Becoming impact investment ready

In this video we’ll meet Kartik Desai, principle at Asha Impact Asha impact is a platform for business leaders

to work on development challenges to work on development challenges by providing impact investment funds into scalable social enterprise. Kartik will share some advice to social entrepreneurs looking to raise impact investment funds. My name is Kartik Desai and I run the team here at Asha impact. Asha is a combination of an impact investment advisory platform as well as a policy advocacy trust. So essentially it does two things. It deploys capital on behalf of these HNIs into for profit scalable social enterprises. And we take the learnings from these business models and engaging targeted policy advocacy with the Indian government to basically scale up of some of the lessons from these inclusive business models.

I guess a couple of pieces of advice, first I would say that having a clear focus is very important. So they should really know what sector they want to be involved in. You can’t try to do everything for everybody, right, or as we say boil the ocean, there’s so many problems to tackle. So the best entrepreneurs that I have found in my experience are those willing to dedicate a lifetime. Not to just one business, but to one industry. Whether that’s education, whether that’s health, technology, or whatever it is. So that’s one. Focus on one area and really it’ll take you at least 5 to 6 years to build something valuable.

So unless you have that sort of commitment, it’s not worth it. So the second thing that I would say is that the focus should really be on how do you deliver a service profitably to a low income customer, at least in the Indian context. That is really the key. Delivering a service or selling a product and how do you do so profitably. So that always has to be your underlying focus.

So these are the two basic pieces of advice that I would give to any aspiring social entrepreneur: To focus on a particular area. Focus on specifically how do you deliver your product or service profitably and third focus on building a very high quality team and organisation. When an entrepreneur approaches an investor, in terms of specific documentation, yes, it is always helpful to at least have what I call the pitch deck. A proper detailed presentation, which leaves out his thought process. And I don’t need to go to the specific table of contents of that – there is many approaches that one can take but the basics of the business on paper.

The reason that’s important is because it also conveys the conveys the clarity of thought and the basic idea that they’re talking about. Which is that complemented by what they speak to in the meeting. The second thing is basically the financial model. It doesn’t have to be a very detailed one but at least you need to be able to show that you’ve talked to the numbers so that’s always that’s always helpful. And thirdly it’s already about the term sheet that’s something that you will discuss with the investor but at least as an entrepreneur I would advise you to be familiar with the basic set of terms. Which are not that complicated or different it’s almost like an industry standard now.

You know so you should be prepared to understand and discuss with the investor what are your expectations around the role that that investor would play. Typically an impact investor would take a minority stake but he would expect, especially at an early stage, to have decent involved in the business - what are called affirmative rights so you know having some influence on the decisions a company makes as well as having board representation. So it’s good for you as an entrepreneur going into that meeting to at least know how you feel about those things and to be aware of those things.

And finally and most importantly – and I would say many entrepreneurs don’t do this – it’s not so much about the documentation that you bring to the meeting but the documentation which already have incorporated in your company. Which in a nutshell is called compliances. So as an investor I don’t just invest in a company which is not even incorporated or the entrepreneur doesn’t even have an idea of the difference between different structures - whether it’s a partnership whether it’s a private limited whether it’s a not for profit. So you need to be very very clear on your business model and your organizational structure.

As long as you come to the meeting with that clarity, all documentation that you really need for that discussion is the pitch deck which could explain lot of these things. Millions of people have good ideas. Your idea is not that unique. Accept it. What’s unique is your ability to execute that idea. And how thoughtfully and how systematically you do that and the capital raising strategy that you have is a part of that. To select the right investors in your desperation to get capital many people end up with investors that they later regret. Be systematic. Be thoughtful. Be slow. And trust me if business model is right the capital come find you. So don’t worry about chasing investors.

Focus more on proving your proof of concept as you’re getting started. Globally the social enterprise sector as it as it’s called is fairly new - maybe a decade old. And it’s been growing and it’s very much an inflection point. It’s starting to see increasing attention from the public from policy makers from students from professors. From corporates. From society at large. At the same time it’s also being questioned. What exactly is it because it actually represents a continuum or a spectrum. From soft nonprofit capital to fully commercial capital and many people conceptually don’t really get it that how can you actually do good and at the same time make returns.

What much returns can you make and so on and so forth. So the first thing I would suggest is accept that. Accept that ambiguity. It’s not like there’s always going to be a silver bullet definition. You’re operating in a sector which by definition is interdisciplinary. Accept that. Secondly realize that it’s a new sector. And it has a long long way to go, so you’re right at the beginning. So be humble that would be my second my second advice. Really put your head down and focus on your business - focus on your sector and focus on executing, building a good team and delivering value to your customers. Right.

Thirdly and then you know what we’ve been discussing mostly here’s the financing side and the equity raising - so it is important - I’m not trying to belittle that. Yes if you build a good business the capital will come but the good news is there’s increasing amount of capital that is be unlocked that is flowing into the sector every single day. Traditionally it was mostly development finance institutions who started you know investing in the space and foundations Increasingly many high net worth individuals many family offices are bringing an increasing portion of their capital into impact investments.

More and more millennials from wealthy families as they grow older and are taking over the family portfolios are very very interested in the space. So it’s only going to grow. Large commercial financial institutions. You know though Goldman Sacs, Credit Swiss, the JP Morgan’s of this world are all also involved in impact investment. There’s a policy dialogue going on at the highest levels of the G8, including as well as in countries like India. So all of this basically means that alot more capital is going to flow into this space. You’re in the right sector. But you need to really you know keep your head down. Because the challenges on the demand side is supply side.

Supply side is how do we unlock more capital. That’s happening. Demand side is how do we address the capacity of social entrepreneurs. Because there is many many social entrepreneurs, and not all of them are going to get funding. So you have to really focus on making sure that you differentiate yourself. You have a strong team. You have a very good business model and you have some actual results and proof concept traction on the ground. If you’re doing these 3 things. then sooner rather than later you will find that right fit and find that right investor. Music Playing