The Investment Spectrum: When Does Impact Meet Profit?

In this episode of Impact Investing Musings, Co-Founder and Chairperson of LabourNet, unpacks the complexities of the investment spectrum and explores where impact meets profit. From understanding the distinctions between nonprofits, social enterprises, mission-driven for-profits and impact investments  to discussing funding structures and gestation periods for social enterprises, Gayathri shares invaluable insights into what it takes to create sustainable, impactful ventures. 

Tune in to learn how social enterprises navigate challenges, attract the right funding, and stay true to their mission while delivering measurable impact.

Transcript

SPEAKER_01 0:00

Libinet would like to impact 10 million workers by 2030, 60% of whom need to be women. It's my responsibility and my co-funders' responsibility to ensure growth happens. We need growth capital. We need all forms of capital to reach where we are.

SPEAKER_00 0:17

Welcome everyone to Impact Investing Music, a podcast series where we delve into the ever-evolving world of impact investing and aim to connect, educate, and share knowledge to drive capital towards impact. I'm Vikasa Rora, Chief of Impact Investing at ABPN.

SPEAKER_02 0:34

And I'm Jackie, your host. In this episode, I discuss with Dr. Gayathri Fazudavan, the co-founder and chairperson of LaborNet, an enterprise at the intersection of social impact and business performance. They link the unemployed to work opportunities, the underemployed to skilling opportunities, and boost productivity for businesses, what she describes as work-integrated skilling. LaborNet has impacted millions of lives, but the journey has not been easy. In this conversation, she unpacks the complexities of financing the vast investment spectrum needed throughout all stages of growth. So let's dive in and learn what it really takes to attract the right funding while staying true to your mission and delivering measurable impact.

SPEAKER_01 1:17

So, Jackie, I founded two organizations, Sumbal and LabourNet. Sumbal is a not-for-profit and LabourNet is a social enterprise. The moment you say you're a society enterprise, one does have to look to see on a long-term basis, is it going to stand the test of time?

SPEAKER_02 1:37

So, how would this differ from, let's say, a normal enterprise, perhaps just a for-profit enterprise?

SPEAKER_01 1:42

So I think uh impact is fast. So, from a measurement perspective, you have determined the group you will work. So, a for-profit does not necessarily determine the group that they have to work with. Like, for example, we are in the workforce development and skilling space. So we call it work-integrated skilling. Uh, their gender is an important measure for us. What is the economic family income of your candidates' matters?

SPEAKER_02 2:06

I know for a lot of social enterprises it's very difficult to kind of quantify the impact or to be able to measure the impact. Do you have any frameworks or indicators to measure your impact and communicate that?

SPEAKER_01 2:18

So we decided to locate impact uh in a fairly simple manner. What do we do? We ensure people have work and we ensure they are still easy. This is what we do. The third thing that we do is to bring benefits to them. So, for example, would they have retirement funds, would they have uh health insurance, uh, would they have life insurance, you know? Would they have access to capital? If they have to buy a house, if they have to buy a bike or a mobile phone, how do you do? So we've tried to bring these into going to labor debt. So our indicators are there for reactive to that.

SPEAKER_02 2:57

Did you have to research the kind of partners that you wanted to work with when you were looking at seeking support and seeking impact investment? How did you decide between the different tools, looking at debt or looking at equity? Maybe just share a little bit of your story when going through all of these phases of growth to where you are today.

SPEAKER_01 3:13

Actually, that's a very interesting one. I think there is a shortage of active data as to who's doing what and where can you approach. There's impact investing and there's impact investing, right? Somebody will say seed, somebody even say BC, somebody even say no, you know, it's uh growth capital, somebody will say there's collateral plus this, then instruments are not available in India, for example, for country-specific problems will be there. So I think it's a huge space to formalize that. Let's take initially, we had an angel investor who came in, and when the angel investor came in, we actually dropped debt. So on equity and debt, and equity we said impact investor works best for us because they would understand our vision. And that's how in 2013 we decided between when our angel investor came and then our first institutional investors, which was Achiman and Arasos Guy Foundation, came. We took National Skin Development Corporation's Anopass debt. And it gave us a capital of almost 5 million US dollars at that time, right? So scale. At a later stage, as the company started growing, we realized that there is more to it. We do require uh continuous debt, but it's more working capital. We could not take working capital still at market rates. So that's how we we decided in 2018 and even uh even then COVID, we did uh instrument post-COVID with an interest subvention and a guarantee. So that helped us at that point in time. So I think it depends on the uh stage you are and the type of capital one wants, that's how we took our decisions.

