The Impact Investor

The Impact Investor

Jayant Sinha Featured in  

Jayant Sinha and Omidyar Network are slowly but surely building a venture capital model to solve large-scale social problems

On March 2nd 2012, Aspiring Minds, an employability measurement company founded by Himanshu Agarwal opened its first employment exchange in Dehradun, the capital city of Uttarakhand in northern India. The exchange will serve as a testing centre where students from various colleges in the region can sit down for a skill and aptitude measurement exam called the AMCAT. Each person’s test score, called the employability quotient, is then sent to several companies (like Genpact, HCL and State Bank of India among others) across India. Aspiring Minds’ business model is to charge companies a fee of anywhere between Rs. 2,000 and Rs. 5,000 for every person hired through Aspiring Minds.

But that’s not all. The company plays a crucial role in helping unemployed yet educated graduates in states like Uttarakhand find jobs in renowned companies across various states in India. Agarwal’s vision is to build a sustainable, scalable model out of this concept and in the process solve a huge problem – that of matching the right people with the right jobs.


We stay invested as long as we feel we can play a catalytic role. Once we feel that’s been accomplished, we operate like any commercial investor and exit in a manner that maximises our commercial returns.


Playing a catalytic role, in addition to providing capital, in shaping up Aspiring Minds (and several such social impact-focused ventures) are the folks at Omidyar Network. Jayant Sinha, managing director at Omidyar Network India Advisors, sits on the board of the company, advising and serving as a sounding board as the entrepreneurs go about their mission of finding a solution to a massive problem. Sinha says,

Till date, Omidyar Network has committed US $85 million into Indian startups, out of which 70 per cent is invested in for-profit entities and the remaining in not-for-profit ventures. The social venture capital firm has invested in several ventures including the likes of d.light design, a company dedicated to offering lighting to BoP (bottom of the pyramid) customers, EnglishHelper, a startup that has developed a technology-driven product to help people learn English better, Anudip Foundation, a non-profit organisation that creates livelihood opportunities for people living in rural and urban slums, and Janaagraha, a non-profit committed to improving the quality of life in urban India.

The thesis followed by Omidyar Network is that impact investing – both through equity and debt – can play a crucial role in building the foundation for the company before it is ready to raise commercial capital. A portfolio company can be a for-profit or a not-for-profit as long as it has the potential to become sustainable over a period of time. Sinha also explains that sufficient philanthropic capital is needed to overcome market failures and get markets going in the initial phase of developing a new concept. Sinha says, “Omidyar translates to ‘bearer of hope’ (umeed means hope in Hindi) and in partnership with all our portfolio companies we believe we can be a network that provides hope and opportunity to everyone across the world.”

A hybrid approach

When Pierre Omidyar, founder of eBay, listed the company in NASDAQ back in September 1998, he became a billionaire. He formed the Omidyar Foundation that made grants to non-profit organisations around the world. But the experience of building eBay had taught him something else. eBay, a for-profit venture, had created millions of smaller entrepreneurs who made money by buying and selling goods online. The company, inspite of making money for its shareholders, had impacted the world and made it a better place. The eBay founder then decided to modify the structure of his philanthropic investment firm and formed Omidyar Network, a firm that can make any kind of investment – a grant into not-for-profits or equity or debt investment into for-profits – as long as there was sustainable social impact possible. Pierre Omidyar says, “One of the most important lessons we’ve learned is that while money matters, impact matters more. Often, the shortest path to impact is not writing a cheque. It’s finding the right talent to put up against the challenge. If you think about the challenges that we’re all currently wrestling with, they are enormous. Education, health care, even democracy is at stake. And while there’s a lot of positive movement being led by many people in these areas, there’s still a long way to go.” In short, Omidyar Network is both a venture capital firm and a foundation rolled into one.


“In the case of Omidyar Network, we have only one bottom line and that is social impact. It is sustainable social impact that we’re going after.”


The India story

Sinha, who leads the India practice, is very clear about his mandate at Omidyar Network India. There are broadly two investment themes he focuses on – one, access to capital and two, media, markets and transparency. The first one focuses on investing in companies that can uplift the lives of people in the BOP segment, be it through providing financial services or by offering products and services to them. The latter is focused on ventures that use technology to bring in transparency, accountability and trust among people, governments and marketplaces.

According to Mckinsey Global Institute, over 80 per cent of India’s population falls in the BoP category. While funding sources are now beginning to crop up for ventures focused on this population, reality is, less than US $300 million has been invested into BoP-focused startups since 2007 (source: VCCEdge Database and analysis by Omidyar Network).

From a business perspective, Omidyar Network’s exit strategy is not different from any other VC firm. However, the firm is not answerable to limited partners. “We’ve only one limited partner (Pierre Omidyar’s family) and we don’t need to return capital to anyone. When exits happen, the money is ploughed back into other startups that can make an impact,” says Sinha. However, he clarifies that the firm does have an eye on financial returns as well. “We stay invested as long as we feel we can play a catalytic role. Once we feel that’s been accomplished, we operate like any commercial investor and exit in a manner that maximises our commercial returns.” Till date, the company has had a few exits. To name a few, the firm exited its investments in Comat Technologies (a company that offered information services to people in rural India) and education services provider, Tree House Education.

