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Social Enterprise Landscape in IndiaAnurag Agrawal
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Social Enterprise Landscape in India
• India’s SEs are a young but ambitious industry - The industry took off in 2005-06 and has grown dramatically since then
• The majority of SEs are small, reflecting the industry’s youth, but not its potential
• Most SEs target the BOP as Consumers rather than as Producers
• Approximately two-thirds of SEs treat social motives as equally if not more important than profit motives
• India’s SEs are capital hungry businesses -Grants from foundations, incubators, fellowships and competitions are a crucial source of capital for early-stage enterprises
• Finding and retaining good talent, raising capital, and building the value chain create the greatest barriers to sustainability and scale for Social Enterprises
• The greatest financing challenge is not a limited supply of capital but SE limited access to capital that is available
• Despite the challenges, SEs are making a major social impact in India
Source: On the Path to Sustainability and Scale, A Study of India’s Social Enterprise Landscape, Intellecap, April 2012
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Promoting SE in India: Investor Landscape
• Investors have shown a high investment appetite in the past for the sector and the trend
has risen significantly in the past five years – Investments in social ventures expected to
exceed $1 Billion over the next 5 years
• Social Venture Funds (SVF) in India funded mainly by Foreign Capital - NABARD and
SIDBI are the only known institutional Indian investors in Social Venture Funds
• Most of the SVFs target an IRR between 20% to 30% from each investee company and
between 12% to 15% at the overall portfolio level
• There is no dearth of capital, however most money chases enterprises with:
• Established business models
• Presence within the immediate radius of metros and urban centres
• Highly educated and experienced entrepreneurs
• Investment horizons tend to be longer 6 - 8 years; Exits are primarily through
secondary/strategic sale
• Investee sourcing occurs through events, grass root networking, website applications,
referrals and direct visits
© 2013 Intellecap. All rights reserved
Need higher risk investments in early stage pre-profitability, pre-scale enterprises
Critical role of philanthropic investors • Early role of grants in microfinance • MSDF’s patient investments in urban micro finance, vocational training
Venture capital in higher cost, higher risk enterprises in difficult geographies• Aavishkaar’s/Acumen’s – Multiple investments in pre-profitability enterprises; • Several of these companies got subsequent round of funding from other mainstream
investors Angels, often show higher risk appetites at lower deal sizes and are a lower-cost,
easier to deal with option for early stage entrepreneurs • Intellecap Impact Investor Network / Ennovent Impact Circle• India Angel Network/ Mumbai Angels in the mainstream world
Venture debt for early stage social enterprises• IntelleGrow• Bellwether Debt Fund
Investor engagement - education, innovations in investment structures, code of conduct• National Association of Social Entrepreneurs (NASE)• Indian Impact Invetor Council (IIIC)
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Thank You!
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SE Landscape: Social Impact
Social Enterprises are employing multiple strategies to create an impact at the BOP
More than 25% of enterprises serve over 50,000 beneficiaries at the BOP annually
Impact Strategies Percentage of Enterprises
Providing a critical good or service at an
affordable price
64%
Generating employment opportunities in
underserved areas
51%
Improving livelihood for low-income Producers
by enhancing productivity or market linkages
36%
Conserving or restoring natural resources that
impact the poor directly
22%
Source: On the Path to Sustainability and Scale, A Study of India’s Social Enterprise Landscape, Intellecap, April 2012
© 2013 Intellecap. All rights reserved 7
SE Landscape: Balancing ActRoughly two-thirds of Social Enterprises treat the social motive as equally if not more
important than the profit motive.
Balance between Profit and Impact
Impact First: We prioritize maximizing social impact over
maximizing profit.
34%
Impact/Profit Balance: We strive to maximize both, but
sometimes have to make difficult decisions that compromise one
or the other.
35%
Profit First: We prioritize maximizing profit, because we believe
that this is the best way to maximize social impact in the long run.
27%
Pure Profit : We prioritize maximizing profits and strive to make a
social impact when it enhances profitability.
4%
Source: On the Path to Sustainability and Scale, A Study of India’s Social Enterprise Landscape, Intellecap, April 2012
© 2013 Intellecap. All rights reserved 8
SE Landscape: Financing
India’s Social Enterprises are capital hungry businesses
More than half of SEs report a need for grant capital with pilot-stage enterprises
expressing the greatest demand
Debt is reported to be the least desired form of capital, but is still in demand by nearly half
of enterprises
None
Debt
Grant
Equity
7%
48%
57%
78%
Capital Needs
Source: On the Path to Sustainability and Scale, A Study of India’s Social Enterprise Landscape, Intellecap, April 2012
© 2013 Intellecap. All rights reserved 9
SE Landscape: Financing (cont’d)
Personal funds and money from friends and family are the most common sources of
external capital that SEs secure over the lifetime of the business.
Other
Fellowships
Commercial VC/PE Funds
Incubators
Competitions
Impact or Social Investing Funds
Angel Investors
Foundations/ Grant Makers
Banks
Friends and Family
Personal Funds
3%
11%
11%
28%
29%
24%
23%
26%
30%
47%
74%
Sources of Secured Funding
Source: On the Path to Sustainability and Scale, A Study of India’s Social Enterprise Landscape, Intellecap, April 2012
© 2013 Intellecap. All rights reserved 10
SE Landscape: Principal Challenges
Finding and retaining good talent, raising capital and building the value chain are the three
most frequently cited challenges by Social Enterprises.
Incorporating the Enterprise
Finding Mentorship and Support
Measuring Impact
Collecting Information about Target Markets
Building an Organisation
Navigating the Regulatory Environment
Managing a Team Sucessfully
Developing/ Refining a Business
Proving the Model's Scalability
Building a Value Chain
Raising Capital
Hiring/Retaining Qualified Staff
6%
11%
11%
14%
18%
18%
20%
25%
26%
36%
44%
44%
Top Three Challenges to Sustainability and Scale
Source: On the Path to Sustainability and Scale, A Study of India’s Social Enterprise Landscape, Intellecap, April 2012