Business Today

A virtuous spread

Social entrepreneurship goes mainstream as the bottom of the pyramid gets more attention as a market.

E. Kumar Sharma And Anusha Subramanian | Print Edition: Nov 28, 2010

He is a true believer in the forprofit concept; even eschews venturing into anything that is "not-for-profit". But the venture fund that Vineet Rai founded - Aavishkaar - has a clear focus: "To harness the entrepreneurial spirit at the bottom of the pyramid to create inclusive economic development."

Consider one of its investee companies, Net Systems Informatics. This Mumbai-based company, for the past five years, has been in the business of providing accessibility and assistive technology products (like screen readers and specially-designed keyboard and mouse) for the physically challenged or differently-abled. Its CEO Shilpi Kapoor says Net Systems has already touched half a million lives, withstood the downturn well and made operating profits last year.

Rai is not alone. There are other VC investors walking down the same path. Take VenturEast, a private equity and venture capital firm, which, according to Sarath Naru, its Managing Partner "is an unabashedly commercial investor". But over the past two years about half of its investments have been in companies that cater to rural markets, particularly low-income households.

It already has investments across a broad spectrum of companies - its portfolio includes a company that builds low-cost primary health care delivery through telemedicine, another that builds low-cost rural ATMs for better financial inclusion, one that builds water supply and irrigation systems and yet another that develops low-cost bio-generic drugs, among others.

Social entrepreneurship is witnessing a "mainstreaming" of sorts. These ventures no longer need to depend solely on philanthropy or grants to take off. There are investors willing to back them as long as they promise scale and a for-profit model. Even "unabashedly commercial investors" are willing to support businesses that promote inclusive economic development and reach out to the underserved markets of India.

Betting on social ventures

  • Social entrepreneurs no longer depend solely on grants and philanthropy
  • PE and VC funds show a growing interest in the market at the bottom of the pyramid
  • Commercially sustainable social ventures start getting venture funding
  • A "for-profit" model preferred by investors
  • NGOs, though, still struggle for funds and have to depend on donations
For them it's a business decision like any other. It is just that they also see a large market for services and products offered by social ventures. Rai of Aavishkaar, for instance, expects to make significant returns from the majority of his 22 investments - in some instances three to five times the capital invested. "We hope to make reasonably large returns from six companies, some would give us reasonable returns, while the rest would give us the money back with minor returns. We have only written off five investments," he says.

Concurs Hilde Schwab, the Chairperson and co-founder of the Switzerland-based Schwab Foundation for Social Entrepreneurship: "In India, there are more social entrepreneurs setting up organisations that are for-profit, and relying less on donations and grants these days. Also, more social entrepreneurs are coming from a business background or from the private sector."

According to a recent e-journal of Spire Research and Consulting, a specialist on social entrepreneurship in Asia-Pacific and Global Emerging Markets, in the past social enterprises may have been largely nongovernmental organisations (NGOs) which chose to structure themselves as businesses. "However, in the 21st century, social enterprise increasingly looks more like a branch of regular enterprise than a part of the NGO sector," the research says. In the process, social entrepreneurs also seem to be emerging as champions of innovation. For example, Husk Power Systems in Bihar, a rural electrification company that burns rice husks to produce electricity.

Private equity and venture funds are definitely showing keen interest in funding social enterprises, says Madhabi Puri Buch, Managing Director and CEO, ICICI Securities. "Yes, there is a lot of money available out there. There are funds which look for business models at the bottom of the pyramid and are for-profit organisations.

Some funds measure success in terms of the impact they create, and not financial returns," she says. However, it's not smooth sailing for all social entrepreneurs. Funding is only available to those ventures that have a well thought-out profit model."While many for-profit social ventures may be getting funds, most NGO-led entities still tend to struggle for funds as they cannot raise equity and have to depend on donations," says Ernest Paul Midde, head of Saadhana, an Andhra Pradesh-based NGO microfinance institution. He feels the way out is to sensitise the public sector banks about the need to support sound social ventures. We hope he finds listeners.

Productivity push

The rapid spread of mobile phones in the country means that a phone call is within easy, if not instant, reach of one in two Indians. In the coming months, when wireless broadband services get launched - through third generation and so-called long-term evolution networks - ubiquity of phones will lead to a jump in high-speed Net connections.

"The use of information and communications technologies (ICT) is just getting off the ground in India," says Amit Mehra, Founder and Managing Director of Reuters Market Light, which offers updates on weather, market prices, and news via text messages.

The possibilities with broadband wireless technologies are enormous: companies are already leveraging ICT to deliver health care (as Apollo Hospitals has done in 150 locations) and training (Textiles Exports Association, Tirupur covering 600,000 workers). But the real impact waiting to happen is at the bottom of the pyramid. "ICT can reduce disparities in population by delivering better quality services," says Irene Mia, Senior Economist with the World Economic Forum.

Indeed, the break-up of WEFINSEAD'S network readiness index shows light at the end of the tunnel. India is ranked No. 43 on the index among 130 countries. One of its components, the readiness component, which maps how ready individuals, businessmen and governments are to adopt ICT, is at a relatively high No. 22, showing a high level of latent demand.

Rahul Sachitanand

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