AVPN Webinar

6 Nov 2014
Social Investing in
India: Landscape study
& Investor perspective
• Devangshu Dutta –
Ennovent
• Audrey Selian –
Artha Initiative

avpn.asia

Quick Introduction

@devangshu

• Chief Executive of Third Eyesight, Managing
Partner of PVC Partners
• Member of the Ennovent Circle
• Advisory Board member – various
educational institutions and companies

PVC

partners

Quick Introduction – Ennovent

@devangshu

Accelerate Innovations – From Idea to Impact

Discover

Startup

Finance

Scale

Source the best innovations

Launch innovations in markets

Secure funding in enterprises

Grow operations and impact

Key Services
Market Insights

Startup Support

Investment Advisory

Market Expansion

Innovation Scouting

Co-operation Models

Investor Access

Portfolio Management

Discover Challenges

Pilot Management

Fund Management

Innovation Diffusion

Selection Management

PVC

partners

@devangshu

Social Enterprise Alliance: “Any organization
which harnesses the power of the marketplace
to solve critical social or environmental
problems”…
“…where there is a ‘government’ gap.”
(my addition and emphasis)

PVC

partners

Where are Gaps in Government?

@devangshu

• Healthcare

• Education

• Power

• Environment

• Clean Water

• Competition

• Transportation
infrastructure

• Accountability

Source: “The Business of Government”, Dutta 2014

PVC

partners

@devangshu

You need to get your facts
first, and then you can distort
them as you please.
~ Mark Twain

PVC

partners

Impact Investments in India

@devangshu

• Acceleration of investments

70

• Non-MFI areas gaining traction

55

52

• Geographical diversification
• Urban markets

26
15

0

3

1 1

0 2

1 2

0

3

1

6

5

8

7

20

2022

2726
13

9

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: World Bank, Intellecap
MFI
Other Sectors

PVC

partners

Challenges through the Life Cycle
Exit?

@devangshu

Discover

• India challenges

• Sector challenges
Monitor

Selection

Structure

Vetting

PVC

partners

The Context
Metric (rounded off)

@devangshu

Impact Investment

E-commerce

Estimated Organizations

200 (non-FI)

100+

Immediate Target Market

800+ mn

7-10 mn

US$ 400 mn (non-FI)

US$ 5 bn

Investment per Target Individual

US$ 0.50

US$ 500

Investment per Organization

US$ 2 mn

US$ 50 mn

Invested/Committed

Sources: Various, PVC Partners analysis

PVC

partners

The Context
Metric (rounded off)

@devangshu

Impact Investment

E-commerce

Estimated Organizations

200 (non-FI)

100+

Immediate Target Market

800+ mn

7-10 mn

US$ 400 mn (non-FI)

US$ 5 bn

Investment per Target Individual

US$ 0.50

US$ 500

Investment per Organization

US$ 2 mn

US$ 50 mn

Invested/Committed

Sources: Various, PVC Partners analysis

PVC

partners

Capacity Enablement
• Entrepreneurial
– Number of companies being funded
– Impactful Aggregation

• Investor
– ‘Infrastructure’, People
– Metrics & tools
– Collaboration

PVC

partners

@devangshu

Policy and Legal Frameworks

@devangshu

• Recommend using more equity-like instruments

• Compliances more rigorous, onerous – new
Companies Act 2013
• Policy fluid (e.g. Act clauses are still being discussed
and debated) – update yourself for each transaction
• Have a good combination of Company Secretary,
Chartered Accountant and Lawyer

PVC

partners

@devangshu

I believe a nation is only as safe, just,
healthy, rich, successful as the
experience of its least privileged citizen.
What can we do to raise the floor?

PVC

partners

@devangshu

A POSSIBLE METRIC:
Can we look at reducing
the target market by half
every 5 years?

PVC

partners

@devangshu
Additional thoughts:
http://is.gd/hKIPmX

THANK YOU!
PVC

partners

dd@pvcpartners.in

The Artha Initiative
AVPN webinar:
Social Investing in India –
Landscape study & investor perspective

November 6th, 2014

16

Who we are: Ecosystem building in India

Artha Venture Challenge
• A nationwide challenge to identify the most valuable investment opportunities
• Match funding (30 lakh, equity) basis for venture challenge
• Partnered with Ennovent and Villgro for call out and capacity support
• 200+ enterprises identified; 26 finalists selected, 7 investments to date, 11
more currently worked on… over the last 2 years

Artha Platform India
• Online platform for better information exchange and collaboration between
investors, entrepreneurs, enterprise support organisations & local third service
providers
• Simplification and facilitation of the due diligence process, including tender to
local third parties
• Visibility on day to day investor activity is likely to catalyze better coordination
and collective action

Artha Networks Inc.
• Artha’s bespoke architecture now available for licensing and white label
deployment in other geographies
• First deployment in Latin America under auspices of the Inter-American
Investment Corporation/IADB in 4 countries.
• Called InvestAmericas.com
17

What to consider when you’re a «helicopter investor»

Admitting that you are a helicopter investor

Really absorbing this fact: bridging the distance requires effort

Building relationships that lead to collaboration take time and resource

Transaction costs for due diligence: the smaller the deal, the higher the relative costs

Regulatory issues for foreign investors are serious; good lawyers are vital.

