For New York-headquartered impact investment fund Acumen, India is a lab to evolve sustainable business models for low-income consumers across markets in Asia and Africa. Through the last 10 years, India has become Acumen's oldest and largest regional portfolio, with investments worth $32 million in 27 companies across sectors such as health care, agriculture, water and sanitation, energy and education. The company plans to enter the low-cost housing segment in 2014, while effecting one or two partial or full exits, Sachindra Rudra, India director, Acumen Fund, tells Sudipto Dey. Edited excerpts:
Define Acumen's investment and management strategy in India.
Acumen invests in early-stage social enterprises that provide critical and affordable goods and services to the low-income population. For companies operating in emerging markets and focused on serving low-income customers, it is critical to have access to patient capital that takes into account higher levels of risk, longer time horizons and the realities of a customer base whose trust is hard to earn.
As an investor, we help companies develop financial and organisational discipline at a critical stage in their development. Our local team members provide rigorous support to our investees and are often committed as board members. We strategically assist our investees in dealing with issues critical to their success such as defining growth strategy, developing processes and systems to support growth, designing organisational structure and assisting in key hiring decisions and fundraising. Our Global Fellows Program helps the brightest young minds to work with select investees for a year, as part of training them to become leaders of social change.
How do you measure the impact and returns of your investment? What is the expected time frame from the investment to the exit mode?
We are an impact-first investor. So, first and foremost, we give additional weightage to the investment's social impact, accompanied by reasonable financial returns. We may relax our financial return expectations three-four percentage points compared to a traditional venture capital or private equity investor for out-sized social impact.
For any investment, we look at three aspects of social impact: First, the potential breadth of impact is often measured by the number of people or households served. Second, the proportion of this population that is poor. Third, the depth of the impact on each consumer, that is, the impact each unit of the product or service will have on a consumer. For instance, for our solar lantern company d.light, we estimate the reduction in household expenditure and the incidence of respiratory diseases, as the household moves from kerosene lamps to solar lighting solutions.
In line with our patient capital approach, we invest over seven-10 years to give our investees the time and support to build new markets and business models.
Given Acumen's decade-long presence in India, can one expect some exits in 2014?
India represents Acumen's oldest and largest regional portfolio. It is among the two top destinations among the five geographies Acumen invests in. Among the 27 investments in India, at least 10 ventures will likely need additional fund infusion through the next two years. We are looking at ramping up investments in India from $3-5 million to $5-8 million a year, across five-seven deals. As we enter the low-cost housing space in 2014, we are looking at partial or full exits from one or two ventures every year, through the next few years. 2014 will see some exits. Completing the investment cycle is an important validation of our work.
There are a number of examples of our companies attracting the interest of commercial investors. This is exciting for Acumen, as it allows us to exit the companies once they successfully start scaling up. We re-invest the returns we make on exits into new investments
How does India stack up as in impact investment market?
India will continue to be a large and fast growing market for the sector. Currently, there are 30-odd players in the market, including several India-specific and some international funds. About 10 years ago, when we started investing in India, there were just three or four other players in this space. In that sense, the market has expanded ten times.
According to research by the Rockefeller Foundation, impact investing generated about $100 million (about Rs 530 crore) in India last year, it is said to be growing 30 per cent a year.
For me, it is really exciting to see lot of young people entering this space, people who are keen to develop sustainable business models. For Acumen, this has meant a rich pipeline of potential opportunities and a strong position for India as the 'laboratory for innovation' in the sector.