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  • India Venture Capital and

    Private Equity Report

    2013

    Convergence of patience, purpose, and profit

    An analysis of impact investments in India

    Department of Management Studies

    Indian Institute of Technology Madras

    Chennai 600 036

    India

  • Indian Institute of Technology Madras

    The India Venture Capital and Private Equity Report Series is an annual publication of the Indian Institute of

    Technology Madras.

    Previous reports

    2009: On top of the world, still miles to go

    2010: The contours of smart capital

    2011: Fueling growth and economic development

    2012: Stimulus for the new and the nascent

    Support from the following sources for the preparation of this report is gratefully acknowledged.

    Department of Management Studies, Indian Institute Of Technology Madras

  • India Venture Capital and Private Equity Report 2013

    Indian Institute of Technology Madras (i)

    Table of Contents

    Tab le o f Contents ( i )

    L i st o f Tab les ( i i )

    L i st o f F igures ( i i i )

    Authors and Rev iewers ( i v)

    Editors Note (v i )

    1. Social enterprises and impact investments: Overview 1

    Smitha Hari

    2. Impact investments in India: An analysis 16

    Thillai Rajan A., and Pawan Koserwal

    3. Patterns in the Investor - Investee dyad 34

    Thillai Rajan A., and Pawan Koserwal

    4. The performance differential 48

    Thillai Rajan A., Pawan Koserwal, and Keerthana Sundar

    5. Institutionalizing impact investing 57

    Jessica Seddon

    Appendix: Methodology and definitions 70

    Notes 72

    INTERVIEWS

    Democratising entrepreneurship; bringing in change 12

    Vineet Rai

    Strengthening the impact investing ecosystem 30

    Anurag Agrawal

    Scale critical for impact 45

    Ronnie Screwvala

    Sustaining the impact 53

    Anil Sinha

    Impact through philanthropic grants 65

    Rohini Nilekani

  • India Venture Capital and Private Equity Report 2013

    Indian Institute of Technology Madras (ii)

    List of Tables

    Table No. Description Page No.

    1.1 Comparison of capital sources for social enterprises 2

    1.2 Key differences between mainstream and social VC funding 5

    1.3 Illustrative list of some popular social VC funds operating in India 7

    2.1 Impact investments in different sectors 16

    2.2 Distribution of impact investments by region 17

    2.3 Distribution of impact investments by type of city 18

    2.4 Distribution of impact investments by city tier 19

    2.5 Distribution based on the year of investment 20

    2.6 Distribution of impact investments by type of business 22

    2.7 Distribution of impact investments by the social orientation of business 23

    2.8 Distribution of impact investments by the form of innovation 24

    2.9 Investment details in different rounds 25

    2.10 Distribution of companies by number of funding rounds 25

    2.11 Duration (in months) between date of incorporation and first investment 26

    2.12 Duration between successive funding rounds 27

    2.13 Syndication pattern among investors 28

    3.1 Number of investors in different categories 34

    3.2 Investment by fund type 34

    3.3 Cross tabulation of no. of investors and deals 35

    3.4 Investor interest in different industry categories 36

    3.5 Number of investors who have made at least one investment in the various sectors

    37

    3.6 Number of investors who have expressed interest to invest in different stages 38

    3.7 Number of investors who have actually made an investment in different stages 38

    3.8 Distribution of deal size by fund type 39

    3.9 Type of exits by investors 40

    3.10 Number of companies and investors with exits 40

    3.11 Duration of investment before exit (by fund focus) 41

    3.12 Duration of investment before exit (by fund origin) 41

    3.13 Average investment duration before exit (in months) 41

  • India Venture Capital and Private Equity Report 2013

    Indian Institute of Technology Madras (iii)

    Table No. Description Page No.

    3.14 Fund type and existing investments 42

    3.15 Average invested duration in the existing investments (in months) 42

    3.16 Social venture funds as financial catalysts 43

    4.1 Investors separated by number of deals 48

    4.2 Investors separated by investment amount 49

    4.3 Comparison of mean CAGR rates (2010-12) for microfinance firms 50

    List of Figures

    Figure No. Description Page No.

