Piyush Khaitan, founder, NeoGrowth Credit Private Limited, is working on solving a very interesting problem in the area of financial inclusion. Often, small and micro entrepreneurs, especially in the retail sector, are unable to raise working capital in the form of cash advances to buy extra stock. Retailers often face this problem during high-demand months, say, during Diwali. Often, lenders also find it tough to establish a repayments process to recover the money lent.
Khaitan was working on an idea to solve this problem with an automatic process. One, small retailers who want a cash advance receive the money through an RTGS into their bank accounts. Two, the retailer pays back NeoGrowth on a daily basis by linking the retail outlet’s credit card processed payments to NeoGrowth’s repayment account. Essentially, what NeoGrowth has done is establish a technology and process by which cash is advanced and then recovered digitally. And, in this endeavor, NeoGrowth found an investor in Omidyar Network, the philanthropic investment arm of eBay founder, Pierre Omidyar.
Jayant Sinha, Partner, Omidyar Network India Advisors, says, “We decided to invest in the company because of the entrepreneur’s understanding of the space, its technology-enabled business model, and the kind of impact a merchant cash advance company can make on a large number of smaller retailers.” Of course, the financial inclusion sector is not new to Omidyar in India. The company has several investments in this space including one in Vistaar Financial Services, an enterprise-financing firm with branches in several industrial clusters across the country. Vistaar primarily focuses on lending to small, micro and mid-sized companies in the informal sector with a sector-specific strategy to assess customers’ credit risk.
At The Smart CEO, we’re big believers in the work done by Omidyar Network in India (thanks to the numerous interviews we’ve conducted with the founders of its portfolio companies) and the kind of potential impact its portfolio companies can have on the BoP segment. This is the third time we’re interviewing Sinha, having interviewed him twice – once for a cover story on Impact investing and the next time for an article on affordable healthcare. Sinha often emphasises on why sustainable social impact – through reach and value creation – is the primary metric for all his investee companies. In this story, we’re focused on gathering more information on some of its investments, sectors the fund is eyeing and learnings from some of Omidyar’s global investments that could be applied to an Indian context.
“From an impact investing perspective, India is exciting because of the confluence of opportunities, quality entrepreneurs who are close to problems and the availability of capital. ”
The focus sectors
The four primary focus areas for Omidyar Network in India are education, financial inclusion, consumer Internet and government transparency. The company makes investments in for-profit social entrepreneurship ventures as well as gives away grants to non-profits. While the reasoning behind investing in education and financial inclusion ventures is straightforward, the fund’s investments in consumer Internet companies also have a positive impact. Sinha explains: “The primary advantage of consumer Internet companies is that they scale so much and so fast, simply because technology has the ability to impact the maximum number of people. For example, who would have thought that Facebook or Twitter would have the kind of impact they do?” Omidyar’s investment in Quikr, an online and mobile classifieds portal, is one such example. Today, people use it to buy or sell goats and water buffalos, and we believe this is testimony to the fact that technology, once it reaches scale, can be extremely effective for all segments of the population.
Going forward, Sinha says the fund is looking at a few more opportunities in affordable healthcare – both service providers and medical device firms – and in the agriculture space. On the government transparency side, Omidyar has recently roped in C.V. Madhukar as a director. Madhukar, of course, has been a champion of various governance and transparency initiatives not only in India but also around the world. In 2005, he had founded PRS Legislative, a venture that helped members of parliaments take decisions in a more substantive way. Earlier this year, Madhukar joined Omidyar because he believed that the fund could provide him a wider platform to work on government transparency problems.
Some of the fund’s investments or grants in this space went to ventures like Janaagraha, the urban reform venture and Association of Democratic Reforms, a technology-enabled play to empower citizens in their interaction with the government. Madhukar says, “Organisations like Janaagraha are outstanding in so many ways. For example, its ‘ipaidabribe’ and ‘ichangemycity’ are both projects that are technology-enabled and have scaled up tremendously. ‘ipaidabribe’ has traction in over 22 countries and the challenge for Janaagraha is about how to make it more effective, more meaningful.”
Madhukar adds: “At a broad level, there are three aspects we look at in the government transparency space – how to bring in more technology into the process, how to make more and more data available easily and a methodology to drive evidence-based policy making.” Overall, Madhukar agrees that all these levers are effective only if citizens see the value created through transparency initiatives.
Bringing in global concepts
Outside of India, Omidyar has made some wonderful investments in social entrepreneurship ventures. We quizzed Sinha on whether some of these ideas implemented in Africa or South America could be adapted to an Indian context. “I am particularly excited about three concepts implemented in other countries that I believe are very relevant to India,” says he. They are: One, Bridge Academy in Africa has figured out a way to build a chain of affordable private K12 schools for the BoP segment. “Something like this, if adapted to India, can be a game changer,” says Sinha. Two, there is an upcoming concept wherein a person’s prepaid phone bill, along with information about his online behavior (using his Facebook Social Graph), is being used to calculate one’s credit score. “This concept could be very useful in the financial inclusion sector and we’re seeing some traction in South America and parts of South East Asia,” explains he. Three, if there is a way to deliver a seamless pay-as-you-go model for consumer durables, like solar lanterns, in rural India that’d be extremely effective. “In Kenya, we’re seeing some traction wherein payment schedules for solar lanterns sold are connected to consumers’ M-Pesa mobile payments account,” adds Sinha.
