Abhijit Ray: ‘There is a yawning gap in early stage impact investing in India’
Thursday, July 18, 2013
Five days ago, India’s largest angel investing group, the Indian Angel Network, started a fund focused solely on socially relevant enterprises, with its first investment in Gram Vaani, a community radio enterprise based out of Delhi. Last year, about $151 million (about Rs 902 crore) was invested in social ventures across India, marking the rise of serious interest in the space of social investment, both from mainstream and sector investors.
Abhijit Ray is the co-founder and director of Unitus Capital, a Bangalore based investment firm focused on social enterprises. Unitus Capital was founded in 2008 as a spin-out of Unitus Labs’ capital markets team. It is now a stand-alone firm with the ambitious goal to accelerate the growth of the fast-emerging sector of businesses catering to underserved markets in India.
We hear a lot more about ‘impact investing’ these days. Where is the space today in your opinion?
In India, not many companies in the social sector have grown large enough to attract mainstream investment. Investors in this space also haven’t seen many exits, and ‘real’ returns are not very visible.
Large investment banks such as JP Morgan or Edelweiss do not participate in this sector since their average deal size is USD 50-100 million, and the resources and experience that they offer are often too advanced for this sector, which is still evolving. The next bucket of companies has an average investment size of USD 30 million. In this bucket, there are quite a number of firms that participate.
The minimum deal size requirement in India is more stringent than a country such as the USA – investment firms in the US charge 7% on a deal, but in India, that kind of margin just does not exist. This creates a gap in two areas. The first is in the early funding stages of a start-up: investment sizes betweenUSD 50,000 to USD 3 million (30 lakhs to 2 crores). Unitus does some work here, but the returns are usually not attractive enough. Our role in this slice of deal sizes is largely to connect people and help them find resources. The second gap exists in funding requirements ranging from USD 2-10 million (2 to 60 crores). There aren’t too many players in India in this bracket.