Although India claims to be the second-largest English-speaking nation in the world, only 10% of the billion-strong population is fluent in the language. A quick look at the rapidly growing cities, rural-to-urban migration and diminishing language barriers proves one thing – English is here to stay. This is what led ed-tech professional Ninad Vengurlekar to launch an AI-driven chatbot called Utter that would teach basic functional English to millions of blue-collar workers in India.
But the journey to financing Utter was not easy. “At least 15 venture capitalists turned me down, but my cofounder Amit and I knew that we had a product apt for Indian masses,” says Vengurlekar. Finally, it was Unitus Ventures, a Bangalore- and Seattle-based impact investor that provided Vengurlekar seed capital of $500,000.
Srikrishna Ramamoorthy, a partner at Unitus Ventures, believes that the base of the economic pyramid in India is broad and largely under-served, especially in critical areas like healthcare, finance and communication. Thanks to the growth of mobile telephony, this is also the very segment of the Indian population touted as the next billion internet users.
“We see immense potential in startups like Utter that are proving that strong financial returns and scaled impact can go hand in hand,” says Ramamoorthy.
Utter has more than 800,000 registered users on its platform, and it has been witnessing more than 100,000 downloads per month. The cost of an annual subscription is $2.60, which is quite affordable for many of India’s blue-collar workers. The company has raised $1 million so far and is set to clock $300,000 in revenue this year. Moreover, Utter also serves Bangladesh and Myanmar through Robi Telecom, Ooredoo Telecom and Airtel.
Success of Microfinance Reveals Opportunities in Impact Investing
Utter is among the many investments made by Unitus Ventures that have a strong focus on social impact and financial scalability. And it appears to be an investment avenue that is gaining popularity in India. A report by McKinsey has stated that India’s demand for purpose-driven finance could grow to nearly $8 billion by 2025. Much of the hype around impact investing can be credited to the success of microfinance in India, following which investors and entrepreneurs are bolstered by creating ventures that are both profitable and make a positive impact.
Prior to setting up Unitus Ventures, Ramamoorthy was deeply involved in microfinance where he witnessed its efficiency in alleviating poverty. “Even though profit margins are limited, the sector can generate volume and scale,” he says. Despite taking a hit during demonetization, India’s microfinance institutions have recorded a 53% growth in loan portfolio and an improvement in portfolio-at-risk.
“The success of the microfinance model inspired us to replicate a similar approach in healthcare and education, which are as critical to rural India as credit. Our experience in microfinance has allowed us to understand the problems of this class of people better, and conceptualize scalable, profitable ideas,” adds Ramamoorthy.
Some of Unitus Ventures’ investments include BetterPlace, DriveU, Hippocampus, UELifeSciences, Cyclops, Awign, AddressHealth, Blowhorn, Cuemath and Caravan – all targeted at improving healthcare, education and employability among India’s rural and semi-urban.
In 2017, companies invested by Unitus Ventures generated $33 million in revenue, with a 104% average annual growth rate and were said to have helped nearly 1.8 million people directly.
Unitus currently manages a fund size of $68 million and has raised capital from prominent investors like Sun Microsystems cofounder Vinod Khosla, the Michael and Susan Dell Foundation, Bill Gates’ family office, Pfizer, Jim Sorenson, veteran investment banker Hemendra Kothari and former Infosys director Mohandas Pai among others.
Other significant impact investors in India are Lok Capital, Aavishkaar Venture Management, Menterra Venture Advisors, Ankur Capital, Acumen Fund and Omidyar Network.
Enabling India’s Poor Through Sustained Innovation Capital
India is among the poorest countries in the world. Thankfully the situation is improving but according to a Brookings Institution report, India still has 73 million people living in extreme poverty, despite the poverty rate having fallen considerably. Even so, impact investing has taken considerable time to gain a footing in investor circles. Aavishkaar Venture Management‘s managing director and CEO, Vineet Rai, says, “Even though there are plenty of benefactors in India, it’s a challenge to raise seed and follow-on rounds of capital as investments take a lot of time and effort to yield results. It took me five years to raise nearly $680,000. The success that microfinance is witnessing today has taken a couple of decades of work.”
Aavishkaar began operations in 2001 and was among the first in India to launch a commercial fund meant to benefit India’s low-income class. The fund was valued at $14 million in 2007, stands at $300 million today, and is expected to reach $550 million in 2019. Nearly $446 million has been raised by current portfolio companies through external investors. The fund is operating in Indonesia, Sri Lanka and Bangladesh. As of 2018, more than 59 million people have been directly impacted by Aavishkaar’s investments and more than 240,000 jobs have been created, according to the company. The fund has focused on a range of sectors like dairy, agriculture, energy, health, sanitation, water and handicrafts, and now plans to move into health insurance and medical diagnostics.
Yet, the majority of India’s impact investors have only just scratched the surface of the problems that persist in India. While China is still the world’s most populous country, India’s population could very well surpass China’s by 2025. A burgeoning population could result in increased stress on essential needs like healthcare, food and sanitation, in addition to credit facilities.
Despite this, Ramamoorthy points out that there is a growing level of aspiration among India’s poor. “This is a great time for entrepreneurs to come up with innovative business ideas that can make money and serve the nation’s low-income masses. There is plenty of growth capital waiting to be deployed. Several startups backed by us are combining consumer internet and social impact, making it compelling investment avenues for a Series A or B fundraise.”