Dispatches from the Field | Impact Investing 101 in Asia

On the heels of a week-long trip to India and subsequent Impact Investment Exchange Asia (IIX) conference in Singapore, I returned to San Francisco inspired by extraordinary change agents who are actively building the field of impact investing. From social entrepreneurs to nonprofit leaders to activists, the grit with which these innovators are tackling poverty via market-driven solutions to health, education, and employment is truly remarkable—and offers lessons for early US efforts as well.

Destination: India! Meetings in Mumbai (Bombay) and Bangalore provided an insider’s view onto the practical matters of running a sustainable social enterprise, as well as operationalizing an impact investment strategy. In addition, the trip also laid the groundwork for Tides’ emerging (Ad)venture Philanthropy initiative. Aimed at inspiring and activating would-be social investors, the 10-day (Ad)venture Philanthropy learning journey – slated for late January 2013 – will connect the supply side of giving and investing with on-the-ground demand.

The three organizations highlighted below—all of which are a part of the (Ad)venture Philanthropy agenda in India—are at the center of a robust social sector ecosystem in India.

Dasra India

Based in Mumbai, Dasra is India’s leading strategic philanthropy foundation that brings Indian philanthropists and social entrepreneurs into a dynamic network. In a country where 800 million people live on $2 per day or less, mission-minded organizations like Dasra are playing a vital role in linking philanthropy and impact investing with successful social entrepreneurs in need of debt and equity investments to expand their enterprises. Led by Partners Deval Sanghavi and Neera Nundy, Dasra manages two initiatives that further this goal: the Indian Philanthropy Forum (IPF) and Dasra Social-Impact (DSI). While IPF works to build a community of visionary philanthropists to strategically drive social change in India around a giving circle model, Dasra Social-Impact Dasra Social Impact provides executive education to nonprofit and social enterprise leaders to strengthen their skills; it also links DSI participants to funding via the IPF.

Mother Earth

Owned and run by Dasra Social-impact alumni Neelam Chhiber, Mother Earth is a hybrid social enterprise based in Bangalore supporting livelihoods of rural producers and agricultural workers all over the country. They produce contemporary household items using raw materials and traditional craft techniques that link rural producers with markets. The pioneering work focuses on adding value to agricultural by-products and other natural fibers in terms of product diversification, design, and simplification of labor and time intensive processes. The good are then sold at six retail outlets across India. An investment from India’s leading retailer – Future Group – allowed Mother Earth to expand; plans call for Mother Earth to open 40 stores in 5 years.

Rural Shores

Rural Shores is a social enterprise that works to assimilate rural youth into the knowledge economy by bringing business process outsourcing (BPO) opportunities to rural areas. With a network of rural data centers spread across the country that currently employ more than 1,200 staff, Rural Shores manages data digitization across a wide range of industry sectors for both domestic and international clients. A winner of a 2012 Edison Award for Lifestyle and Social Impact, CEO Murali Vullaganti has already received two rounds of venture capital funding – including an investment from Lok Capital – to continue expansion.

Second stop: Singapore. At the Asia IIX Impact Forum, more than  400 individuals representing the supply, demand, and intermediary components of the impact investing landscape came together to discuss the ongoing development of the nascent field.  Representatives from Rockefeller Foundation, Bank of America Merrill Lynch, Bamboo Finance, LGT Venture Philanthropy, and Monitor Group, to name a few, participated in panels alongside Tides exploring impact investing opportunities. Three themes emerged:

• Capital oversupply and undersupply: Throughout Impact Forum, one of the common threads was the oversupply of impact investment capital available for medium-sized social enterprises capable of absorbing $2M-$5M in equity or debt. In other words, there are a limited number of social enterprises in the pipeline that can take on this amount of capital and a large number of investors clambering for the same deals. Conversely, there appears to be a chronic undersupply of seed capital – and heftier appetite for risk – available for social enterprises in early stage deals < $1M USD.  This substantiates what the World Bank’s Development Marketplace blog recently referred to as a “BIG GAP on the Financial Conveyor Belt”.

• Pipeline challenges: Linked to the over- and under-supply of capital for mezzanine and angel deals respectively, the pipeline for both appears to be quite limited. Similarly, pipeline development for both types of deals is still in the very early stages of development. Potential impact investors continue to face challenges in sourcing deals even after deciding to activate such alternative investments.

• Venture capital (VC) paradigm shift: Another perennial challenge discussed repeatedly at Impact Forum surrounds expectations on returns from impact investments. While some impact investors contend that equity investments in social enterprises should be no different than similar investments in traditional companies, i.e. ~25%, many impact investors are content with below market rates of return. Rethinking the current VC paradigm will continue, particularly in Asia, where investors tend to separate investing and an expectation of market returns from doing good. The space in the middle is the grey, yet promising impact investing landscape.

As Tides continues to develop new product and service solutions for the supply and demand sides of impact investing from our intermediary perch, we will keep you posted.