Full Circle: Bridging The Early-Stage Enterprise Investment Gap In India
Note: A version of this post was originally published on the Ennovent blog.
It is no secret that governments and large corporations often fail to adequately address the product and service needs of those living on less than $5/day at the ‘base of the economic pyramid’ (the BoP). Recognizing this clear market opportunity, many enterprises have taken on the challenge of bringing innovative and affordable products and services to BoP communities. While these enterprises are often branded as ‘social’, the reality is that despite their clear social contributions, they are just businesses responding to a high potential, yet fragmented, market.
Not unaware of the BoP market potential, this emerging network of triple bottom line-focused enterprises have attracted attention from angel investors and venture capitalists (VCs). Yet, despite the social and economic potential of these business, investors are following a fairly risk averse approach. Entrepreneurs often hear variations of the same line: “A solid idea, but it’s too soon for investment.” Fact is, despite their unquestionable social value proposition and strong financial potential, many early-stage enterprises responding to BoP markets have yet to demonstrate ironclad proof of concept – which leaves many investors uneasy.
This is the classic chicken-and-egg situation. Entrepreneurs need capital to build prototypes, acquire customers and reach a critical mass in the market; yet, investors will rarely support these businesses before the product and the business model is proven. Despite the global estimated BoP market demand of $5 trillion, many enterprises with truly innovative ‘game changing’ products and services fail to prosper - often because of lack of financial backing at the critical first phases. In addition to quickly flattening economic opportunity, this reality leaves low-income communities without the products and services they need to improve their lives.
Early-stage enterprises call for early-stage investors
In response to the clear demand for investment dollars tailored to the realities of enterprises working at the BoP, a recent surge of investors has emerged – willing to take higher, albeit calculated, risks. These ‘early-stage investors’ are more likely to take the market, technology and business model risks which are often necessary when supporting an enterprise in it’s infancy.
Recognizing the importance of these early-stage investors, in Spring 2012 Ennovent launched the Impact Circle – a service that brings together accredited investors and entrepreneurs, with support from renowned experts and service providers, to invest or co-invest in high-impact enterprises responding to BoP market demand. Through a model of partnership, harnessing Ennovent’s ground expertise and online global network, the Impact Circle helps to reduce the risk associated with placing an investment in early-stage enterprises. As a result, funds are more likely to flow into the sector to support strong entrepreneurs with high potential ideas addressing the BoP market.
With an initial focus on the Indian BoP market, Impact Circle members generally look to invest in sustainable enterprises seeking $25,000 to $5 million in equity, debt or quasi-equity over a period of 5-7 years.
Beyond just funding however, Impact Circle members support quality entrepreneurs with both financial and non-financial support. In many cases financing is only part of the equation – entrepreneurs need additional support to develop strategic partnerships, access new markets and regions, hire talent and implement business processes – otherwise the funds themselves are sometimes simply not enough.
From pilot to proven
Not unlike an early-stage enterprise itself, since inception the Impact Circle has been working to demonstrate value in response to the fragmented enterprise financing market. With visible momentum, there is no doubt that the Impact Circle has done just that. Membership is currently sitting at 24 members spanning angel investors, impact funds and foundations hailing from India, Switzerland, Japan and the United States.
Ennovent has sourced 29 companies for consideration by Circle members – with a $50,000 investment made in the low-cost school company, Sudiksha Knowledge Solutions placed by the Eleos Foundation in June, earlier this year. Sudiksha offers much needed low-cost, high quality schooling in India’s rural areas taking a child-centric approach. In just under a year, the organization has scaled their operations and reached 18 schools catering to low-income segments in both rural and urban areas in Andhra Pradesh, India.
“I believe the Impact Circle holds a lot of promise in connecting early-stage entrepreneurs with investors, which is an important part of the social enterprise ecosystem,” says Jim Villanueva, Investment Director at the Eleos Foundation.
With a successful investment now completed and several more in the pipeline, the Impact Circle is moving forward to enable more early-stage enterprises in the food, healthcare, energy, education,water and other allied sectors.
The rest of 2012 will be exciting for the Circle, as plans are underway to facilitate a delegation of international investors from the US & Europe to India, strategic partnerships for deal sourcing and impact measurement and co-investment opportunities with other networks.
While the partnership of 24 global investors may not seem revolutionary when compared to the massive BoP market demand for relevant products and services, what’s important is that the Impact Circle is reducing investor risk and accelerating funds to viable enterprises that are having a positive impact over the long-term.
Photo credit: http://www.flickr.com/photos/teachingsagittarian/4388614395/