SPEAKER_02 4:53

I can imagine you would have so many stories working across this full spectrum of financing and investment. What are some of the lessons that you've learned?

SPEAKER_01 5:01

Understanding what the impact investor wants and what the enterprise wants. So many of us are naive because many of us come with the development thought process. So we don't believe what are the challenges that impact investors have? They have fiduciary responsibilities. I think there needs to be more sharing of what the fund managers and what the investors are facing in raising their funds because of which, as social enterprises and recipients, how do we respond to that struggle?

SPEAKER_02 5:34

How did you develop that empathy for your impact investors? And what have you seen from sitting on the other side of the table, you know, looking and observing their work?

SPEAKER_01 5:42

They have given you the money under a trust because they have further committed to their NPs, or if there's a family office to their family office, I'll get a return. So they are as such a professional. So understandingly the contours of what wires them is important. What are they signing off of? What are they measured on? So I know what I'm measured on, but do we understand what they're measured on? And if we understand what they're measured on, how do we do it? How did you manage to foster that trust with these partners? Ultimately, it's the action you take. We've been able to demonstrate by commitment that we mean it. I would say it clearly those who gave debt to us, collateral guarantees debt. We have honored it at all times. Like even in the worst of our times, we've honored it.

SPEAKER_02 6:36

Were there any milestones that you needed to reach, or was there any financial return targets that you had?

SPEAKER_01 6:43

Yes. First, we signed off on what does income mean? And all the work integrates killing. That means who can be our candidates and workers? Uh so what is the kind of income that the families should have? Is only the target group that we work. So that's the first sign-off that we had. So are we doing the numbers as we stated, quarter after quarter? Uh, what does those MAPAS mean both financially as well as numbers-wise? I'd like to see uh impact investors come and uh say, you know what, this is the model we are interested in, and if this model works, it's not only for India, but it can scan across Southeast Asia, across Africa, Latin. I see it's a very replicable model. Believe exits are important. Uh, so we need somebody to come out, buy out our current investors, and then we need growth capital. We need all on pongs of the capital to reach when we are.

SPEAKER_02 7:46

You mentioned an exit, you know, and this is a very controversial topic in the social entrepreneur space, in the impact investing space. Obviously, investors, you know, always ideally look for that exit, but it's also difficult for a social entrepreneur where sometimes actually their goal is to continue scaling and to continue growing that impact. How did you decide that yes, an exit is part of our strategy or that's what we're aspiring to do? And how has that evolved?

SPEAKER_01 8:11

I think uh that was a very painful process. Why I think at the back of our mind we wanted to uh to give the exit. We really, what you said is the right one, right? And we are in that phase today where we need funds for growth. It's my responsibility and my co-partner's responsibility to ensure growth happens. But for the investor, exit maybe the most important thing in their careers and their fund lives. So it it is a it is a deeply tense issue. Uh, I don't have an answer, maybe in five to ten years I can give you an answer, but we're going through it now. But all night always we've decided exit is important.

SPEAKER_02 8:52

Thank you so much for sharing. I think it's very helpful because there's not that many examples of you know social enterprises that have gone through this stage of growth, right? A lot of people struggle or they get stuck at a certain point or they're not able to take it to that next level. Is there any tips you have for those that are kind of jumping from one level to the next? Or do you feel that it was just a kind of learning process, a trial and error of trying one way, if it doesn't work, try again? Or were there other enterprises perhaps that you looked up to in the ecosystem?

SPEAKER_01 9:21

I did. I really looked up to Grabi. I looked up to Seva as enterprises which I really uh, you know, really, really admire Seva because there are so many enterprises. Uh so from a cooperative to a bank to there's so many institutional structures that they experimented with in all at scale. Grammy walls from uh because a single concept, how did you actually make it a nation? But how did different nations pick it up? I think from that perspective, both of these were uh examples that I looked up to. But having said all of these, I feel a lot of it is going to come only when you experience and you're able to bring what you learn to who you are.

SPEAKER_02 10:06

I think that's a beautiful place to end. Thank you so much for sharing our story. I think it's gonna be really valuable both for the investor side but also for the social entrepreneur side. Thank you so much for taking so much time.