Omidyar Network: Doing good is the bottom line

Delhi’s citizens continue to face a problem, something technology should have solved. Those who avail subsidised food items through the public distribution system (PDS) in India’s capital continue to face hurdles in availing their monthly rations and must stand in queue for hours, wasting time that could have been used productively.

This happens despite linking Aadhaar—India’s biometric-based identification programme for its citizens—with the PDS system. This raises the uncomfortable question that Aadhaar, which was supposed to help citizens enjoy services like opening a bank account, filing tax returns, and availing rations swiftly by digitally authenticating their identity, is failing to serve its purpose.

Turns out that Aadhaar wasn’t at fault. A team of researchers from the Indian School of Business (ISB)—as a part of the Digital Identity Research Initiative (DIRI)—investigated the issue. They found that while the back-end servers of the Unique Identification Authority of India (UIDAI)—the nodal agency for implementing Aadhaar—were working seamlessly and returning requests for data within a couple of seconds, the outdated data servers of the Delhi government were inefficient in relaying this information back to the PDS system, leading to the holdups. A valuable insight from DIRI, no doubt. DIRI is a targeted, multidisciplinary research initiative that explores key questions and tries to address gaps in knowledge around digital identity systems, with a focus on Aadhaar. Launched in 2017, it is funded by Omidyar Network India, the local arm of the multinational impact investment firm founded in 2004 by American tech billionaire Pierre Morad Omidyar, founder of ecommerce firm eBay, and his wife Pamela Kerr.

DIRI executive director Ashwini Chhatre says that Omidyar Network India’s decision to back an initiative like that being spearheaded by ISB was an encouraging extension of the philosophy of impact investing into academics and research.

Omidyar Network India has given a grant of $1.8 million for DIRI and committed to matching any future grant, up to $500,000, raised from another entity. “Usually grants are given to well-defined research projects. But our work is at a nascent stage where we are trying to find the right questions to ask when it comes to digital identity in In - dia,” says Chhatre. “Such an investment requires a lot of patience.” From the looks of it, there is no dearth of patience when it comes to Omidyar Network’s plans for India. Through grants such as these, as well as commercial venture capital investments in for profit enterprises, Omidyar Network India has emerged as one of India’s leading impact investors, working towards fostering an ecosystem— comprising researchers and entrepreneurs—that seeks to solve socio-economic challenges unique to India and Indians.

Global Capital, Local Solutions

Omidyar Network India made its first investment in India in 2008 and has, thus far, invested close to $300 million across equity investments (70% of the corpus) and grants (the balance 30%). As of December 2018, Omidyar Network India had 76 active investments across six impact areas that it has identified—digital identity, education, emerging technology, financial inclusion, governance and citizen engagement, and property rights.

Omidyar Network India’s investments and operating costs are entirely funded by Pierre Omidyar’s own wealth, as well as the proceeds from some of the investments that the entity has partially exited till date. Its portfolio accounts for 20% of its global commitments, signalling India’s growing importance in Omidyar’s global plans. To further grow its impact investment portfolio in India, Omidyar Network has undertaken two key measures. First, effective January 1, Omidyar Network India has become an autonomous unit, whereby all decisions related to future investments will be taken by a local committee, as op - posed to a global committee earlier.

Roopa Kudva, partner and managing director at Omidyar Network India, says that becoming an autonomous local arm of the multinational impact investment firm would lead to faster deci - sion-making and allow the Indian outfit to focus on areas that are particularly relevant to India. “There are areas which are unique to India and the problems that we face, which we don’t look at globally,” says the 54-year-old, who used to lead credit rating agency CRISIL before joining the firm in 2015. “For instance, the whole area of creating a market for municipal bonds by helping local government bodies put their accounts in order; or getting entrepreneurs to work towards creating a better user experience when it comes to citizens’ interface with our judicial system.”

For instance, take Omidyar Network India’s involvement with the eGovernments Foundation. The 15-year-old foundation was set up by Nandan Nilekani, one of the founders and current non-executive chairman of information technology major Infosys, and Srikanth Nadhamuni, chief executive officer of Khosla Labs, a startup incubator. Nilekani and Nadhamuni were the principal architects of the Aadhaar programme. eGovernments Foundation provides urban, municipal governments with technology to digitise pen-and-paper processes, thereby helping streamline and optimise them. While it initially began by customising technology for different governance bodies across Indian states, it moved to an open-source platform in 2015, allowing external developers to build digital solutions using its technology stack. eGovernments Foundation raised $1 million from Omidyar Network India as a grant in 2015 and has raised total funding of $3 million till date.

“Omidyar Network is a great believer in technology as a catalyst for change,” and using it to change urban governance infrastructure “is a part of this”, says Viraj Tyagi, chief executive officer of eGovernments Foundation. Tyagi also says that despite being a not-for-profit initiative, eGovernments Foundation has been able to scale up and become sustainable because of strategic inputs from Omidyar Network India, which has utilised its experience of investing in and scaling up commercial ventures.

Next Half Billion

The second key step taken by Omidyar Network India is to focus on what it calls the ‘next half billion,’ while scouting for future investment opportunities in India. The term refers to those 500 million Indians who will connect to the Internet through their mobile phones for the first time over the next five years. The idea is to invest in companies that are working on innovative, technology-based solutions for these Indians and help them climb the economic ladder in the process. A recent report brought out jointly by Omidyar Network India, Bain & Company and Google pegs the economic opportunity from these potential customers at $50 billion.

