Patience is the key for impact investors, says Vishal Mehta

Vishal Mehta, Cofounder and Managing Director of impact investor Lok Capital, talks about how the social impact space is evolving in India and why patience is the key for investors. "This space requires innovation and that needs a certain ecosystem or market making, all of which takes time," he says. "Patience is key here. In the meanwhile, the investor has to be willing to and should be capable of engaging with companies in their strategy and operations." Edited excerpts from an interview with Business Today's Sarika Malhotra.  

Developments in the social impact space

The two important components that we see unfolding are human capital and financial capital. We see more and more talent coming into this space and setting up social businesses. There is also greater interest in working for social businesses and impact investment firms. On the financial front, the conservative estimate of capital (risk and equity) needed is around $300 million per annum and growing at 20-25 per cent every year, indicating a clear demand in the sector. The space is definitely growing and we expect the momentum to continue. If the government is able to and willing to take private sector initiatives in the social space seriously, then it will only increase the momentum especially in areas of financial inclusion, affordable housing, agriculture, energy and healthcare.

The challenges for entrepreneurs

The biggest challenge for a social entrepreneur lies in conducting a pilot that is capital efficient. The question is how to establish your business viability in this pilot without spending too much? Most enterprises spend too much in launching their product in the market and it requires a fair amount of discipline for an entrepreneur to conduct pilots that are not capital intensive. The other challenge is finding the right ecosystem or distribution channel for their product to reach the target segment. The distribution points are so weak that they cannot sell the products or service efficiently. Social enterprises selling affordable medical equipments for example need a robust distribution channel and companies therefore need to work towards driving the adoption.

Lok's role in investee companies

Lok closely works with its investee companies in areas such as business strategy development, financial and operational analysis, modeling and forecasting impact assessment, market research methodologies, process mapping, marketing and brand development.  We also run a fellowship programme that places passionate and talented young business and development professionals in its investee companies for 12 to 18 months, in roles such as consultants, analysts, researchers and advisors. Over 20 fellows have been placed across portfolio companies so far since the inception of the programme.