Social-tech startups can be profitable too

There seems to be the unrealistic expectation of an Alibaba emerging in every sector. People who missed out on Flipkart are hoping to find another in every sector that targets digital consumers. We have seen downtrends in some sectors recently. Still, I keep hearing about startups emerging in the same space claiming that the Indian market is big enough to accommodate everyone.

I doubt that. Only 20 per cent of the Indian population, or 250 million people, have access to the internet. But there are 400 million people in India who don't even have access to electricity, leave alone the internet. India is a $2-trillion economy compared to the $20-trillion economy of the United States. Purchasing power is not there yet. At the most, there is probably room for one or two players in every sector.

Profitability and Social Enterprise

During my stint as partner at Acumen, a New York based $100-million impact venture fund led by the Rockefeller Foundation, I saw that it was possible to infuse business acumen and profitability into the heart of an NGO. In a pure play NGO model, one's vision is restricted to the extent of donation raised. Also, when it comes for free there is a smaller element of accountability.

My theory was validated when I had an opportunity to witness an Acumen-backed-venture in Bihar. An entreprenuer produced electricity from rice husk and distributed five hours of electricity to villages that had no access to power. The Bihar government took note, and today, he has not only helped several villages get access to electricity, but he has also made more than 100 biogasification units and achieved profitability in the process.

People, Profit and Planet

Investing in social enterprises that take care of the planet is close to my heart. Investors, unfortunately, come into the ecosystem with the wrong bent of mind. While there is a rat race to park their funds in sectors that are hot, how many funds address the fact that there is a 400-million Indian population without access to electricity? When you address a problem that concerns every Indian, you have a billion-dollar opportunity. It is here that technology can act as the game changer in helping scale up the opportunity.

Angels Everywhere

Innovation is language agnostic. There is as much innovation in regional pockets as there is in the urban landscape. By enabling local angels in every region, we can ensure investors are made aware of local problems that would encourage more entrepreneurs to come forward to solve these problems. Hence, it is important to cultivate, nurture and incubate grassroots innovation with a local angel system.

There is wealth in every pocket and the trick lies only in bringing it out. Some of the regional angels, whom I personally know, are now part of bigger angel networks. This is one way of bringing more angels into the ecosystem.

Tech the Leveller

Inefficiencies in every sector should be identified and technology should be introduced in the proper manner. While rural India should be able to access products and services in urban India easily, products made in rural India and the efficiencies associated with it should be brought into the urban markets.

Only Sustainable Business Models

Developed countries are built by entrepreneurs. We've a great opportunity to build the nation entrepreneurially. Companies should be built more on strong fundamentals and sound business models rather than discounts. Growth hacking is never going to be a sustainable model.

No Get Rich Quick Scheme

The current funding scenario is unfortunately bringing the wrong kind of investors into the startup landscape. Innovation is not a rabbit that can be pulled out of thin air. It is certainly going to take some time for innovation to bear fruit. My approach is very simple. Identify a potential winner, support the venture and wait for about five years. At the end of it, you will have a superstar entrepreneur in the making.

Accepting Failures

With more individuals taking to entrepreneurship, failure is now seen in a positive light. Nobody is clinging to or brooding over their past failures. Failed entrepreneurs are ready to start again or find a job. We have a lot of "serial entrepreneurs" now. I'm glad to see more acquihires.

Technology and Psychology

What can I dotcom for you? That was the popular slogan of the early 2000s in the US. That was the time of the e-commerce boom.

But it has taken e-commerce 15 years to emerge big in India. People are now happy to buy tangible goods without the touch-and-feel experience. It is said that COD (cash on delivery) is one of the primary reasons for the change in consumer behaviour.

This is interesting, because COD has been used by India Post for years; it was called VPP (Value Payable Post). So understanding the consumer's psychology before thinking of the technology is important.

Today we see that the concept of shared economy is popular in the US. There is a green thinking springing from the guilt pangs of over-consumption.

However, in India we have an aspiring middle class. One of my employees bought a car with his first salary and 80% of this salary went into paying the EMI. This person will not share his car to save Rs100, as may happen in the US. In the US, there are 800 cars for every 1000 individuals, and here it is 30 per 1000. So it might take some time for the concept of shared economy to catch up here.

An angel investor and a member of the Indian Angel Network (IAN), Nagaraja Prakasam's focus is tech-enabled social ventures that cater to the bottom-of-the-pyramid (BOP). He is also founder chairman of Native Angels Network (NAN) promoted by Nativelead Foundation (NLF), enablings entrepreneurship in tier II and tier III regions. Prakasam has invested in several startups including Uniphore, an Indian language speech recognition solutions firm, Freshworld, a farm-to-home vegetable and fruit retailing startup and GoCoOp, an online marketplace for co-operative societies. He is also mentor-in-residence at NSRCEL, IIM Bangalore, and board member of Action For India.

(As told to principal correspondent Vijayakumar Pitchiah)