Venture capitalists Adam Wolfensohn and Ameya Bijoor tell Anjuli Bhargava about the kind of investments and companies they are looking at in India.
Encourage Capital was formed in 2015 by the merger of Wolfensohn and Eko Asset Management.
Wolfensohn had invested in FabIndia, Ujjivan, National Stock Exchange, REPCO Home Finance and DCB Bank -- it has exited three, one partially (DCB) and one it still holds (NSE).
Co-founder and managing partner Adam Wolfensohn and partner Ameya Bijoor were in India for the Prabhav Conclave organised by the Impact Investment Council in Gurugram.
Excerpts from a chat:
What kind of investments and companies are you looking to invest in India?
Wolfensohn: The strength of our portfolio has been in inclusive finance.
Our stage of investment is in the growth stage so the business model has been proven.
We'll make investments of $10-20 million in expansion-stage firms. We see a strong opportunity here for companies to leverage technology to drive growth and in reaching new customers.
We are particularly excited about financial technologies. The digitalisation of financial services to reach a new segment is something we are excited about.
The enabling environment to bring new people into the financial system is very strong in India. With Aaadhar giving an identity to millions for the first time and with a unified payment interface, there is potential to not just access new customers but also to design new products specifically for their needs to help improve their livelihoods.
We'd like to partner with established financial institutions and provide them with growth capital.
Typically, we'd work with small banks, non-bank finance companies, MFIs, insurance companies. Investments for us are typically in unlisted companies. Our holding periods are 3-5 years, but in some cases they are longer.
Are you looking at sectors like education and health care or will you focus only on microfinance?
Wolfensohn: There's still a lot to be done in the financial space -- well beyond microfinance. For instance, lending for small and medium enterprises, housing finance, finance for healthcare and insurance, finance for renewable energy.
Let me say finance is a critical enabler for so many sustainable development causes, and we think it's a particularly powerful place to have both impact and deliver financial returns.
We can't do everything. If we invest in education, we are only investing in education. We have a focus on renewable energy, for instance, but instead of backing a developer directly we are looking at financing investors to help enable an SME to work in the area.
Finance itself is a means to an end.
What has been your biggest win?
Wolfensohn: Ujjivan is up there in the top five. In terms of the number of people it has managed to reach, it is one of the more impactful investments.
But this is a bit hard to say. It's like asking which of your children is your favourite.
Why is there such a low domestic base from India coming into the impact sector?
Bijoor: Let me try and answer that.
I think it's a mindset thing. When I told my father I was leaving Arthur Andersen and moving to join the Clinton Foundation in India, he was taken aback as he felt that philanthropy and charity work was something you do after your career was over. I think culturally -- especially in India -- it's a mindset barrier and a cultural barrier.
But having said that, it's a mindset issue in most parts of the world. The people you see coming here for this impact conference are a very tiny subset of what one would see with, say, private equity. So it's not as if this sector is that big the world over.
Wolfensohn: Besides that, there's not a massive LP equity market to start with.
Second, if you have a charitable trust in India, there are regulations that prevent you from investing in equity. So, there are regulatory challenges.
In India, the impact investment community invested in very early stage investments -- companies that were very disruptive and very impactful but also often with a very high risk of failure.
Do you think old businesses in India have not fully understood this new creature….
Wolfensohn: Yes, absolutely. But let me again say that this is not an issue that India alone faces. Even in the Western world, there is a huge variation in what impact means to different people.
Investors' risk appetites differ greatly, as do their intentions and objectives.
I also think there is more impact investment happening even without people necessarily thinking of it that way. Clean energy is an example. A lot of old Indian business houses have invested in this -- some perhaps without directly stating this to be their primary objective or classifying it as such.