Despite COVID and its resultant uncertainty in business, impact investors continue to show support to Indian businesses. Globally, healthcare, financial access and clean energy are areas that have emerged as favourites among impact investors. This is so in the case of impact investors financing Indian impact enterprises as well.
Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. Impact investments can take place in emerging and developed markets.
As per various data accessed from Impact Investors Council (IIC) (India) website it can be estimated impact investors through 85 deals invested worth $1.2 billion from January to May 2021. In two months (in April-May 2021), impact investors infused $808 million in impact enterprises (at different stages of investments). There were about 34 deals signed of which 71 per cent of impact transactions (that is 24 deals) have taken place in the early stages (Seed and Series A). However, the amount invested in the early stages was lower than later stages at $110 million and $698 million respectively.
It needs to be noted that even during the first wave of COVID, impact enterprises received around $2.6 billion in investment across 243 equity deals and saw 13 successful exits (in the calendar year 2020). Meanwhile, in 2019, the total investment was at $3.5 billion, stated the IIC report.
This momentum in impact investment has seen more interest after the successful Zomato listing. “One cannot stop thanking a start-up like Zomato, which paved a way to many start-ups that are looking at attracting investments,” stated an executive of a start-up that recently raised funds. “COVID has not impacted the fundraise process, but there are some social obligations which investors are expecting start-ups to address.”
“There is a lot of interest in start-ups and many new companies are emerging even during the ongoing pandemic,” stated Ramraj Pai, CEO at Impact Investors Council (IIC). He echoed there is an urgency to find the next Zomato (a food delivery company) after its blockbuster listing on July 23, 2021. Thus, hinting at a further impetus in impact investing.
Yet another start-up that is worth mentioning is PharmEasy -- its parent company, API Holdings, acquiring a 66.1 per cent stake in Thyrocare, a diagnostics chain. Before this announcement, the online pharmacy company raised $350 million in its Series E round. Thus, making healthcare top the total investment volume in April-May 2021.
Sectoral inclination
Technology is the core of all investments. Pai added, “There has been a lot of increased interest from the market. The boost has come mainly due to digitalisation. Many of the companies that are using technology have witnessed a lot more interest compared to others who still have to embrace digitalisation fully.”
Other than healthcare, there has been a growing appetite for investment strategies designed to proactively address challenges related to financial access, education and clean energy. This is not just in India but around the world. As per the IIC report, 2020 was a "big bang year for the education sector". It attracted investments totalling around USD 660 million across 47 deals, with "online test prep and K10 segments" leading.
Trends globally
According to the GIIN report, the current market size of impact investing is USD 715 billion globally. “It shows a tremendous indicator of growth and appetite. But it is shy of the volume needed. This is a signal of hope and optimism,” explained Rachel Bass, Senior Manager - Research at the Global Impact Investing Network (GIIN).
“Technology has taken the centre stage not just in education but healthcare as well, mainly diagnostics (globally),” said Bass. She added that impact investors globally are looking at addressing challenges in areas such as healthcare, quality workforce, food security, access to financial services, clean energy among others.
Bass stated, “Clean energy is the big focus area as well. However, it may vary from one country to another.” In 2019, climate finance-based businesses in India attracted over USD 133 million worth of venture capital investments in impact enterprises. From January to May 2021, climate finance has attracted around USD 141 million. This is comparatively minuscule to India's need that may need an average of USD 70 billion in investment every year for the next 20 years to put India on a sustainable path, as per the International Energy Agency (IEA) report.
During the start of COVID, there were constraints, largely lack of liquidity. However, various economic policies adopted by various central banks and governments did help. Bass recalled, “Managing present portfolios and deploying capital were the challenges that were seen during (the first wave of) COVID. It was mainly for current investment that there have been cash flow constraints.”
At the time of the crisis, there were changes in the way impact investors were functioning -- a trend seen globally. Bass stated the significance of trust and empathy; urgency among investors about their responsibility on social and environmental effects; partnership; creative approach; and flexibility in investment structure and investment management are embedded in impact investing due to COVID. “Investor communities hope to emerge out of a new normal and not an old normal” through such alterations.
