We will look at an India Fund strategy: India Director, Acumen

In a Q&A, Ajit Mahadevan says Indian laws should allow grant money to be used for impact investments

Acumen, an impact investor that has impacted around 23 million lives in the country since it set foot in the country in 2001, has been focusing on indentifying and bringing those products and services to low-income households, that wouldn't normally be within their reach. The businesses it supports directly focus on these segments and through them, Acumen has created and supported about 9,500 jobs, with an investment of around $31.9 million in a total of 26 companies. The Fund is now looking at creating an India-specific fund. Ajit Mahadevan, India Director, Acumen explains why his organisation is looking at a country-specific fund, in an interaction with Gireesh Babu. Excerpts:

What are the trends in social enterprise in the country, at a time when the overall start-up ecosystem is facing a slow down?
During the past two years, within Acumen India, we have made at least 10 investments. It has been a very busy time for us over the past three years. We focus on healthcare, education, agriculture and energy. Acumen is the single largest investor in terms of number of companies in the non-microfinance, non-tech space. We have invested in almost 30 companies in India since inception.

We have not seen a slowdown in the kind of companies we are looking at. We continue to see people interested in setting up companies and trying new ideas and initiatives. The social enterprises we invest in are not dependent on the start-up ecosystem but on a huge customer base. They don't depend upon a certain kind of valuation-driven system. In our focus area, there are more opportunities for investments and I don't see any slowdown.

How much have you invested in India? Are you planning an India Fund?
Currently, Acumen has one global fund. Our capital is raised philanthropically and that is how we have operated during the past 15 years. Unlike in India, where we are not able to use grant money for impact investing, globally you are allowed to use that money. In addition to the global fund, we will look at an India Fund strategy. We are evaluating it now and will have a thought and plan for a greater discussion towards the latter part of this year. I think it is certainly on the anvil. We would have loved to have access to CSR money, but we can't do it. Of the $100 plus million we have invested globally, almost $30 million is in India. Tech-enabled comopanies would be in greater focus in the near future.

What led you to think of an India Fund now?
All our companies are locally based and having Indian leaders of industry and Indian investors who understand Indian business conditions can help build our companies. While we have done a lot of local partnerships, very little domestic capital has come into impact investing, particularly our kind of impact investing, which is impact-first. India now has the resources, capability and the money to solve its problems. We will explore interest from Indian investors on impact investment, over the next year or so.

Elaborate on the company's exits in India. What is your approach towards exits?
We have had a couple of exits so far from 2006. But now we have four or five companies that have hit scale and we will be looking at exiting these companies in the next year or so. We are much more focused on the growth and the profitability of our investees, to maximise the social impact. Our investees gain 5-6 times leverage in terms of follow-on capital for every dollar invested by Acumen. What we are looking at is beyond getting the returns -- there should be a larger social impact. We are a patient capital. We have focused a lot on impact measurement, in its depth, using lean data.

What challenges do social impact investments face in India?
From a regulatory perspective, social enterprises and impact investing should be able to raise philanthropic capital in India. It will mean a lot for the country to be able to access philanthropic capital in India. All of it comes from outside now. We firmly believe that we should be using local capital to solve local problems and there is a philanthropic culture in India, but the structure doesn't allow it. I think it would be great if the government says, based on all regulations and guidelines, 10 per cent of the CSR money can be used in impact investing. It will fundamentally change the sector in a positive way.