Businesses with deep social impact, focusing on low- and lower-middle-income segments, have greater long-term prospects in countries such as India, believes Matt Bannick, managing partner of Omidyar Network.
Former president of PayPal and eBay International, Bannick heads the philanthropic investment firm founded by eBay founder Pierre Omidyar and wife Pam. Omidyar Network invests in for-profit ventures and offers grants to non-profit organisations.
“India is the first market we engaged outside the US because we see tremendous opportunities here,” Bannick told reporters in Bangalore.
Omidyar Network has so far put in $879 million globally, of which $400 million accounts for investments in for-profit ventures which the firm considers will have deep social impact and $479 million in not-for-profit organisations. The firm has invested around $160 million so far in Indian companies such as Quikr, DailyHunt, Vistaar, NowFloats, Scroll.in and NeoGrowth as well as non-profit organisations such as Teach For India, Foundation for Ecological Security and Janaagraha. It plans to invest $350-400 million by 2020.
“Serving low-income group earning $2-5 (Rs 130-Rs 330) a day and lower-middle-income group earning $5-8 (Rs 330-Rs 530) a day is both important from an impact perspective and feasible from a business angle,” said Bannick while introducing a report on ‘Frontier Capital; Early Stage Investing for Financial Returns and Social Impact in Emerging Markets,’ he co-authored with two of his colleagues at Omidyar Network, Paula Goldman and Michael Kubzansky.
The paper discusses how frontier capital, or early stage risk capital in emerging markets, can be an effective tool for investors to achieve financial returns and social impact. The purchasing power of the low and lower-middle-income populations in South Asia is estimated at $483 billion, it says.
“For venture capitalists these are under-tapped opportunities, particularly the asset-light, mixed-income business models. Given the continued promise of large aspiring middle class populations entering the formal economies, we believe that this segment represents the future of venture capital in emerging markets,” he said. “It offers the investors the promise of both strong commercial and social returns,” he added.
“We urge the VCs to go beyond the comfort of tested models to these exciting new businesses in areas such as fintech and edtech,” said Bannick.
“We believe financial technology, education technology, consumer internet and mobile represent the next frontier for venture capital in emerging markets. Quick scale afforded by the spread of technology makes these sectors promising,” he said.
While the focus areas of Omidyar Network are consumer internet, education, citizens and governance, financial inclusion and market access, it also backs early stage ventures in other areas such as solar energy, according to Bannick.
He cited the example of d.light which creates solar lanterns for those without reliable electricity access.
Omidyar makes up to $2 million early stage investment in companies.
“And, of course, entrepreneurs are the foundation for successful early stage investing. We appeal to seasoned emerging markets entrepreneurs to look carefully at the new opportunity set represented by low and lower-to-middle income populations. This is a promising domain in which new enterprises can do well financially and contribute deeply to society,” he said.
“Our experience after 11 years in impact investing in emerging markets is that one can get strong returns and make a tremendous difference in people’s lives by focusing on the low and lower-middle income populations,” said Roopa Kudva, partner and managing director of Omidyar Network India Advisors.