    2.1 Total investments and deals in different years 20

    2.2 Average investment per deal and deals to company ratio in different years 20

    3.1 Investment amount by fund type 39

    3.2 Investment amount by fund focus 39

    3.3 Duration of investment in current portfolio companies 42

    4.1 Average active borrowers 50

    4.2 Gross loan portfolio 50

    4.3 Average personnel 50

    4.4 Average revenues 50

    4.5 Average profit margin 51

    4.6 Average debt equity ratio 51

    4.7 Productivity ratios 51

  • India Venture Capital and Private Equity Report 2013

    Indian Institute of Technology Madras (iv)

    Authors and Reviewers Authors

    Jessica Seddon

    Jessica Seddon is the Founder of Okapi Research and Advisory. Her research and consulting focus on the

    interaction of institutions with the information ecology and their joint effect on group behaviour. She has

    worked in development social science and institutional design for over a decade and a half, with employers

    and clients ranging from the World Bank and Inter-American Development Bank research departments to a

    start-up university in Bangalore and national government committees in India. Jessica earned her Ph.D. from

    Stanford University Graduate School of Business and her B.A. from Harvard University.

    Keerthana Sundar

    Keerthana obtained her Masters' degree in Financial Economics from the Madras school Of Economics. She is a

    Project Associate at the Department of Management Studies, IIT Madras.

    Pawan Koserwal

    Pawan obtained his graduate degree in Mineral Engineering from the Indian School of Mines, after qualifying

    through the highly competitive IIT-JEE 2006, where he secured a rank in the 98th

    percentile. After graduation,

    he worked in Jindal Steel and Power Limited as an operations engineer. Currently he is in the second year of

    his MBA degree program at the Department of Management Studies, IIT Madras.

    Smitha Hari

    Smitha has over 8 years of experience in the fields of investment banking, equity research, banking and

    consulting. She is the founder-partner of THINK Financial Advisors & Consultants, a financial consulting firm

    offering business research services, feasibility studies, B-plans and valuations and fund raising services to

    SMEs. Before starting on her own, she has worked in various organizations like Spark Capital, Ernst & Young,

    and ING Vysya Bank. She regularly writes for magazines like Small Enterprise India and Money Indices. She

    holds a degree in commerce and an MBA Bharathidasan Institute of Management, Trichy.

    Thillai Rajan A.

    Thillai Rajan is an Associate Professor in the Department of Management Studies at the Indian Institute of

    Technology Madras. His areas of research interest include venture capital, private equity, corporate finance,

    and infrastructure finance. He has edited and co-authored the past four annual reports in this series. He has

    received the Young Faculty Recognition Award at IIT Madras and the Ramaswamy P. Aiyar Young Teacher

    Award of the Association of Indian Management Schools. He received his graduate degrees from Birla Institute

    of Technology and Science, Pilani and completed his doctorate from the Indian Institute of Management

    Bangalore. He is also an alumni of the Chevening Gurukul Program at the London School of Economics, the

    Endeavour Executive Fellow at the Macquarie Graduate School of Management at Sydney, and the Fulbright

    Nehru Senior Research Fellowship at the Harvard University.

    Advisory Review Board

    Paul Basil, Founder & CEO, Villgro

    Paul has over the last decade worked in discovering several innovations and innovators, and incubated around

    60 rural businesses. He was awarded the Ashoka Fellowship in 2002 for his outstanding social

    entrepreneurship in setting up Villgro. He has also been conferred the Samaj Seva Bhushan Award and the Star

    Entrepreneur Award. Prior to setting up Villgro, Paul was part of the initial marketing team at Kerala

    Horticulture Development Programme (a collaborative programme of the Govt of Kerala and the European

    Union) in developing farmers markets.

  • India Venture Capital and Private Equity Report 2013

    Indian Institute of Technology Madras (v)

    K. Ramakrishnan, Executive Director & Head - Investment Banking, Spark Capital

    Ramakrishnan has over two decades of experience in corporate finance & advisory and capital markets. He has

    led and worked on transactions across the entire investment banking spectrum. Prior to Spark, Ramki headed

    ICICI Securities' investment banking business for South India, having worked earlier for Arthur Andersen, Ind

    Global Financial Trust, and Deloitte. He is a

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