In the world of BoP-focused businesses, it is important to engage with several stakeholders including the government, the Reserve Bank of India and other governmental agencies. “The good news is we’re making progress here. We need competitive ecosystems to engage with all stakeholders,” says Sinha. The other systemic issue that is crucial for impact investing is to tackle deal flow. Are there enough entrepreneurs out there working to solve large-scale problems in a sustainable fashion? The answer to this question is not straightforward. However, Sinha is convinced that availability of capital is crucial: “Whether people want to start great businesses or great non-profits, people should know there is risk capital available. Only then will we have more people who’re ready to take risks.”

One thing is for sure; there is no dearth of large-scale problems, or for that matter, even prospective solutions to these problems. Someone somewhere has already spotted the big ones – from affordable low-cost private school education to pre-paid cards to access clean water. There’s Bridge Academy, a chain of 100 private schools that offers affordable education in Africa. In the Philippines, there’s a company called Manila Water that created a business model to offer water and waste water services, and provide its customers access to clean water. In Kenya, M-Pesa seems to have the right model in place for mobile payments for the BoP segment. All these ideas can be adopted for countries like India. With regulatory support and access to capital, entrepreneurs will automatically follow suit.

Pierre Omidyar makes an interesting point: “My experience tells me that it is people who are closest to the problem that most likely have the solutions. With that in mind, the promise I see in India is the juxtaposition of a large number of incredibly motivated people, living and working in close proximity to those in poverty.” Sinha agrees, “India can certainly be the hub for innovative social enterprises. It is a large market. We’re seeing terrific entrepreneurs in a range of sectors from healthcare and clean tech to education and employability.”

Till date, cumulative capital committed by Omidyar Network into social enterprises around the world is US $500 million. Out of this, US $230 million has gone into for-profit ventures and the remaining into non-profit ventures. In terms of strategy, the investment firm has identified a range of issues it wants to solve. The issues concern either BoP supply or BoP demand. Additionally, the point made about ecosystem development is something that the organisation takes very seriously. From working with the government on regulatory changes to developing companies that can deliver goods relevant for public good, Omidyar Network wants to leave no gap. It is constantly in search of the next big idea, the next social entrepreneur who can bring about that one large shift that the world desperately needs.


JAYANT SINHA

Partner, Omidyar Network India Advisors

Role:
Leads overall investment strategy and operations in India. Spearheads Omidyar Network’s India portfolio across its Access to Capital and Media, Markets & Transparency initiatives.

Prior jobs:
Managing director, Courage Capital Management, where he led technology and India-related investing for a global special situations hedge fund.
Worked at Mckinsey & Company for 12 years.

Education:
MBA, Harvard Business School;
MS and BS degrees from University of Pennsylvania and IIT, Delhi respectively

Excited about:
Using flexible capital to make an impact in India.
BoP focused early-stage investing.

A Big Idea for India:
Some ideas from globally successful companies can certainly be adapted to an Indian market. Bridge Academy’s model for affordable private education, Manila Water’s model for access to clean water and M-Pesa’s approach to mobile payments – all of these can be adapted to an Indian audience. 


 Portfolio Company Type Investment committed Impact
 Sa-Dhan – India’s primary association of community development finance institutions Nonprofit 2006: US$ 500,000 Plays a crucial role in improving the quality of microfinance institutions in India
 Quikr – an online classifieds company For-profit  _  A marketplace that allows people from all economic sections to engage in transactions, trade and discussion
 Anudip Foundation – creates livelihood for people in rural and semi-urban India  Nonprofit  2012: US$ 650,000  Bridging the gap between traditional schooling and providing livelihood oppurtunities through integrated training, job placement and entrepreneurship
 Aspiring Minds – match talented individuals with the right jobs, wherever they are  For-profit  _  Strengthens the labour ecosystem in India
 EnglishHelper – technology-based products and services to help learn English  For-profit  _  Inadequate English speaking and writing skills deny jobs for millions of people. The company aims to fix this issue
 Tree House – educational services company  For-profit  _  Enhance education standards in India. Wants to create the gold-standard for teaching in India
 Foundation for Ecological Security  For-profit  2012: US$ 2.1 million  Enables people in rural India to access legal rights to share, self-govern, and conserve common land

 

Prem Sivakumaran is co-founder & CEO of Growth Mechanics, a leadership and entrepreneurship-focused business content company in India. Growth Mechanics publishes The Smart CEO, a publication focused on enabling peer-to-peer knowledge exchange among C-level executives and board members. The platform reaches over 1.2 lakh CXOs across its website, app, print publication & CEO Round Tables, and has featured on the cover India’s leading business leaders/founders from Infosys, Mindtree, Tata Sons, ICICI Bank, Biocon, Yes Bank and several others. In addition of Smart CEO, Growth Mechanics also organises the Startup50 Conference & Awards, an annual event to recognize India’s top 50 startups every year. Startup50 Alumni include Freshdesk, Oyo Rooms, Urban Ladder, Capital Float, Paperboat Beverages, among others. Growth Mechanics’ primary business model revolves around linking CXOs and Brands around engaging content and has worked with India’s leading companies including Mahindra Group, Godrej & Boyce, BASF, Airtel, Tata Docomo, Fiat, IDA Ireland, Yes Bank, Prestige Estates, Frederique Constant, Indian Terrain