Structuring deals takes a long time, and negotiating terms does not always happen in a
fluid manner

Every co-investor has their own method and standard; can we build bridges on these?

Flexibility is hard to demonstrate when you are acting on the remit of a larger foundation,
family office or fund

18

Challenges to Impact Investing

Cutting through the noise: One of the greatest challenges to impact investing is the ability to
sort through many opportunities to find the most suitable and attractive ones. How can this be
done effectively, without forgetting that we are serving entrepreneurs with hard core social
missions?

Counteracting concentration and herd mentality: According to Intellecap, well over 80% of of
impact deals in India last year were concentrated into only 15 enterprises. We must find ways to
be more committed to taking the risks that our flavour of capital should enable, and to diversifying
our activity as a collective.

Moving the needle: Collaboration for ‘deep dives’ into a particular sector in a particular part of
the country is not happening. Investing in three energy businesses in different parts of a vast
country does not necessarily move the needle when it comes to energy access for the BoP. Can
we think about bundled, coordinated approaches?

Trust and relationship building: Using existing networks to identify good collaborators on
various transactions, and to find and build relationships with vital local service providers (like
lawyers) is a good idea. What/Who are the key touchpoints and nodes that a newcomer should
get to know?

19

Our thinking on most of our impact investments
Over the years, we have come to a number of ‘conclusions’ about our preferred approach to
the terms of our investments:

We tend to opt for using compulsorily convertible cumulative preference shares (CCCPs) or
compulsorily convertible cumulative debentures (CCCDs); the coupons associated with these
need to be appropriately positioned. We do this because many companies we look at are a bit too
early stage to want to accept straight equity and have the full-on valuation conversation.
Convertible instruments appear to be preferable.

We look at deferring dividends or coupon payments until companies are in a good cash position to
support them.

We look at 7-10 year investment times frames on exits.

We tranche our investments and tie injections of capital to milestones based on operational plan.

We are open to co-investment and have frequently left ‘rounds’ based on terms we have
negotiated open to others for limited period of time.

We are happy to ratchet (baseline floor) valuations on company performance, though typically at a
minimum on EBITDA and rarely just on a set of turnover targets. This allows the company to get
a better valuation at the point of conversion if it achieves its performance targets.

20

For AVC Co-investors – a sample of our thinking
We do our best to match the lead investment invest with our equity portion on a pro-rata
basis, with a few important caveats and pre-conditions:

Permitted transfers

Board seats: We typically prefer to have observer rights for
AVC deals, allowing the lead investor to represent the interest
of our investor cohort; in certain instances, we will be happy to
step forward for a Board seat, but prefer not to do so on all
transactions

Pre-emption of share issues: All future share issues by the
enterprise in subsequent dealings afford us a pro-rata right of
first refusal. This amounts to our right, but not an obligation,
to buy new shares on terms no less advantageous than those
offered to other investors before they are offered elsewhere.

Pre-emption on share transfers: We consider it a right that
existing shareholders be given a right of first refusal to be
purchase shares from any shareholder who wishes to sell his
shares to a 3rd party.

Tag along Rights: Standard pro-rata tag along rights to be
afforded to minority shareholders including ourselves on all
AVC transactions, such that if/when the promoter and / or the
majority shareholder sells his stake, we may retain the right to
join the deal with the same terms and conditions.

Reporting: We are keen to ensure that reporting as an
obligation of the AVC investees is not overly burdensome and
believe that quarterly updates are sufficient.

21

Drag along Rights: This is a potentially sensitive point in such
transactions; our preference is that this right enabling a majority
shareholder / shareholders (with a suitably sized majority
shareholding) to push minority shareholders to join in the sale of a
company (on the same price, terms and conditions) is important for
exits to be achieved - especially in businesses where there are
multiple shareholders.

Economic Pari Passu terms: We strongly believe in equal
economic treatment for all investors in a common round, i.e., pari
passu treatment insofar as all economics are concerned between
investors and the company is the most optimal way to align
energies and incentives over the long term in the AVC context.

Legal Documentation: Artha requires all legal documentation to be
drafted, in agreed form and executed at the time of the investment
being made. For the avoidance of doubt this includes SHA,
amended AoA’s, etc.

Compliance, governance, transparency and simplicity: The
AVC is conditional on the terms of the investment and the operation
of the investee companies be in compliance with all necessary and
applicable laws and regulations. The legal documentation will also
need to be drafted so that all parties agree to adopt good
governance processes and procedures with regard to the
investments and the portfolio companies. We will also seek to
ensure that all parties seek to operate with maximum transparency
and seek to ensure that whilst robust, legal documentation is kept
as short and as simple as possible.

The Hard questions/ Hard Talk

How do we get transactions moving faster?

How do we offer and accept constructive criticism when our processes and practices are
less than optimal?

Can we enable more peer to peer investor feedback through the AVPN?

What do we consider our best investment successes, and why? Ditto for failures.

How do we boycott legal agreements that are longer than 40 pages? 

22

Thank you

Questions?

23

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