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Venture Capital Firms to Increase Social Business Funding

Rishi Malhotra August 12, 2010

Nexus Venture East, a $320 million venture capital fund, has allocated some of its funds for impact investments, investments in companies that pursue both profits and social good. The companies in their portfolio include Suminter India Organics, which does contract organic farming, D.light Design (a SOCAP09 attendee) which does solar lighting, and Sohan Lal Commodity Management which provides warehousing facilities.
Over the last 4 years, Nexus has invested $10 million into these types of companies but over the next 6 months it will match that. Many other venture capital firms that currently invest in social businesses plan on increasing their investments in the near future. For example, the Acumen Fund, a SOCAP10 attendee, has invested $20 million into 12 social businesses in India and plans on investing in more businesses later this year.
The bigger surprise though is that traditional venture capital firms that have not invested in social businesses are starting to see the base of the pyramid as an area of opportunity for social investing. Investments tend to be focused on areas such as clean technology, microfinance, education, recycling, and electronic waste. Though the various firms vary on how much they end up seeing in terms of returns, they all want to make sure there is a focus on scalability so the services can reach many people.
One way that funds are decreasing their risk is by being co-investors in various funds. For example, Gray Ghost Ventures, a SOCAP10 attendee, has put $5.6 million into companies in India with other funds as co-investors. The reason for this is that they can provide even more expertise about the sector and region and thus help the companies they fund thrive. Lastly, the investors all need to make sure that management for the companies is of high quality.
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