Social Investing: An Enchanting Melody Of the “Head And Heart” Driving Innovation

Ratna Mehta Sep 16, 2020

Economic growth has been unable to address the widening socio-economic disparities. This gives rise to the need for impact-focused entrepreneurs who can explore the market-based approach to tackle the challenges of inclusive growth and sustainable development. However, the scale of the problem is massive, and plain vanilla solutions used traditionally will not be able to create the desired result. The social challenges in India are daunting; whether is it increasing financial inclusion, providing healthcare and education to the underserved or improving lives by creating jobs. The only way to advance the journey is through innovation and supportive long term capital.

As said by one of the most innovative minds, Steve Jobs: “Innovation is the only way to win big and significant problems.”

Impact investing as an enabler

Social capital drives the merger of the “Head and the Heart”, i.e. strategizes with the Head to push for outcomes and decides with the Heart to ensure impact. Thus, it has the ability to come in early, de-risk business models and pursue change and innovation at a large scale. This approach makes way for path-breaking innovations. As per a IIC-Asha report, impact investors have contributed to 43% of the funding at seed/Series A stage v. 22% at the Series B and later stage. Investors are showing an increasing appetite to bridge the funding gap as they see social models fructifying to create a catalytic impact as well as earn reasonable returns. In the last decade, impact enterprises have collectively raised $10.8 billion benefitting 490 million lives. Impact investments have grown by a 26% CAGR over the decade, from $323 million in 2010 to $2.7 billion in 2019. While Micro Finance Institutions (MFIs) have been the much talked about success story in India’s impact investing journey, trends show that there is slow but sure shift away from MFIs to other sectors including agriculture, healthcare, financial services (excluding MFIs), education, energy and technology for development.

How social startups are innovating to create a difference

Innovation is not necessarily high-end R&D or demystifying rocket science. Taking the current product and customizing it for the masses or finding a new route to the market, equally qualifies as “innovation”.

Fintechs like Easyplan are helping young Indians save in a simpler and flexible manner. Finlok is bringing communities onto a digital platform and enabling them to borrow from each other. SME platform Global Linker is helping retailers digitize, while MunshiG is empowering Kirana stores with AI to help them manage inventory efficiently. Toffee Insurance is providing access to insurance to the underserved population by customizing small ticket products.

Healthtech is another space where there has been a significant innovation. The current pandemic has especially provided a shot in the arm to these companies. Karma Healthcare is providing primary healthcare in semi-urban and rural areas through a combination of online and brick and mortar model, while Medcords is doing this online by digitizing medical records and sourcing patients through the rural pharmacy network. Companies like Dozee have developed tracking and monitoring med-devices which serve as step down ICUs.

Innovation is driving improved outcomes in the agri space too, which provides livelihoods to a large percentage of the Indian population. AgroStar is a direct-to-farmer app that enables farmers to produce high-quality agricultural inputs at a fair price. Similarly, IoT powered diary tech platform Stellapps is helping dairy companies track & monitor quality of milk procured as well as farmers to get the right price for their produce.

Most of these companies are funded initially by impact investors and in subsequent rounds, see increasing participation from VCs and traditional investors as the business model stabilizes. Winds are in favour of social entrepreneurs, and we are seeing increasing cases of social capital driving innovation and catalytic impact.