The Global Epicenter of Impact Investing: An Analysis of Social Venture Investments in India

Abstract

Venture funding for social enterprises has seen significant growth in the first decade of the 21st century. Using the traditional approaches of venture investing in social enterprises to create positive social impact while simultaneously achieving financial returns has been intuitively appealing. India has emerged as one of the largest marketplaces for social venture investing. This article provides a perspective of social venture investments in India based on an analysis of 523 deals in 212 companies. The results indicated that venture funding for social enterprises had several distinctive characteristics such as smaller investment sizes, early stage investing, and longer investment duration. Financial inclusion has been the main investment thesis, as evidenced by the large number of investments in microfinance companies. Most investments were in companies that facilitated consumption at the base of the pyramid segment, rather than in companies that created income and employment opportunities. Creation of dedicated social venture funds would benefit the sector, as such funds made more investments as compared to mainstream venture funds. Evidence from the microfinance industry showed that the scale of the investee company was one of the important criteria for investment. Performance parameters of microfinance companies that had venture investment did not significantly vary from those that were not venture funded, indicating the need for more active contributions and value addition from the investors.

TOPICS: Private equity, emerging, ESG investing, statistical methods