Re-imagining Impact Investing for the Next Decade

Lightstone Aspada
Aug 28 · 6 min read

-Kartik Srivatsa

Today marks the culmination of a two-year effort with the announcement of Aspada joining hands with the LGT Group in building out LGT Lightstone as a leading global impact investment platform. This is a significant milestone in our evolution and we are excited by the preternatural coherence with Prince Max and LGT in our shared vision for impact investing over the next decade.

Aspada’s origins in impact investing traces back to the SONG Fund which was setup in 2009 by the Soros Economic Development Fund, Omidyar Network and Google. SONG was formed with an open and flexible strategy of making investments in companies that profitably serve the essential needs of Indians in the middle and base of the pyramid. The only real constraint was to look beyond microfinance, an already established impact asset by then.

This unusual tabula rasa approach helped us define a bottom-up but iterative approach to portfolio construction that has proven to be resilient even today. We have at the core retained the same framework for target models that we came up with ten years ago with models that create economic advancement in; a) the long-term (education, healthcare, clean environment) and, b) the short term (improved access to markets/information/finance and income improvements for the self-employed).

On the back of SONG, we launched Aspada Investment Company with one shareholder, the Soros Economic Development Fund, in 2013. Aspada expanded the narrative of SONG by adding new investment themes around digital inclusion and small business finance, and embraced technology as a core element of scaling businesses. Aspada’s most interesting innovation, however, was in pushing the boundaries of conventional fund structuring and setting up an evergreen fund which provided much needed flexibility and patience in nurturing high impact models.

Today, ten years after the initial SONG fund, with 20 investments, five exits and, a few important failures in tow, we feel very excited about the future. We have had the rare privilege of being able to work with extraordinary entrepreneurs in our portfolio as well as the Aspada team who have brought us here. Our experiences over the last decade have translated into four cardinal beliefs:

a) The prize is real and within grasp: The role of private enterprise in providing essential services to, and enhancing livelihoods of, Indians across the income pyramid in an ethical way is primal, and represents one of the largest addressable markets in the world. More importantly, the goal has become more tractable over the last ten years. Thanks to the rise of rural roads and electrification, mobile internet and machine learning, and digital identification, transaction costs to serve have dramatically reduced leading to a multiplicative increase in scalability of businesses solving for our target goals.

b) Moving the needle requires more capital to be unlocked across a continuum of risk capital products: We were setup primarily to be a catalyst in re-pricing the perception of risk in high impact models in order to unlock significant commercial capital into impact businesses. With $400 million in follow-on capital since SONG in our investments, this is still a drop in the ocean. The UN-SDG Better-Business-Council estimates a $12 trillion opportunity for businesses addressing sustainable development goals globally by 2030 with $1 trillion coming out of India. To really move the needle on developmental impact in a country of over a billion people, we need to unlock capital in the billions of dollars not just in equity but across a continuum of risk capital products.

c) Not just Zero-to-One but One-to-Ten and further: It is heartening to see the celebration of entrepreneurship and the vast sums of capital that have flowed into the early stage ecosystem in support of the Zero-to One process in India over the last five years. The ultimate prize for us though is in the ability to transform innovation into resilient institutions that can stand the test of time in delivering sustainable value and impact to a population that is in the hundreds of millions.

d) Sectors Not Firms: Every firm operates not in isolation but through a set of symbiotic relationships with players across the value chain in their sector. The ability to think through these interconnections and find ways to improve system-level outcomes across firms can create a virtuous cycle of value creation that significantly outpaces mere individual firm growth. Omidyar Network first talked about this in 2012 in an article titled ‘Priming the Pump’. We agree.

Over the last decade, we have made a number of iterations to our investment strategy and fund structure in response to market developments. This has been possible because we’ve had a small and thoughtful set of shareholders in our formative years who recognized the need to be open and nimble in building a resilient impact investing model.

When we first met Prince Max in 2017, he articulated a vision of building a long-term global investing platform of scale by taking the time to thoughtfully iterate and get it right one step at a time. This excited us for a couple of reasons; first, we’ve long admired LGT’s significant commitment to impact investing and venture philanthropy over the last decade, and second, LGT’s approach aligned with our belief that building a global platform is valuable in the long term in ensuring the scalability of the individual country-level investing efforts. But what really sealed our decision to partner with LGT to anchor the next phase of our journey was Prince Max’s passion for building sustainably for the long term and at a scale that moves markets.

In our journey forward as Lightstone-Aspada in India, our investing approach will manifest across the four cardinal beliefs laid out earlier in the following ways:

a) The prize is real and within grasp: Lightstone Aspada will focus across four themes: Healthcare and Education, Clean Energy and Mobility, Food & Agriculture and Consumer Value Chains, and Essential Digital Goods & Financial Services. For each of these themes, our specific interest is in helping world-class entrepreneurs build sustainable businesses that can have the potential to create outsized social impact over the next decade, owing to steep reduction in transaction costs and driven by technology and lean service delivery. Our current portfolio already anchors a number of these themes.

b) ‘Moving the needle’ requires unlocking of vast amount of capital: While we will continue to selectively back high-potential entrepreneurs at the early stage, the core focus at Lightstone-Aspada will be in unlocking the next stage of growth for businesses with proven traction that have high potential for long term impact. We have the ability to invest between $4 and 40 million in a transaction with the ability to bring significantly more capital across the continuum of risk to grow each of these businesses. This will also feed into our larger endeavor to catalyse and unlock a wide variety risk capital instruments into the sector — at scale.

c) Not just ‘Zero to One’ but ‘One to Ten’ and further: There is still a long journey for Indian startups in their transformation from high potential ventures to large well-run institutions. Founders, in most cases, are best suited to go it all the way if they find the right support from a business building and personal development approach. Our most significant push at Lightstone-Aspada will be towards enabling this goal by providing accountable value to founding teams we back on four fronts — human capital development, strategic planning/fund raising, back-room management and governance/oversight.

d) Sectors Not Firms: This will continue to remain a core pillar of our investment worldview and our upgraded scale helps expand the narrative we began at Aspada. While technology will feature strongly in our approach, the ability to solve for sectoral change through a systems-thinking approach will be equally crucial. We view each of our target sectors (let’s take healthcare as an illustration) as a value chain continuum with companies that provide core provision (hospitals and care providers), supply chains (pharma/equipment manufacturers, distribution), financing (insurance, loans and HMO) and emerging technologies (robotic surgery, wearables, molecular diagnostics). We believe that the whole can be greater than sum of the parts if there is a path to collaboration among companies. Successful collaboration amongst portfolio companies can provide shared insights, common best practices, and new models of commercial partnerships and lead to collective organization that can constructively influence policy given common goals for impact creation.

||Sahaveeryam Karvaavahai||

Together we build for a better world.

Lightstone Aspada

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We invest in companies solving hard problems

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