A social enterprise is a business with a cause, it exists, not just to earn revenues but to also contribute to the society at large. In
India, the opportunity is huge. “Some of the key opportunity sectors for social enterprises include agriculture, education, energy, financial services, healthcare, housing, water and sanitation,” says Megha Jain, manager, social impact team at Dasra, a philanthropic foundation. The funding available to social enterprises have increased significantly in the last few years. Here’s how it stacks up.
Very early stage. “Very early stage funding however remains challenging. Many investors continue to look for proven models and are unable to take risks on ideas or organisations piloting their products and services,” says Tej Dhami, senior director, UnLtd India. Entrepreneurs can look for grant funding from the Centre, philanthropic institutions, individuals and corporates, which could be a few lakh rupees and need not be returned to the investor. Seed stage. Social enterprises should look at dedicated angel investor networks in the impact space like the Intellecap Impact Investment Network (I3N). “Unlike venture capital funds, the individual investors will look at co-investing where two, three or more investors will come together and pool in smaller amounts of capital so as to diversify the risk,” says Aparajita Agarwal, director, Sankalp Forum, a division of Intellecap, a social investment advisory. Seed stage investors such as Unitus Seed Fund and incubators like UnLtd India also invest at this stage. Investment ticket sizes could vary from Rs. 10 lakh, going up to a crore or more.
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Growth stage: “Early stage equity funding is a must to take the enterprise to the next phase. Equity investors are ready to take that extra risk and willing to support you and partner you for the first stage of growth,” says P Pradeep, partner and executive director, Aavishkaar, a social venture fund. Ticket sizes could vary between Rs. 1-2 crore, going up to Rs. 5-6 crore or more. These funds may decide to invest into a company at an even earlier stage with smaller amounts and then increase its funding going forward. Equity investors would look at anything between 10 per cent of the company ownership going up to 20, 30 or 40 per cent with more rounds of investments. “Depending on how robust the business model of the enterprise is, there is a huge variation in terms of what kind of funding would come in,” says Agarwal. At this stage, venture debt providers may also start showing interest in these companies. These would be specialized institutions like IntelleGrow or NBFCs who are willing to invest money in these companies because they have equity backing.
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Investment trends. An Intellecap Impact Investment report says that from 2000 to February 2014, the top three sectors which have seen investments are microfinance institutions (MFIs) (54 per cent), financial inclusion (non-MFIs) (17 per cent) and healthcare (11 per cent). “Investors tend to invest more in financial services firms because they are likely to grow at a faster pace and also require cash as their raw material,” says Abhijit Ray, co-founder and managing director, Unitus Capital , an investment bank focused on impact investing. “Demonstrable ability to scale and an awareness of risks with identified mitigating measures increase a venture’s potential to raise funds,” says Dhami. It is important to be well prepared. “A detailed yet concise pitch deck is a must. The entrepreneur needs to able to convince the investor of his firm’s sustainability and scalability,” says Jain. Says Sandeep Patel, one of the founders of Ahmedabad-based NEPRA Resource Management who have already raised one round of funding, “Before funding, it is important to have the ingredients, idea, team and will, and most importantly money to sustain and survive and stick to it to reach a stage where funding comes.” Time to go ahead and be the change.
