Editor's Choice, November 2013: Reporting on Impact
This month’s Editor’s Choice, the ► Aavishkaar Impact Report 2013, is the first fruits of a push by Indian impact investment fund Aavishkaar and others in the Indian Impact Investment industry to improve reporting of the impacts of their investments. It’s not written by a business or a donor, but by an impact investment fund. What can $10 million, invested over nine years, actually achieve? The answer from this report is quite a lot so far.
Aavishkaar as an organisation has US$155 million under management. It is currently raising money for its fifth fund. Across the four operational funds, it has invested in equity in 44 investees. It is all commercial capital, no grants, and it aims for significant developmental returns.
Aavishkaar is piloting a new tool, called PRABHAV (Hindi for Impact), that has been used to analyse one fund so far: the Aavishkaar India Micro Venture Capital Fund (AIMVCF). The report focuses on this specific fund.
There are three things I most like in this report.
The first is the use of clear visual roughly comparable data on social impact. It looks at amount invested, number of beneficiaries, jobs created, economic impact (although the latter is not explained). This is not revolutionary, indeed it should be standard practice, but for the sector I’d say this is currently good practice and a nice example.
Like most impact analysis, it reports on the number of people reached: almost 16,000 jobs created and over 11 million total beneficiaries (I assume some types of direct beneficiaries have been multiplied by household size, particularly for energy-related benefits, but this is not specified, which is not unusual but frustrating).
The second key feature is the focus on the geography of investment, and how poor, underserved and, thus, risky the states and districts are where Aavishkaar invests. Focusing on AIMVCF, a micro venture capital fund, this mapping shows the fund is active in all 7 low-income states of India. More fine-grained analysis is done at district level, based on social, economic and environmental data. The overall result is that fund investees are in 67 Very High Risk districts, 36 High Risk districts, 128 Medium Risk districts and only 38 Low Risk districts.
This geographical breakdown may only be possible in a country such as India where detailed district data is available. But the principle is critical and transferable: levels of impact and return should be mediated by consideration of the ‘difficulty’ of the location (or sector or type) of investment.
The third aspect of the report that stands out for me is the clear summary of the specific strategy of Aavishkaar (see box). It aims to invest in high risk scalable social enterprises while seeking market rate return. The strategy for combining risk and return is to have a strong hands-on approach and adapt the venture capital to these enterprises that have potential for long-term but eventually substantial market breakthroughs.
From page 3 of the Aavishkaar Impact Report
I sense, and hope, that this report is just a start. It is frustrating that the geographic analysis is separate from the data on socio-economic impact, and neither is combined with reports of financial success. The Holy Grail would be to understand how investment combines high-risk geographies, benefits, and returns. But given the sales pitch this report is making for breaking frontiers and piloting PRABHAV, I hope that the 2014 report will take us further in this direction.
All previous Editor's Choice blogs can be found at here.