A look at the Finance vs. Social Impact philosophy: Can doing well and doing good co-exist?
“Doing well while doing good” – is a sentence that sums up the ethos of Impact Investment. While it is gaining increasing acceptance, the connotations of “doing good” has been typically linked to “social impact” and “social entrepreneurship” which do not have same expectations of returns as finance-first investments.
Adapting market based solutions to address poverty and driving financial returns at the same time is the core philosophy of Impact Investment. And recent data brings in proof, that this is indeed becoming more possible.
According to Cambridge Associates latest report, Impact Funds have delivered slightly lower returns overall than traditional funds, but funds with less than $100M AUM have outperformed comparative funds by almost 2x.
This is supported by a Wharton Report, which showed that 170 market rate seeking impact investments from 53 funds had a nearly identical performance with the market index.
The current situation in India: Impact Investment a nascent but growing opportunity
While Impact Investments still form a very small % of the overall investment opportunity in India, according to Venture Intelligence,
- Impact Investments increased by 8% from 2014 to 2015 with over $95M invested in 2015 across sectors.
- IT/ITES sector remained the top sector for Impact Investors with 14 investments worth about $25 million; proving that technology is becoming the key enabler for scalability in Impact Businesses.
- Education was the second favorite industry during 2015 attracting 11 investments worth $8 million (against 10 deals in 2014). Vocational focused companies attracted the most interest.
- Healthcare & Life Sciences companies, topped by specialist clinics, attracted eight investments worth $15 million in 2015.
Unitus Seed Fund focus on Impact: Measuring Impact for Sustained Success
We fund and support entrepreneurs who build scalable, sustainable impact businesses and that remains our investing specialty. It is as much about building an economically inclusive India as it is about financial returns. Our philosophy is that impact is maximized when is one is focused on building a scalable and sustainable business. As these businesses serving India’s mass/low-income segments scale up and head towards profitability, the impact will also grow in scale.
Impact Measurement is something we believe in strongly. We consistently measure the Impact our companies generate regularly classifying Impact into three categories:
Social: Portfolio companies have the potential to reach at least 100,000 BoP families, and/or directly employ upto 1,000 BoP individuals across geographies in 5 year
Metrics: #BoP lives touched, # employees, # states touched
Financial: Investees are on a path to financial sustainability through increased revenues and additional capital.
Metrics: Additional capital raised, cumulative capital
Ecosystem: Every company benefits from, influences, and improves the functioning of the overall market ecosystem.
Metrics: Advisors onboarded
Our portfolio companies have been able to raise 3.38x additional capital as a multiple of Unitus investment with cumulative revenue as follows:
Our 2015 Impact Numbers: A picture story
Road forward for Impact: What does 2016 hold for Impact?
- 2016 will see more innovation as well as investment across sectors.
- Affordable healthcare will be a key driver and we expect to see innovation in preventive medicine, single specialty hospitals, increased use of technology, IOT and analytics in diagnostics devices to improve predictability.
- In Education, we would like to see more focus on improving quality of teaching, skills development, enhancing basic skills such as reading and writing and providing Education as a service.
- Another interesting area is ‘livelihoods’; for example, labour-as-a-service, which connects the suppliers to their customers increasing not just efficiency and income of the labour, but also the convenience and value for the customers. For example, our recent investments include BetterPlace and DriveU:
- The BetterPlace platform through large scale digitization of India’s blue-collar workforce helps bring transparency and credibility to them, greatly improving their chances of employability as well as ultimately enhancing safety of the society.
- DriveU is increasing driver incomes as well as their quality of life through training in etiquette, customer service, service quality etc. They have been able to increase drive income 2X times and also provide health insurance to their drivers, which was uncommon earlier.
- We are also interested to see innovation in Financial Technology; innovative uses of Aadhaar card in providing alternative credit-scoring methodologies for the underbanked or enhancing micro-insurance.