Photo: Bloomberg
Photo: Bloomberg

Why TPG’s Rise Fund could redefine impact investing

TPG Growth's social impact fund called the Rise Fund aims to invest more than $1 billion over time; it is unprecedented in the impact investing universe

About three years ago, TPG Growth founder and managing partner Bill McGlashan relocated from San Francisco to Mumbai for a year to oversee the firm’s investments in emerging markets. TPG Growth is the growth equity and middle market investment arms of global private equity buyouts giant TPG. McGlashan’s year-long India stay has had several outcomes for TPG Growth, but the most unlikely one was unveiled this week. The New York Times (NYT) reported on Monday citing unnamed sources that TPG Growth is setting up a social impact fund. It is dubbed the Rise Fund and aims to invest more than $1 billion over time.

A $1 billion kitty is unprecedented in the impact investing universe. Given McGlashan’s and TPG Growth’s interest in emerging markets, it would not be unexpected for a sizeable chunk of that capital to flow into India and the larger Asian region. The allocation of such substantial resources specifically for impact businesses is without doubt a huge leg-up for a sector that has been starved for funds. Given TPG’s growth investments focus, the Rise Fund could well become an important source for the much-needed follow-on growth capital that impact businesses generally find hard to access from conventional private equity investors.

However, that will depend on the kind of businesses the Rise Fund plans to back as part of its impact agenda. The NYT article says investments from the fund, which will be overseen by McGlashan, are likely to be on the lines of TPG Growth’s $40 million bet on Myanmar-based telecom towers company Apollo Towers in late 2014. The deal represented the first major global private equity bet on Myanmar after the country emerged from military rule.

A further indication of the kind of deals it may pursue is its partnership with impact investor Elevar Equity for the Rise Fund. Elevar, which has put a little over $160 million to work in 24 companies across the world, including in India, targets businesses that deliver services to underserved rural and urban consumers. Its recent investments include Indifi, a platform that makes it easier for micro and small businesses to access loans, and Samunnati, a company that makes financial products available to small and marginal farmers and other micro-entrepreneurs in the agriculture sector.

For some, the attention to how the Rise Fund will define impact investments may come across as quibbling over a technicality. However, a number of investments by specialist impact investors, especially in India, over the past few years beg attention.

Just last week, for instance, the Chan Zuckerberg Initiative (CZI) led a $50 million funding round in mobile app-based learning service Byju’s. CZI is a philanthropic investments entity formed recently by Facebook founder and CEO Mark Zuckerberg. Byju’s makes learning simpler and more accessible for students but the service is far from cheap. We gave the app a spin and found that a nine-month subscription for the 6th grade math and science module, for instance, costs about Rs15,000.

Further, access to funding from mainstream investors hasn’t been a problem for the company. Prior to the CZI-led round, it had already mopped up over $100 million from investors such as Sequoia Capital, Lightspeed Venture Partners and Aarin Capital.

The stated objective of impact businesses is to serve consumers at the bottom of the pyramid, chiefly the rural poor and underserved urban communities. Zuckerberg may be new to the impact investing arena, but several others aren’t. In October last year, for instance, Lookup, a chat service that connects local offline retailers with consumers, raised a $2.5 million funding round led by Khosla Impact (Lookup was acquired by NowFloats in July this year).

Then there’s Omidyar Network, eBay founder Pierre Omidyar’s philanthropic investments foundation, that has the odd habit of adding everything from e-commerce (Healthkart) to classifieds (Quikr) to playschools (Tree House Education) to its portfolio of impact investments. It does also substantially invest in classical impact businesses, through the deployment of both grant and equity capital.

There are, of course, several more impact investors who stick to the stated objective of impact investing. These include firms such as Lok Capital, Aavishkaar, Unitus Seed Fund and Acumen among others. For these firms, as well as for the Omidyar Networks of the world, a potential $1 billion impact fund focused on growth investments spells an opportunity to finally attract serious capital into the sector. That the fund comes from a mainstream investor such as TPG Growth makes those prospects even more exciting.

Now, all we have to do is wait for TPG Growth to define the impact investment agenda for its Rise Fund.

Snigdha Sengupta is a consulting writer with Mint. She contributes stories on venture capital and private equity.

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