First, the desire for diversification, given the economic slowdown, is leading investors to sectors such as microfinance and rural agriculture, employment generation, education, housing and clean technology, where they can create public benefit and also generate returns.
Mainstream investor Nexus India Capital, which manages $320 million (around Rs1,577 crore) in venture capital funds, has invested in Mumbai-based Suminter India Organics Pvt. Ltd, which supports organic farming in rural India, and D.light Energy Pvt. Ltd, which sells LED-based solar lamps in villages and small towns across the country. “We have a total of about $10 million invested across these two companies and expect to invest 10% of our portfolio in social enterprises,” says Sandeep Singhal, co-founder of the venture capital fund.
Second, there is disenchantment with mainstream investment models where 25-40% rate of return is sought regardless of the social and environmental impact of the venture, say industry experts.
“People are re-evaluating what their expectations of return on investment are. For instance, returns of 10–15% annualized over five-seven years from a business that also offers social impact is considered healthy,” says Varun Sahni, India director, Acumen Fund Advisory Services India Pvt. Ltd, a social venture investment firm.
The company has investments of around Rs100 crore in the social sector in India, including in ventures such as water filtration firm Environment Planning Group Ltd and ambulance start-up Ziqitza Healthcare Ltd. The fund expects to invest Rs40-50 crore every year in this sector.
Third, there is also a growing list of investors who have tasted success by putting their money in sectors such as microfinance.
“Since 2004-05, the demonstrable profits and expansion of the microfinance business model has pushed the social sector firmly into the spotlight,” says Vineet Rai, founder and chief executive officer, Aavishkaar India Micro Venture Capital Fund, a venture fund that invests in rural and semi-urban India and manages $14 million.
Finally, there is the rise of entrepreneurs who are adopting a market-based approach to solve social problems, be it access to clean water, healthcare or education in rural and semi-urban areas.
“My idea was not so much to set up a social enterprise as much as to find out how economic activity can help support livelihood in rural areas,” says Reshma Anand, founder and chief executive officer, Earthy Goods and Services Pvt. Ltd, a social enterprise that helps rural producers market their personal care and food products in urban centres.
Anand, who did her MBA from the Indian Institute of Management, Bangalore, worked for six years at consumer products company Hindustan Unilever Ltd before she set up her own venture.
Buoyed by such interest, social venture investors are now estimating that by the end of this year, close to $300 million could flow into companies in this sector across India.