The two bright lights in India’s impact investing landscape are Harish Hande’s $10 million fund for sustainable energy enterprises and Khosla Impact.
Sustainable Energy Fund
Last month I finally got a chance to spend some time with Harish Hande at the SELCO office in JP Nagar, Bangalore. Our conversation ranged from ‘SELCO culture’ and non-English entrepreneurs to the new fund he’s raising. (SELCO’s unique organizational culture merits a separate post.) As Hande noted in the Forbes interview, social investing (aka “impact investing”) operates on two ends: grants which are free, and equity investors who expect a return of 8-10 percent, which is expensive for a social venture. The gap in the middle is what the new fund is trying to fill. I asked Hande to elaborate on the returns he’s promising to the philanthropy investors in his fund. Pat came the reply: “principal over a 10 year horizon. Anything above the principal would be a bonus.”
This got me really excited because I’ve long maintained that it’s easier for philanthropies to become social investors than traditional VCs. Hande has long been a critic of the way impact investing has been operating, so raising and managing the new fund is intended to demonstrate the ‘right way’ of impact investing. His other pet peeve is that an entire generation of non-English speaking entrepreneurs don’t get opportunities to show their mettle. He’s putting his money where his mouth is — more than 75% of the entrepreneurs to be funded are expected to be non-English speaking!
Hande also believes that the NGO sector needs to be a ‘lot more transparent’ and definitely a ‘lot more impactful’. An indirect outcome that Hande is driving is that, once his fund’s enterprises start demonstrating results, more philanthropy dollars would start moving towards social enterprises. I say “Amen to that!”
Last month, a close friend and loyal blog reader introduced me to Mark Straub, co-founder and Director of Khosla Impact. Clearly I wasn’t paying close attention to the social enterprise ecosystem because I had NO idea of Khosla Impact’s existence (almost a year now). Their early investments include Bangalore-based Embrace and Pune-based Driptech (both originally founded in Silicon Valley) and MokshaYug Access (MYA) – a rural supply chain solutions company based in Bangalore.
Thanks to India’s tax laws, Straub shuttles between Bangalore and San Francisco making sure that his India duration doesn’t exceed 180 days. We caught up in a Richmond Town CCD to chat about Khosla Impact, their portfolio companies, impact investing and other sundry topics. The fund size of Khosla Impact hasn’t been publicly disclosed but Straub told me it’s in the tens of millions of dollars — hence a number between $10 and $99 million. If I were a guessing man, I’d say $30 million.
What makes Khosla Impact very interesting for impact investing in India is that it’s not your garden variety VC fund (with LPs, IRRs, and exit horizons). Vinod Khosla is the sole contributor to this fund (seeded from his personal funds) and he has no predefined IRR expectations.
Update (Jun 6, 2012): In the original post, I incorrectly implied (based on this Oct 2010 NY Times article) that Khosla Impact was seeded from the proceeds of Khosla exiting from the SKS Microfinance IPO. Mark wrote to me this morning that the NY Times article is inaccurate, “Vinod Khosla never sold a share of SKS and has not realized any net return from that investment.”