“There is a wave of new purpose-driven entrepreneurs who are devising innovative solutions to address problems,” Kudva says.

An example of such an equity investment made by Omidyar Network India is NeoGrowth. The company founded in 2012 by two brothers and serial entrepreneurs, Dhruv Khaitan and Piyush Khaitan, is a technology-enabled lender that offers credit to under-served micro, small, and medium enterprises. It has pioneered a daily recovery model, whereby 85% of its loan book is digitally monitored for daily recovery. NeoGrowth, in which Omidyar Network India first invested in 2013, uses alternate data such as digital payments received by small and medium retailers to determine their creditworthiness. The company has lent to 13,000 small retail businesses across the country and has already disbursed loans to the tune of `4,000 crore.

“There was a clear alignment with our mission… and our common purpose of social impact, which also met the criteria that Omidyar was looking for in a fintech investee,” says Piyush Khaitan, founder and managing director of NeoGrowth. Over the years, NeoGrowth has raised around ₹500 crore from a clutch of investors, including Omidyar Network India, Aspada Investment Company, Khosla Impact, Accion Frontier Investment Fund-Quona Capital, IIFL Seed Ventures Fund, and LeapFrog Investments.

Speaking of NeoGrowth’s experience with Omidyar Network India as an investor, Khaitan says it has been “fantastic”. “They provide strategic advice and direction. Moreover, they aren’t interfering as investors and leave it to the management to run the business. They have the wisdom and maturity to share their point of view but not force it down the company.”

Kudva says the last one-and-a-half years have seen a new set of opportunities emerge for impact investors, which bodes well for Omidyar Network India as it looks to invest $55-60 million each year. “The lower- to mid-income segment of population is our target group. With significant drop in data costs, this population has better access to the Internet and a whole new market has opened up at the flick of a button,” she says.

Omidyar Network India believes that this segment of potential customers can also be better catered to by localising content using vernacular languages, which, along with democratic access to data, can lead to rapid acceleration in consumption. One of the companies it has invested in, myUpchar, has demonstrated exactly how this can be achieved.

The Delhi-based startup allows users to access medically certified health and wellness information in vernacular languages and connects them with doctors for virtual consultations. The startup has thus far raised $5 million from Omidyar Network India, Nexus Venture Partners, and Shunwei Capital. “We have managed to grow to 11 million users in less than two years,” says Rajat Garg, co-founder and CEO of myUpchar. “It just goes to show that there is a large pool of people out there who are looking for this kind of information and we can connect with them thanks to cheap smartphones and data connections.”

Creating an Ecosystem

Not only is Omidyar Network India preoccupied with investing in not-for-profit and for-profit ventures that seek to do good for society, it is also playing an active role in fostering an ecosystem for impact investing in the country and ensuring greater accountability when it comes to spending on welfare measures.

One of the investments that Omidyar Network India has made is in a company called Goodera. Founded in 2014, Goodera provides a technology platform to measure the on-ground impact of moneys spent by way of CSR (corporate social responsibility). It is present in 90 countries and around ₹3,500 crore of CSR spends are managed on its platform. Around 600,000 employees of the companies whose CSR spends Goodera tracks are also on its platform and double up as volunteers who are willing to engage in developmental projects. Goodera raised around $5.5 million in Series A funding from Omidyar Network India and Nexus Venture Partners in 2016. In 2018, it raised $12.5 million in its next round of funding, which was led by SAIF Partners. Omidyar Network India was also a part of this round.

“We wanted to raise funds from Omidyar as it is the gold standard in impact investing,” says Abhishek Humbad, founder and co-chief executive officer, Goodera. “They have a lot of credibility and knowledge about the sector in which we operate and their validation of the value proposition of our technology was important.”

Omidyar Network India is also working with partners like Dasra, an organisation that facilitates collaboration between philanthropists, corporations, NGOs (non-governmental organisations), and the government, to seed the market for impact investment in the country.

In 2012, Omidyar Network India gave a $2 milion grant to Dasra. Deval Sanghavi, partner and co-founder of Dasra says that before Omidyar Network India’s investment, Dasra had managed to raise $10 million in 12 years. But since the association with Omidyar, it has raised $70 million in seven years.

Dasra and Omidyar Network India, with other collaborators like the Rockefeller Foundation, have organised impact investing conferences, bringing together investors, social businesses and NGOs on to a common platform. “We are supporting NGOs and social businesses with capacity building by helping them strengthen their resource base and management capabilities,” says Sanghavi, of Dasra’s continuing work with Omidyar Network India. “On the giver’s side, we are encouraging philanthropists to channel [a] portion of the capital they have reserved for for-profit initiatives into impact investing.”

Kudva observes that impact investing in India is at an inflection point. Globally, the top 250 impact investors in the world manage around $260 billion in assets, she says. According to a McKinsey report published in 2017, India’s market for purpose-driven finance could grow to $8 billion by 2020.

Patience is a virtue and patient capital is an asset. And Omidyar Network India, which has both in good measure, hopes to create a lasting impact with its investments in the country.