The pursuit of profit with a purpose: Gaining more ground
“Democracies thrive when its people are enabled” – social entrepreneurship empowers people, whether it is access to quality education, financial inclusion or earning a means of livelihood.
Social entrepreneurship has been traditionally seeded by impact funding. Impact investors play a pivotal role in de-risking business models and have contributed to 43% of the funding at seed/Series A stage v. 22% at the Series B and later stage.
Today, impact investing is at a J-curve of sorts – there is increasing awareness about impact investing. It is attracting various categories of investors such as impact funds, family offices, and even commercial investors as the world recognises the importance of making profit with a purpose.
Some of the key trends driving the growth of impact investing are rapidly changing and shaping the impact environment.
1. Instrument of change
Most businesses have realised that for long term sustainability, they have to go back to the drawing board andtheir strategies to ensure that the financial goals of the business and social value-add go hand in hand.
This approach not only aids to create a sustained legacy of the enterprise but also gains higher acceptance of their products amongst consumers, especially the millennials and Gen Z. Research shows that 76% of Gen Z prefer products or brands because of the cause the brand supports.
Across sectors, large multinationals are working on reducing their carbon footprint – several automotive companies are working to create fuel-saving and alternative cars with clean production processes, while FMCG and cola companies are investing in sustainably sourcing key ingredients.
While large businesses are redrawing their strategies, there is a wave of new age startups who are building businesses to drive change.
Most of these are tech-driven platforms which are trying to make a dent in the age-old ways of doing things – whether to improve financial inclusion or to make healthcare accessible.
2. Technology is expediting the impact journey
Transformation is primarily a product of technological innovations and breakthrough. This is especially true for fast-developing countries like ours since solutions need to be cost-effective and implemented at a very large scale.
And as technology is getting more accessible and widespread, it is touching millions and millions of lives across different aspects of life – from healthcare to education to job creation and access to financial services.
Several fintech startups are developing innovative solutions to democratise access to credit, enable savings, facilitate easy digital transactions and provide access to insurance, thereby improving the financial health of ‘Bharat’.
Traditional healthcare models are getting disrupted by tech-driven innovations. Assistive technologies are being leveraged to provide access to medical professionals, diagnose as well as treat, and in most cases, at far lower costs.
For instance, a few healthcare startups are providing primary healthcare in semi-urban and rural areas through a combination of online and brick and mortar models, while some are doing this entirely online by leveraging the rural pharmacy network and digitising the patient records.
3. Increasing support from Investors
Increasing success stories of social enterprises have led to increasing number of social ventures being seeded and funded. As per the report of the Impact Investor Council of India, in the last decade over US$ 10.8 billion has been raised by ~600 impact enterprises impacting around 490 million people in India.
The amount of investment has consistently increased over time – from US$ 323 million in 2010 to US$ 2.6 billion in 2019. Further, as social models are getting more established, they are growing in size and thus deal sizes are also increasing – US$ 5 million to US$ 17 million over the same period.
This has attracted more investors towards impact funding. There are new impact players entering this space. Also, mainstream investors are setting up separate arms for impact investing.
4. Social entrepreneurs: time under the sunshine
This is a golden era for social entrepreneurs where there is an increasing need as well as increasing support for their business models. The right approach will help them to get the right funding partners and help grow their business to drive sustainable impact.
5. Increasing support from government
As impact investing gains traction, actual work on the ground sees fruition and issues at hand become more critical, policy support is trickling in. The government is setting up the Social Stock Exchange (SSE) for providing innovative means of financing to non-profit as well as for-profit social enterprises.
It has suggested various structures such as equity, social venture funds, mutual funds, zero coupon zero bonds and other pay for success instruments.
The SSE is likely to provide thrust to the overall sector development and supply capital for providing basic necessities to the bottom of the pyramid, which conventional capital focused on financial returns, will not be able to do.
6. Measurement of impact still evolving
One of the issues of funding impact is that impact measurement is still at a nascent stage in India. The number of lives impacted is a good metric to start with – but the definition will vary across enterprises. It is important for entrepreneurs as well as investors to define what impact KPIs they are focused on and how they will be tracked to actually quantify the impact.
Some impact-focused funds are identifying and measuring certain operational and financial parameters, while some are looking at the impact multiple of money (IMM), which means the value of the social good created over the amount of money invested. There are lot of assumptions involved in this process, but it’s a good start to an evolving framework and likely to solidify over time.
Overall, the winds are in favor of social entrepreneurs and we are going to see a lot of action and impact in this space in the coming years.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)