Vipul Prakash, an angel investor in India, shares his thoughts
Impact investing, that is investments made into companies with the intention to generate social, environmental and financial returns, has been picking up pace in India in the last few years. Although impact investing was traditionally seen as the work of foundations and government bodies, this new approach to placing funds has slowly gained the interest of angel investors in recent years. So much so, that earlier this year the Harvard Business Review reported that social impact investing was poised to become the new venture capital.
With this in mind, Ennovent, a company that focuses on accelerating innovations for low-income markets in India, recently interviewed Vipul Prakash, Co-Founder of Hum, an entrepreneurial BoP start-up, and Managing Director at Elixir Consulting. Vipul is an angel investor with the Ennovent Circle – an exclusive member group of impact investors, mentors and service providers focused on supporting early-stage enterprises with innovations for low-income markets in India.
Below Vipul shares his thoughts on the challenges and benefits of engaging as an angel investor in this ever-changing space in India.
Could you explain your motivations for entering the space of impact-focused investing as an angel?
There are many investors that want to invest in businesses catering to India’s middle and affluent 300 million. However, they are missing out on the 900 million that live in India’s smaller cities and villages. While making an impact by supporting innovations for sustainability is important to me, as an investor my motivation continues to remain financial. I genuinely believe that one can create a profitable company by investing here, primarily because the competition is much lesser and the demand much greater. If the investor and entrepreneur are able to get the model right, there continues to remain the potential of creating a company the size of Google within these markets.
Do you feel we need more angel investors to come into the impact investing space? What do we need to do as an industry to secure this new capital?
Enterprises that cater to low-income markets represent a huge investment opportunity and as a result there is a persistent need for capital. There are a lot of people looking for avenues to invest smaller amounts, compared to the larger funds a foundation may place, in early-stage enterprises.
However, to successfully secure the available capital, impact investing must be packaged more effectively. Rather than focusing on these investments being only ‘good for society’, the emphasis should also be on the untapped opportunity to gain financial returns over a long term. I believe that if we are able to package this sector as something that makes great commercial sense, we will see a huge number of angel investors flocking in to invest.
You often hear that impact investing is ‘patient capital’ or will potentially have muted returns – what are your thoughts on that?
It is a misrepresentation to classify capital as patient or impatient. Even in mainstream industries, capital has to be patient because to maximize the return on investment the investor has to wait for a few years. It is the same case with investing in the social sector. Therefore, the assumption that to make an investment within this sector one has to provide ‘patient capital’ is not correct, in my opinion.
Talking about muted returns specifically, I again feel that this is a wrong perception that investors have within the space. Typically, most of the investment deals within this sector are already being subsidized by government or foundation grants. This means that often the subsidy to capital is already taken care of and angels can expect a good 15% return in most cases where the business model is strong.
Do you feel that not being on the ground in India is a challenge for angels seeking to invest in India’s low-income markets?
While it is always great to be on the ground as an investor to have a better understanding of the grassroots realities faced by entrepreneurs, I don’t think it is necessary. By being a part of co-investment groups such as the Ennovent Circle or the Indian Angel Network, most of the challenges of being overseas while still actively investing in India can be overcome. Deals presented in these circles are always shared with all members via email, and while by being overseas one may not be able to sufficiently mentor the entrepreneur, from a pure investment perspective the geography makes no difference.
What is the potential for impact investing in India – do you feel that as a sector it is poised for growth?
I strongly believe that when talking about India’s growth story we need to talk about both the versions of India – one that is in the big cities where growth is now slowing and the other defined by small cities and rural villages where the growth rate has remained steady at 7 – 8% annually. There are several high-potential enterprises serving this second India and therefore the potential for impact investing in India is huge in my opinion and the sector is strongly positions for growth.
Are you an angel investor looking at accelerating innovations in Indian low-income markets? Learn more about the Ennovent Circle now.