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Recently, impact investing in India has been taking center stage in the news. For example, Omidyar Network recently awarded $800,000 in grant funding to six organisations providing a spectrum of services that support social entrepreneurs, Unilazer investments also recently announced that as a fund they would continue to aim for profit first while expanding in the social impact space and reports have surfaced regarding plans to set up a regulatory body for impact investors in India. Furthermore, new social impact funds are frequently emerging.
Given the recent focus on impact investing in India, Ennovent connected with Karan Gupta, India Investment Manager for Insitor Management and an Ennovent Circle member to glean some insights on the industry’s evolution. Below is the conversation we had:
Do you feel that India is a fertile landscape for impact investing?
The landscape for impact investing has significantly developed in the last five years – both in terms of quantity and quality. Thanks to ecosystem players such as Villgro, CIIE, Ennovent it is interesting to note that entrepreneurs have become more investor savvy. This is especially notable in the more polished way they present to investors. Today there is less hand holding required from investors and the level of complexity and development of business models is continuously improving which is great to note.
What are your thoughts on plans for a regulatory body for impact investors?
As the industry grows, this is a step that was going to happen but my caution is that as an industry we should proceed slowly with setting up criteria that could negatively impact growth. Even now, at conferences the debate continues on what is social and what’s not. Therefore, with the industry being so nascent, there needs to be space for it to be flexible and emerge organically. While the impact investing industry has grown, the flip side is that it has also become a buzzword.
What support do socially focusedentrepreneurs require in India in your perspective?
To boost investments, entrepreneurs require strong support from s regulatory and financial perspective. In other countries such as the US and Australia that have become startups hubs, information around these critical regulations is easily available. Comparatively, in India it is a very tough process for someone to come in and then on top of that be flexible and then go out and make a mark.
The second change is required more on the research and development front. A majority of socially focused ventures in India are currently just focusing on the deployment of service. There is not much movement on the manufacturing front. The problem is that to drive research and development further, majority of the support in the form of funding, mentorship and ease of regulation needs to come from the government rather than from incubators. Until this happens, investors cannot bear the risk to fund high-potential enterprises within this area
From the investor perspective, what is needed to boost the number of investments made in socially focused ventures?
Currently there are a lot of investors within this space in India. I would almost say that there is more money than investees currently. While a number of investments are happening and we are moving in the right direction, continued incubation support in the form of mentorship, workshops continue to be required to make more early-stage enterprises ‘investor ready’. I would say that in the short term ecosystem players such as Ennovent are going to have a direct impact in increasing the number of investments in the country.
“The intent of impact investing is to make industries work that otherwise may not have been able to advance.” – what are your thought about this statement made recently at Sankalp?
I don’t think that the social venture capital model really caters to this as the primary intent. One of the key things for a venture capitalist, social or not, is scale – the enterprise must have the potential to be able to grow rapidly, expand in new geographies, take on debt. However, not all social venture models can be this aggressive so the entrepreneur and the investor both must continue to tread a fine line in balancing purpose with profit.
Finally, Insitor says that they are a very hands-on investor and that you take a strong advisory position for your investees. Why do you feel that is necessary, especially in India?
One of the key trends for our investees has been that they are not very experienced managers. A big proportion are young entrepreneurs that feel there is a social gap that needs to be addressed, which can be best done through a for-profit model. The idea in being hands-on for Insitor, and for others too, is to minimize risk and maximize shareholder value. In addition to socially focused entrepreneurs typically being relatively younger, we are all operating in new markets where there are no precedents or where the behavioural patterns of customers are still evolving. By acting as advisors and being more hands on, I think the focus is on driving the investment dollar forward as much as possible.
As the Indian impact investment industry continues to evolve, investors, entrepreneurs and other ecosystem players are collaborating with each other to fast track the progression of socially focused ventures that are looking to make an impact in the lives of millions of low-income people across the country.
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