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India's 'Impact' Investors

One of the babies at Vaatsalya hospital. Image by Esha Chhabra. India, 2014.

Healthcare diagnostic tools have the tech-focus that many of these investors are seeking. Image by Esha Chhabra. India, 2014.

ToucHb device for anemia testing from BioSense. Image by Esha Chhabra. India, 2014.

The sun has appeared in Delhi. The “fog” that clogs Delhi mornings in the winter, or as locals joke, less fog, more smog, has gone for a hiatus today. Perhaps in celebration of the “do-gooders” who are gathering to discuss the challenges of investing in India.

About 100 venture capitalists, entrepreneurs and want-to-be entrepreneurs have gathered on the lawns at Adianta School of Innovation in Chhatarpur, South Delhi. The dress code is Silicon Valley meets Nehru: jeans with smartly fitted, collared vests reminiscent of India’s first “architect.”

The venture capitalists here are India’s new architects. Investments, not votes, is their tool to better healthcare, ease transportation, and produce alternative energy models for the country.

Entrepreneurs, however, complain that India’s venture capital scene, particularly for “impact” investments, is limited. That is, investments which produce some social benefit to the society. Most of the capital for these investments comes from abroad: Omidyar, Acumen, Dell Foundation, for instance, operate funds in India. Other US-based funds such as Gray Ghost Ventures invest heavily in Indian entrepreneurs. But, the capital trails back to the US. So where are the Indian investors for homegrown social entrepreneurs?

In 2011, there were about eight impact investors in India. That list has grown to approximately 35 funds as of 2013, including more local investors.

Note, the question of Indian investors is not merely nationalistic. Rather, the Indian government prohibits foreign investors from taking debt in a company, explains Arun Gore, managing director of Atlanta-based Gray Ghost Ventures. Thus, financing options are limited to equity, leaving entrepreneurs with few choices. Consequently, can these entrepreneurs branch out beyond impact investors and still fundraise for a social venture?

There’s a dynamic debate taking place, here. Does India even need “impact” investors? The telecomm industry, and the rise of companies such as Airtel, which enabled the rural market to connect via mobiles was not a “social” investment, argues Ashish Gupta, co-founder and managing director of the Helion Venture Partners, a $605-million, India-focused fund.

“I wonder at the entire logic of impact investing,” says Mahesh Murthy, co-founder of Seedfund, which focuses on early-stage tech-loving companies. “Arguably the digital innovations that have had the most impact on our planet, including bringing down governments and saving lives, are Google , Twitter, and Facebook. But these are regular investments, and not “impact investments” by any yardstick.”

Srikrishna Ramamoorthy of Unitus Seed Fund says, he has heard the comparisons to Airtel and other tech giants before. But he’s not sold.

“There is no doubt Airtel is creating impact, but that wasn’t the explicit reason that they were setup for in the first place,” he says. “One could argue that had competition not come in and policies not forced call costs to drop, mobile penetration in low-income India (urban and rural) might not have happened as quickly as it has. It might have stayed a luxury product.”

He is, perhaps, the odd man out in this conversation, working at Unitus Seed Fund, a social impact fund that began last year with $25 million, $10 million of which comes from Indian investors. He says, jokingly, that the terminology matters in enticing investors: “Use ‘social’ less, ‘impact’ more.”

To create some parameters on what constitutes an “impact investment,” last year, India established the Indian Impact Investor Council (IIIC), a self-regulatory body. This was inspired by the blunders of the microfinance industry in 2009, in which the money-driven philosophy of “doing well by doing good” got in the way of noble intentions. The council, compromising of 9 top funds, will help define impact investing in the country. For one, to be a part of the community, an impact fund’s portfolio needs to deal with low-income populations only.

Bombay-based Ronnie Screwvala, Managing Director of Disney-UTV, is a part of the IIIC. As the founder of a new $100 million fund, Unilazer, which includes a mix of impact and non-impact investments, and a trustee of the Swades Foundation, a philanthropic program to provide clean water and health services, Screwvala has seen both ends: the commercial and the so-called social. He rallies for smarter investments that are more concerned with scale and viability, less with just social good.

“For real scale to happen in the impact sectors, you need a lot of funds turning their attention to these sectors and that will happen when the business and the innovation is looked at from a commercial point of view,” he says.

One sector that straddles both social and commercial well is healthcare. Whether it’s impact funds or traditional venture capitalists, there’s a growing interest in healthcare companies to address the abysmal gap in India’s healthcare infrastructure.

In fact, not too far from Chhatarpur, where all this chatter is taking place, is India’s new colony of medical startups. Stationed near the Indian Institute of Technology and the All Indian Institute of Medical Sciences, these startups, backed by impact investors such as Omidyar Network are developing new business models for affordable care hospitals, and remote diagnostic tools to reach rural communities.

Seedfund, Helion, and Unitus may differ on their definition of an impact investment. But all three are putting money into affordable healthcare.

Murthy of Seedfund, speaks of their investments in health, a low-cost hospital network Vaatsalya, and a chain of dental clinics, MyDentist, as examples of how commercial viability crosses over into social good. “They [MyDentist and Vaatsalya] have made a measurable impact on people’s health and lives. But none of these were seen from a lens of ‘impact investment,’” he says.

Vaatsalya’s tag line reads: “India’s First Hospital Network Focused on Tier II and Tier III cities.” It’s a for-profit model with emphasis on affordability. The cost of delivering a newborn at Vaatsalya is a little over $30.

Given that the Indian government allocates less than 5 percent of its GDP to healthcare, private sector solutions are cropping up. Jeevanti Hospitals, another Seedfund company, is placing hospitals in Tier II cities of Maharashtra and Gujarat where current options are lacking, or dismal.

Gupta of Helion Venture Partners agrees, pointing to EyeQ, an eye-care company operating on a hub-and-spoke model. A cataract surgery in Tier II or III city is incrementally less than in Delhi or Gurgaon. Subsidized surgeries are available to those who cannot pay the full price.

“However while we like that as individuals, that is not the basis of our investment decision. EyeQ is a very attractive business,” says Gupta.

Helion is not the only investor; they’re accompanied by SONG, an investment and management company funded by Soros, Omidyar, and even Google.

Unitus, too, is backing innovations in eye-care. Their portfolio company, Welcare, is slashing eye examination prices by 50 percent. Diabetes is common in the country (given Indian indulgence for sugary sweet treats); with diabetes comes the risk of diabetic retinopathy, and the possibility of blindness. So, Welcare has developed a low-cost retinal screening device that keeps clinical costs down and can serve more customers.

Healthcare diagnostic tools have the tech-focus that many of these investors are seeking.

Rajesh Sawhney, CEO and founder of GSF, a Gurgaon-based fund for early-stage companies, is hosting this gathering in South Delhi. Sawhney began GSF in 2011 with a vision to take Indian entrepreneurship global. He, too, is putting his money into healthcare. His two portfolio companies, BioSense and Dhilcare, have produced diagnostic tools – for anemia and ECG heart screenings, respectively. He sees them as shrewd business options, he says. Do they require more patient capital than his more “traditional” tech investments?

Not really, he says. “Venture capital by definition is patient and risky.” Given that he’s willing to wait a decade, like his colleagues at Seedfund and Helion, to see a company mature, it’s about as “patient” as the patient capital provided by impact investors.