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Significant resources and funding are required to create a strong impact in the startup ecosystem. Artificial intelligence (AI) is starting to play a bigger role, said Vineet Rai, founder and chairman of Aavishkar on the sidelines of the recently concluded Sankalp Bharat Summit in Varanasi. .
The Global Impact Investing Network defines impact investing as investments “made in companies, organizations and funds with the aim of generating a measurable and beneficial social or environmental impact as well as a financial return.” At the heart of impact investing, it is largely about aligning investors’ beliefs and values with the subsequent allocation of funds and addressing social and environmental issues.
According to a study by the Impact Investors Council (IIC), India saw $2.9 billion in equity investments across 275 impact companies, down significantly from $6 billion in 2022. However, the slowdown observed in the global venture capital climate does not indicate that India, as an attractive investment destination, continues to offer.
Climate startups have played an important role in the world of impact financing, with the onset of climate change being one of the most significant consequences of global warming. Kushal Agrawal, partner at Lightrock, said climate is not the only part of the impact but rather a subsection. “While we have specific products focused on climate, Lightrock as a whole focuses on all aspects of impact. We generally define ourselves as people, planet and productivity.”
Lightrocket’s portfolio includes companies like Porter, a company that has had a significant impact on the economics of truck owners or the economics of small freighter fleets. Since its introduction, owners of small and medium-sized trucks have enjoyed access to customers and gigs through its app, changing the way these fleets operate.
“Companies like Porter are commercially successful companies and have been market leaders. And that’s what our dream is: creating market leaders in spaces that make a difference,” Agrawal said.
Lightrock has a total investment portfolio of over $1 billion across sectors such as healthcare, education and financial inclusion. The company’s portfolio spans Europe, India, Africa and Latin America, with impactful results in areas such as sustainable agriculture and clean energy.
Despite last year’s slowdown, 2024 has shown that business models that address critical issues attract investor interest. With a population of over 1.4 billion, 60% of whom are rural, the opportunities for businesses to innovate and create impact in the country remain immense.
Rai of Aavishkar Group said that as an investor, it is more of a responsibility without choice to see if the community can play a role in actually addressing climate needs or climate issues.
“Otherwise, not only would we face problems, but humanity will also face problems of survival. So I think there is no choice left, especially for people who manage capital. We We need to find opportunities and options that would address climate issues and respond to them effectively, categorically and hopefully also quickly,” Rai said.
As India’s metro cities are teeming with global capability centers (GCCs) and international companies, startups in Tier 2 areas and below are gaining significant traction in solving hyper-local challenges, mainly because founders understand the problems that exist in their location in a more personal way.
“When we go to Tier 2, 3 and 4 cities, we are dealing with entrepreneurs who have a deep understanding of local challenges. And some of these local challenges have national and potentially global ramifications. So, as investors, what we are looking for is an entrepreneur who can identify a challenge, understand the solution and come up with a solution that is not only locally relevant, but also relevant in the global context “, Rai said.
Speaking on the current and future environment of impact investing, Rai said there is no shortage of data or startups and more capital needs to be invested in the startup ecosystem so that they can scale and face the real challenges.
“Software won’t solve all problems. Perhaps at some point AI or GenAI will play a bigger role. But for that to happen, a significant exchange of data needs to take place, or Data warehouses need to be built to enable generative AI to come up with solutions using data as a backdrop. There are a lot of high-quality leaders thinking about new solutions to the problems we see in agriculture. Most of these solutions are still very limited, but generally speaking in a short period of time we will see them gaining momentum,” Raï said.