give up their dream. Unfortunately, an urge to give back to society is not all it takes to become a successful social entrepreneur.
5) You’re suffering from a mid-life crisis and now everything bores you
Do not consider becoming a social entrepreneur if you haven’t done your due diligence. You might want to consider fixing the situation at work first before thinking of social entrepreneurship as a career. Or consider becoming an employee of a social enterprise before starting up on your own.
If you’ve read this far and still feel that impact investing is the right move for you, keep in mind that the social entrepreneurship eco-system in India is still in its nascent stages and there are two significant obstacles to be overcome.
First, to boost investments, entrepreneurs require strong support from s regulatory and financial perspective. In countries such as the United States, information about critical regulations is easily available. Comparatively, in India it is a very tough process for someone to enter this arena and make a significant difference.
Second, more is required on the research and development front. To drive research and development, the majority of the support in the form of funding, mentorship and ease of regulation needs to come from the government. Until this happens, investors cannot bear the risk to fund high-potential enterprises within this area.
