Interview: Why investors are eyeing India, explains social impact pioneer Eric Savage
Eric Savage is a Duke and Harvard-educated American investment banker who chose to leave a high-flying career with Citigroup in Hong Kong to come to Bengaluru in 2008.
Here he launched Unitus Capital, a firm that specialises in helping social enterprises to raise funds. Social enterprises apply market approaches to address societal challenges.
Unitus Capital recently achieved the landmark of raising a Billion Dollars in investments for social enterprises in India. Vaibhav Gowda interviewed him on his journey and future plans.
You've raised a billion dollars for social impact companies. Can you elaborate on what this billion dollars signifies?
We never set out to raise a billion dollars or to meet any specific target. But it is a lot of money in the bottom of the pyramid context.
What we do is raise capital - equity and debt for socially impactful companies. Those companies could be in fields like microfinance, affordable healthcare, affordable private schools, renewable energy, or in agriculture working with small farmers.
So it's a wide variety. Most of the capital we raise is in increments of $3-20 million. We've raised capital for about 65 companies.
In the mainstream investing banking world firms sometimes raise billions of dollars and sometimes trillions of dollars. But in the impact investing world it's quite rare.
You worked on Wall Street and in Hong Kong and then decided to work in the social sector space. When there are so many other countries where you could have done this, why India?
While there are many places in need, India is a very obvious space from a variety of perspectives. India has a much larger bottom of the pyramid population than any other country.
In fact there are more poor people in India than there are in all of Africa put together. Because the population base is so massive, there's a natural market for any products tailored to the poor.
For our business we need lots of entrepreneurs and India is crawling with entrepreneurs. Frankly India is the laboratory for all social businesses globally. If you can make something work in India you can probably take it to other places too.
For our business to work we need investors. India has a relatively well functioning capital market system. India has lots of private equity and venture capital firms who are looking for returns and also at impact investing.
The investors we raise money from are looking for good returns and ultimately need an exit to sell to other investors. Not many of our clients will do IPOs, but having a market there is quite helpful.
Also, when we started, we were mainly focused on the microfinance sector. And India has the largest microfinance sector in the world.
Now, we have broadened our sector focus significantly to included affordable education, health care, women empowerment, agriculture and renewable energy.
Coming to India as someone new did you face any difficulties?
We had lots of major difficulties although not many of them were directly related to India. Most of them had to do with us being in a new business.
We were trying out a new business model and could not replicate other investment banks.
When we started people thought it was a dumb idea. They said that there weren't a lot of companies who could use our services and those that could were used to NGO funding and would not want to pay fees.
They didn't think we would get enough revenue to pay our bills. Frankly for the first few years, they were absolutely right.
Our revenue was increasing but not meeting the expenses for the first three and a half years. Fortunately, after that, because of hard work of the team, we've been profitable for the last three years. Now we are an attractive business.
Our biggest problem was hiring people. As a start-up, we didn't have an established brand. We were asking people to move from mainstream investment banks and venture capital firms to join us and that was a hard move for most people to take a risk to join us.
Similarly, it was hard to convince clients to join us. We didn't have a track record. We started the firm in the middle of 2008 right after the global financial crisis.
For our first 6-9 months of operations, the capital markets were shut which made it hard for us. So we were really lucky to have patient shareholders and raised a lot of capital ourselves up front so it took us through the difficult time.
Once the 2008 crisis was over there was the Indian microfinance crisis. At that point our business was almost completely microfinance. Raising money for microfinance institutions became very difficult.
In hindsight it was good because we had plans to go into affordable health care and other sectors but were mainly focusing on microfinance. This crisis forced us to diversify. However, at the time it was really stressful.
Why did you choose to get into finance instead of direct entrepreneurship?
We were incubated at Unitus Labs. They saw that there was a need for an investment bank in this sector and this fit perfectly with what I wanted to do.
I had a lot of experience in finance so this gave me a chance to leverage those skills and do something socially impactful. It was very serendipitous.
Over time Unitus Labs has incubated 3 funds and ourselves. They did explore other socially impactful ideas, but they only try the things for which they have the right people.
Though I have experience in finance, launching a microfinance businesswould have been very difficult for me.
I think I could possibly run a microfinance company today, but at the time I would have had to surround myself with a lot of people who knew a lot more.
For me it was a matter of skillset and I also wanted to do something that could impact a huge number of people. But there is still a need for other people to do what we do, so I hope we soon see competitors.
There's a need for more investors and for companies to bring in products, whether drip irrigation for small farms or education in slums.
People didn't think that it would work. Any other breakthrough ideas?
I can't think of anything someone isn't doing, but almost everything someone is doing can be done better. In microfinance there is a need for saving products, pension products, etc., even more than there is for credit.
Insurance is also important. No matter what the product is, poor people get the worst product at the highest prices. So there's a need to bring good products at a reasonable price.
What would be your advice to someone who wants to get into social enterprise?
Follow your own passion, whether it is education or healthcare technology. Only if you're interested will you make the difference.
Find something that lines up with what you want to do. What we do is impactful because we help companies grow. Even though we are not on the ground ourselves, we help people on the ground scale significantly.
Poverty is a very complicated thing, and it takes a web of solutions: government, NGOs, and private companies. Fields like education are often the most impactful, but healthcare and finance are also important.
We are expanding towards activities focused on women's empowerment. There is a massive need for that, especially in India.
Microfinance did do that to some extent but there's more that needs to be done. For example, day care companies, women only cab companies.
We would also like to expand our businesses in Asia; we are already in Indonesia and the Philippines. We would also like to put together a debt fund for social enterprises.
What is the future for your industry?
I am optimistic about impact investing. It aligns people's values with investing in a financially lucrative way.
More young people today want to build socially impactful business. India, especially Bengaluru, is ground zero for socially impactful enterprises which need funding to scale up.
When I got out of school there weren't many such opportunities. The world is becoming more prosperous, but relative income inequality is worsening so there will continue to be a need for people and organizations focused on social impact.
[Vaibhav Gowda is a 12th Standard student at Mallya Aditi International School with an interest in finance and social impact who has interned in the social enterprise sector.]