Roopa Kudva, 51, took charge of the India operations of New York-based impact investor Omidyar Network in early July.
As partner and the managing director, Kudva, who stepped down as chief executive officer (CEO) of Mumbai-based rating and analytics firm Crisil Ltd last year, is up against a challenging environment for impact investing, in which money is put to use to deliver social benefits alongside financial returns.
India, at present, has 30-odd impact investors, which have invested $1.6 billion across more than 300 companies. While interest in impact investing continues to grow, local investment teams are currently under pressure from limited partners (institutions that invest in impact funds) to show measurable returns—financial and social.
Omidyar Network, bankrolled by eBay founder Pierre Omidyar’s personal wealth, has committed investments worth $160 million in India so far. It follows a dual investment approach, making grants to non-profits alongside for-profit investments in start-ups. It invests across sectors such as consumer Internet and mobile, financial inclusion, education and governance.
The firm currently manages an active portfolio of 36 investments, of which 21 are for-profit start-ups. Some of its notable for-profit investments include online classifieds platform Quikr, local-language news and content app Dailyhunt, playschool operator Tree House Education & Accessories Ltd, microlender Vistaar Financial Services Pvt. Ltd, and on-demand home services provider Zimmber.
In an interview in Mumbai, Kudva spoke about how and why Omidyar Network’s India portfolio will change over the next few years, the challenges of measuring impact, and frothy valuations in the consumer Internet sector.
Was venture capital (VC) something you were actively considering after Crisil?
No, not at all. I had been with Crisil for 23 years, the last eight as CEO. I was 50, and I asked myself: do I really see myself doing this for another 10 years?
And the answer was, no. So I spoke to my board and said that I wanted to move on. Soon after we made it public that I would be moving on, people started reaching out. One of those was Omidyar Network. When I got the first call, I actually told them, I don’t even know what impact investing is all about! After we spoke some more, factors such as the two cheque books (for profit and non-profit investments), the focus on multiple sectors, the policy piece started to resonate.
You’re two months into the job. What’s been keeping you busy? What are some of your immediate priorities?
The first thing that I felt was most important to do was to meet the companies in our portfolio. That exercise helped me learn the business very quickly. I think India’s time as a country for entrepreneurship is just beginning to happen. As a firm, we should not lose out on that opportunity.
I’ve also been spending time with the team and reviewing the portfolio. We’ve been asking ourselves some fundamental questions. For instance, in a market environment like this, where valuations are frothy, what should be our strategy? We’re an early-stage investor, but do we need to get into companies even earlier? We typically invest at the Series A stage, but lately, we’ve been investing at the seed stage. That will continue. (Recent seed stage investments include Zimmber and RailYatri).
Finally, I feel that in order to take advantage of prevailing opportunities, we have to grow our team. (The firm plans to augment the current investment team of 10 with about five new hires).
Based on your review of the portfolio, are there specific gaps that need to be plugged? What does it lack?
I don’t think I would use the word ‘lack’. I think the portfolio will change to reflect some of the new things we are seeing on the horizon.
For example, let’s take financial inclusion. We know that digital payments is critical. It is the rail on which the entire edifice of inclusion is built. Once you have digital payments, you can be disruptive in creating alternative ways to assess people who don’t have a credit history and make financial products and services available to them.
Today, each of us, underserved or not, can leave a digital footprint. Using that data, can we create analytics for banks or any financial services provider to work with underserved consumers?
A couple of years down the line, if our theory of change proves to be correct, you will see more analytics companies in the portfolio. It will have more of companies with bundled financial offerings. Today, we just have pure NBFCs (non-banking finance companies) that are making loans. Over time, we will have companies that offer bundled products in an innovative manner through a technology platform.
On the education side, I hope we will see companies that provide measurable outcomes.There are a lot of people who are doing interventions in education. As a sector, we have not been able to capture how these interventions are producing better teachers or better test outcome or better student outcomes.
On the governance side, I am also hoping to see some more independent media companies.
Another gap we want to fill is around fiscal governance and transparency. We need analytics around that.
Valuations in the consumer Internet sector are extremely frothy at present. As an impact investor, given that your mandate is to deliver more than financial returns, how do you navigate that environment?
I would agree that the market is frothy. The question is: what happens when the sentiments dampen, which indeed they will, because markets are always cyclical. Will the bubble burst or will you simply wipe away the froth? Finally, the most important question: what will happen to funding?
I don’t think that funding for Indian start-ups will dry up. Given the interest in India and the ecosystem, given the lack of commensurate opportunities in other parts of the world, I think funding for Indian entrepreneurs, both from commercial venture capital and philanthropic organizations, is on the upswing.
If the markets dampen, valuations will come to a lower level and that’s okay. How do we, Omidyar Network, operate in a market like this? One, it is important for us to be there because the opportunity is now. The payment banks have just been announced. There’s a lot happening on the education front. There’s a huge focus on property rights.
The way to tackle a situation in a time like this is to work from the first principles. That’s where being a disciplined investor helps. We always start from first principles. We look at whether this business is an impact creating business and why. And if the answer is yes, then you start looking at the other questions about the entrepreneur, the idea, and so on.
(This article was first published on Livemint.com)