Overall, India excites Sinha the most, from an impact investing perspective, because of the confluence of opportunities, quality entrepreneurs who are close to problems and the availability of capital. “For example, in Africa, we just don’t have the number of entrepreneurs like we do in India,” he explains. Also, Sinha believes that India is entering a golden age of philanthropy. People like Nandan Nilekani, Azim Premji, and Ronnie Screwvala are putting their shoulders behind the wheel to further push philanthropy in India.
On a parting note, Sinha says, “The biggest challenge is to convince experienced people to come into the entrepreneurial and non-profit worlds. The work to be done in terms of bringing in capable, experienced people into the world of impact ventures is what keeps me awake at night.”
|Over US $85 million invested into Indian ventures||Invested over US $113 million till March 2013. Looking to invest US $100- US $200 million in the next 3-5 years|
|Focus on financial inclusion, consumer Internet and education. Started exploring opportunities in government transparency||Roped in CV Madhukar as director to lead its effort on government transparency. Made tremendous progress in investment made in Janaagraha|
|Investments in Aspiring Minds, English Helper, Su-Dhan, Treehouse Education among others.||Recently announced investment in NeoGrowth. Also made a second investment in English Helper, a company focused on technology-based English Language education|
STARTUP SCHOOL WITH JAYANT SINHA AND CV MADHUKAR OF OMIDYAR NETWORK INDIA
Omidyar Network has invested over US $113 million in various social entrepreneurship ventures, both for-profit and non-profits, in India. Here, we discuss lessons learnt from social impact investing in India, the idea of giving and the importance of leadership in social ventures
Effective leadership for social entrepreneurship
CV Madhukar of Omidyar Network, who leads the government transparency practice at the fund, has worked with numerous entrepreneurs who lead impact ventures. Moreover, the government transparency space is one of toughest to lead in, thanks to the complex workings of government officials and the lack of a platform for interaction between citizens and their governments. He shares his observations on the leadership traits of successful social entrepreneurs:
One, the biggest challenge in the transparency space is the need to manage multiple stakeholders. Two, have the ability to constantly and consistently demonstrate that he or she is creating value/impact for the citizens. Three, have the ability to attract quality talent even though salary levels are lower.
An appeal to philanthropists in India
Jayant Sinha, partner, Omidyar Network India Advisors, spoke about how India was entering a golden age in philanthropy. Several Indian business leaders are now laying the foundation to give back to society through ventures in education, financial inclusion, healthcare and hygiene and affordable house, among several other sectors. Madhukar gives us his thoughts on giving:
Patient capital is central to social impact investments, simply because some of these initiatives take time to mature. Therefore, unless you give a longish horizon to some of these efforts, you’ll be unsuccessful. There is one request I’d like to make to philanthropists in India. While I do know about the progress we’re making in the area of education, financial inclusion and the like, I’d urge leaders to look at governance initiatives. The thing with governance is that it cuts across all these sectors. How do you tackle corruption? What about election? These are very big issues and if leaders can devote time and money to these areas as well, I am sure we can find ways to solve such large-scale problems.
“HOW DO YOU TACKLE CORRUPTION? WHAT ABOUT ELECTION? THESE ARE VERY BIG ISSUES AND IF LEADERS CAN DEVOTE TIME AND MONEY TO THESE AREAS AS WELL, I AM SURE WE CAN FIND WAYS TO SOLVE SUCH LARGE-SCALE PROBLEMS.”
An unexpected result
Often, investors make investments on a particular business model only to find out that their initial assumptions were wrong. However, if they betted on the right person, more often than not he or she modified the business plan till he arrives at a business model that works. On the other hand, investors also realise that not only were their early assumptions right, but also that the sector matured much earlier than they thought. This happened in the telecom revolution in India. Sinha shares an example of an investment in Omidyar’s India portfolio that scaled up much faster than expected.
A classic example here is what happened with Quikr, the online classifieds site. When we made the investment, we knew that this was something everyone would use 10 years later.
As more people start using the technology platforms, and if we make the right moves, the BoP segment also catches up with it fast. As you said, this happened with mobile phones. With Quikr, we’re seeing that people are using it extensively in tier-2, tier-3 cities and in rural India. Water buffalos and goats are bought and sold, and our thesis of extending technology adoption to the masses happened much earlier than anticipated.
Key metrics of a social venture
Social entrepreneurs often work on what they call the double bottomline metric – wherein both financial and social returns are measured. We requested Sinha to explain Omidyar’s approach to measuring the key metrics.
The performance measurement of a social impact is no different from that of other startups. Eventually, the questions we answer are what is the value proposition you offer your customer and what is the kind of scale you can bring to venture? Essentially, the key metrics are reach and engagement with customers. For example, at Teach for India, we track the number of people applying, number of fellows enrolled and, finally, the number of jobs found through the venture. The final outcome is crucial in any social impact venture.
The network effect
In a cover story titled “Impact Investing”, written few edition ago, we spoke a little bit about how Omidyar is essentially a network of companies who come together to improve quality of life world over. We asked Sinha, if there was potential for collaboration within its portfolio.
Collaboration happens where there are synergies the companies can see between themselves. For example, Aspiring Minds has a test called Svar, to test the English language skills of the people who enroll in its assessment test. Now, English Helper is into teaching people written and spoken English. There was potential for a tie-up there and that is being explored.
Another example is how BRAC, a Bangladesh-based development organisation and an Omidyar portfolio company, partnered with d.light, an Indian company that designs, manufactures and distributes solar light and power products, to take its solar lanterns to Bangladesh.