Social Enterprises See Funding Dip, but Investors Still Upbeat

Wednesday, November 30, 2011

The value of investments in India’s social enterprises has fallen by around 7% this year as investors struggle to identify companies that not only cater to the bottom of the pyramid by offering products and services at the right price points, but also provide sustainable returns for investors.

Excluding microfinance institutions (MFIs), the investor-backed six social enterprises have put in $21.6 million (around Rs.112.5 crore) this year so far, compared with eight such investments worth $23.3 million in the same period a year ago, according to data from VCCEdge, which tracks venture capital (VC) and private equity (PE) activity in the country.

The investment tracker based its data on announced deals.

Social enterprises, which refer to both for-profit and not-for-profit companies that cater to people who live on less than $2 per day, facilitate inclusive growth. Hence, the fall in the number of deals is of concern.

Investors are cautious now, said Anuj Sharma, who manages investments for social investment fund Ennovent, adding that initially there was euphoria about this segment and a few quick investments took place. “People are now realizing that making quick deals was not the right approach. They are now taking time looking for the right kind of deals.” While there are a few good companies available, valuations are high, making investors reluctant to write cheques, Sharma said.

Investors, however, stress that their interest in these companies continues and more investments will be seen in the next six months as a bigger corpus has been raised and funds that were earlier focused on MFIs have now broadened their investment spectrum. Investors say there are huge investment opportunities in social enterprises. Moreover, the base of the economic pyramid in India representing the masses is a market in excess of $1.2 trillion, according to a study by the International Finance Corporation? and World Resources Institute?.

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