A marketplace for the social sector

“I wanted to continue to focus on impact investing and having spent quite a bit of time in that space at DFID, I had a reasonable idea of what works and what doesn’t work,” says Anuradha Bajaj, Founder and Director, Baytree. At that time, 5-7 years ago, she says, impact investing was not so mainstream as it is today, there were only a handful of investors who really understood and were willing to do it. The need is huge, particularly in a country like India. There were entrepreneurs who wanted funds and who don’t get it.

It was also her experience that there were a lot of investors who would love to do more in the social space, but they did not know how to source a deal, how to find out if a venture is good or not, how to do due diligence and the documentation, and how to actually invest. It was then that Anuradha teamed up with a friend and a former banking colleague, Ramesh Venkat, to come up with a marketplace model that would bring together social entrepreneurs seeking funds and investors looking to invest in such start-ups, rather than set up an impact investment fund.

“We decided to launch Baytree together to address this problem of there is money that wants to fund entrepreneurs, there are entrepreneurs who are looking to find the money, but there is nobody who is making it happen,” says Anuradha, of the rationale behind Baytree.

Access to entrepreneurs

They decided to develop Baytree as a technology platform as that will open up access to entrepreneurs in all parts of the country as well as to investors all over the world. “We launched Baytree about two years ago. We thought we will have many more high-networth individuals coming on the platform, self-accredited in the way the rules allow us to do it. We were also conscious that we need to bring in some institutional investors because they are more familiar with impact investing,” says Anuradha. The idea also was that the individual investors would be able to piggyback on the diligence done by institutional investors and work with them.

According to her, they started bringing on board the institutional investors and started marketing to the HNIs. As business transpired and counter-intuitively, Baytree got many more institutional investors than individual investors. The Baytree founders did not expect the large number of institutional investors as they believed the institutional investors could do their own deal sourcing. Clearly, says Anuradha, even the institutional investors felt the need for a marketplace as they did not want to do a deal alone and they wanted to work with other investors. “We are now in a happy situation where we have got institutional investors. The retail will still take some time,” says Anuradha.

Baytree, according to her, works with early-stage entrepreneurs, trying to help in getting funding for ventures from the post-incubation to the pre-Series A stage. At this stage, ventures may not have revenues, will have done pilots and they need the money to take the start-up to the next level. “We deal with for-profit entrepreneurs who can demonstrate to us that they are having some social or environmental impact,” she adds. She believes that once the marketplace is fully functional, the technology and network effects will kick in, like in any marketplace model, and both sides of the equation will start finding each other.

Business model

Baytree, according to her, screens the ventures that are looking to raise funds on its platform. Once the entrepreneur registers on the platform, the Baytree team will find out from the founder what the business model is and the ultimate goal. This is followed by a meeting with the entrepreneur after which Baytree’s internal committee will decide whether the venture can be taken on board. It then helps the entrepreneur with aspects such as pitching document and financial model, before putting it on the marketplace for investors to make their move.

Anuradha says they have looked at more than 1,000 deals and launched 30 in the last 18 months. It has raised under a million dollars so far. “It is still early days,” she says. Baytree gets its money from the entrepreneurs. Its fee is success based, a percentage of the money raised, while it also charges a nominal registration fee. Once on the platform, it will take the start-ups 4-6 months to raise the funds. Baytree would like the investors to put in at least $25,000 per investor. The platform will accept ventures that are looking to raise more than $100,000.

She is convinced that there is no one else offering the marketplace model for the social sector and Baytree’s relationship with its investors and the trust they have on the platform will be the moat that the venture has built to tide over competition as when and it arises.

Baytree, she says, is itself a start-up and has been bootstrapped. It will look to raise funds at some point for marketing, branding, increasing its outreach, creating more visibility and for getting more investors on board.

At present, it is confined only to ventures in India, but the model and the technology platform can be used in any other similar geography where there is a huge demand for social enterprises, according to Anuradha.

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