The concept of social investing grew in prominence within the early 1980s and 1990s, with concerns of environment and global climate change being at the core. In the era of early 2000s, the United Nations launched the ESG (environment, social and governance) guidelines, which provided a framework for mainstream investors to include social consciousness into investing. However, the term social investing was still very loosely used for social initiatives.
In 2007, the Rockefeller Foundation coined the term “impact investing,” prescribing a name to investments that are actively finished an “impact first” objective, i.e., to handle a social cause alongside an affordable financial return. Today, there are over US$ 500 BN in global impact assets. Impact investing is increasingly getting attention from mainstream investors because it has the power to drive significant impact through technology and innovation. Impact investing is a beautiful combination of the “Head and the Heart.” It strategizes with the pinnacle and takes decisions with the guts. This philosophy lends itself to creating path-breaking innovations to unravel new world problems with financial inclusion, education, healthcare and livelihoods through digitization, AI, IoT, etc.
Impact Investors Have the Desire to Do Social Innovation
Impact investing has the power to drive a high degree of innovation, as core impact investors are available early, provide catalytic capital and help in de-risking business models. Historically, 62% of impact ventures are seeded by impact investors. A survey of the members of the Indian Impact Investor Council indicates that 33% of the LPs (investors) and 58% of the GPs (fund managers) within the impact space are keen to speculate at the Seed/Series A stage. By coming in at an early stage, they need the power to fund innovative ideas that may give birth to social breakthroughs, i.e., social investing, which traditional investors don’t want to explore. As venture and proof of concept are established, other VC/PE investors join the journey.
In India, impact investors have seeded various ventures across agriculture, healthcare, education and fintech, creating massive scale impact on social investing. Bangalore based Stellapps is changing how milk is procured and sold. Stellapps has pushed the boundaries through innovation – with its IoT platform, it not only helps dairy companies track and monitor the standard of milk procured, but also helps farmers get a reasonable price for their milk. This concentrate on innovation has helped Stellapps scale its revenue from INR 1cr in FY 2013 -14 to INR 55cr in FY 2018- 19. Omnivore seeded Stellapps, an impact-focused Agri investor, and because the business model got established, a clutch of other investors like Blume Ventures funded the expansion.
Social Investing During a Crisis
Socially led innovation can create a positive change during a crisis. Covid-19 is an unprecedented crisis, the first of its kind probably after the Spanish flu, where the road to recovery and the outcomes are still unknown. During this crisis, several impact investors like Wadhwani Foundation, Omidyar, Michael & Susan Dell, and Gates Foundation have a step forward to fund start-ups that are adapting their businesses and creating new platforms to support relief efforts. A number of the essential innovations funded include remote ICU monitoring, low-cost ventilators, cloud-based training of healthcare workers, home healthcare, and many more.
Three Important Things Which Have Helped Social Investing Drive Change through Innovation:
1. Appetite amongst impact-focused LPs and GPs on coming back in first and funding new ideas to result in social investing.
2. Rise of accelerators and incubators – while there are only a few impact-focused incubators/accelerators like Villgro, the increase of a network of incubators and accelerators have provided a decent platform for social entrepreneurs.
3. Increased need for digitization in addition to the rise of micro and small enterprises.