Fostering the social enterprises ecosystem with impact investment

Kartik Srivatsa, Managing Partner, LGT Lightstone Aspada, is emphatic that in its new avatar, Aspada will have a greater role to play in fostering the social enterprises ecosystem in India. In August, the Liechtenstein-based LGT, a fund manager and bank, acquired Aspada from the Soros Economic Development Fund for an undisclosed amount, and with it the portfolio of companies that Aspada had invested in over the last 10 years. The LGT Group, says Kartik, is building up LGT Lightstone as a leading global impact investment platform with LGT Lightstone Aspada having an India focus.

Over the years, Aspada has undergone many transformations. It traces its origins to the SONG Fund set up by the Soros Economic Development Fund, Omidyar Network and Google in 2009. SONG was formed to invest in companies that served the needs of the Indian middle class and those at the base of the pyramid. Its strategy was to look at the long-term – education, healthcare and clean environment; and the short-term – better access to markets, information, finance and income improvements for the self-employed.

With more themes

The Aspada Investment Company came into being in 2013 with Soros Economic Development Fund being the only shareholder. With this, Aspada added themes such as digital inclusion and small business finance, and also looked at ventures that used technology to scale. The transformation as LGT Lightstone Aspada comes nearly a decade after Aspada first got going. It has about 20 investments and five exits, which, Kartik says, were “reasonable market driven exits.”

“We have had particularly interesting conversations with the LGT Group. They have their own impact effort. They also wanted to build something global, where we would have a role to play in terms of thinking through the strategy and how to work through this,” says Kartik. “The idea will be that there will be separate funds for each of these geographies, but we will have a common DNA and a common management platform that builds out this larger fund,” he adds. Soros continues to be a minority shareholder in LGT Lightstone Aspada

At present, Aspada will continue to draw funds from LGT Group’s global pool for investing, but the idea is for LGT Lightstone Aspada to go out and raise its own fund at a later date, the timing of which has not been decided.

More importantly, LGT Lightstone Aspada will be able to write larger cheques now. From investing $2-8 million (₹14-56 crore) as Aspada, LGT Lightstone Aspada will write cheques of $4-40 million (₹28-280 crore) in ventures. The investment would be over multiple rounds. It recently invested about $20 million in Kauvery Hospitals. Earlier, Aspada was invariably the first institutional investor in a company. In the new avatar too, it may be the first outside investor, coming in at a stage when the company has reached a particular scale and helping it grow. “We are saying even though we are not the first investor, is there a continuity of impact or focus that we can create even in potentially mature businesses,” says Kartik, of the new investment strategy.

On the stake that LGT Lightstone Aspada would like to pick up, Kartik says “we are not necessarily focussed on control. The idea is to take minority investment stakes. So, it is anywhere between 15 per cent and 40 per cent.” Over the years, Aspada’s investment strategy and fund structure have gone through iterations in response to market developments. The objective has been to clearly focus on the sectors it wants to invest in and adopt a sector approach to investing. That is, Aspada believes that no firm functions in isolation and developments in the sector have a bearing on a company’s fortunes. LGT Lightstone Aspada’s aim will be to deliver value to the entrepreneurs, letting them run the enterprises and laying out clearly where it can help them.

According to Kartik, the impact space itself has become fairly mainstream over the years. In the sense that it is not just about funds. An impact investor like Aspada is quite often competing with a mainstream venture capital investor for deals. “Everyone,” says Kartik, “has figured out that there is a large opportunity which was very niche in earlier times. If you look at some of the sectors we have operated in, not many people were interested. Now, if you look at agriculture supply chain, a whole lot of investors are there.” There is now an acceptance that these are commercially viable sectors. The challenge for Aspada would be to differentiate itself from mainstream venture capital firms, by way of building accountability and value creation. “The second thing which we haven’t proven enough is we think there is a continuum of capital. For instance, can we bring grants, can we build lower costs, can we bring low cost loans, can we build guarantees. Those are potential areas where we think we can help build the ecosystem also versus just a company,” says Kartik.

Finding great deals

On the investment climate, Kartik says they are finding great deals now. That a number of large global funds have pumped in lot of money, especially in the tech sector, has created a positive environment for entrepreneurship.

“We don’t want to be in a niche sector where we are the only ones who are investing. We want to be in a competitive sector where there is vibrant capital and competition,” says Kartik. A sector like agriculture, he points out, has now become mainstream and is no longer niche. The general economic slowdown, especially in sectors such as automobiles, is something that one has to watch out for, especially from the sentiment point of view. But, says Kartik, “we are taking truly long-term bets. We have always found that having a large partner gives you stability to navigate through some of these situations.”

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