Prime Venture Partners Podcast

Mahesh Joshi on H.I.T. Investing: Building Profitable & Impactful Startups

• Prime Venture Partners: Early Stage VC Fund

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In this episode of the Prime Venture Partners Podcast, Sanjay Swamy hosts Mahesh Joshi, Head of Asia Private Equity at BlueOrchard and author of H.I.T. Investing.

He shares powerful insights on how companies across India and Asia are solving critical problems like:

  • Financial inclusion for underserved Kirana stores
  • Gender equity in small business finance
  • Climate resilience through tech and EV adoption
  • Leveraging UPI, DPI, and IndiaStack to scale affordable services


📌 Key themes:

- What HIT investing really means (High Impact + Tech)
- Why India is the perfect testbed for scalable impact
- How founders with deep domain knowledge are creating billion-dollar       outcomes
- ESG vs HIT: The execution gap

📣 Whether you're a startup founder, investor, or policy watcher — this is an essential conversation on the future of purposeful capitalism.

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Speaker 1:

What the heck is HIT investing?

Speaker 2:

HIT investing stands for High Impact Investing while leveraging technology. While impact investors are trying to generate commercial returns and they're going after these sectors because there's an opportunity to generate huge commercial returns it will be out of business very soon. They provide loans at 18-20% to kirana stores or retail outlets who would otherwise not get that loan, even at 25 percent, after giving property as collateral. India is one market which gives you a lot of volumes to be able to drive those returns.

Speaker 1:

We keep saying India is a very cost conscious market. I really feel we're a value conscious market.

Speaker 2:

There is no impact in having to shut down the business and fire 100 people. Ultimately, you need to figure out models which are able to sustain. So for the impact to sustain, the business has to sustain. It is very important for everybody to incorporate this in their solution right, otherwise you'll be left behind.

Speaker 1:

Hi everybody. Welcome again to this next episode of the Prime Venture Partners podcast, where we bring you stories from entrepreneurs and the startup ecosystem in general. My guest today is Mahesh Joshi. He is with Blue Orchard and is a very happy co-investor in Finag, which is why you see my Finag t-shirt on today. Mahesh, welcome to our podcast.

Speaker 2:

Thank you so much, Sanjay. Thanks for inviting me. Great to be here.

Speaker 1:

So Mahesh is here not in the capacity of a Finite board member or as another VC, but actually as an author who has written a book on HIT investing. So the obvious question is what the heck is HIT investing?

Speaker 2:

Yes, so HIT investing stands for high-imp impact investing while leveraging technology. Right so the book itself. I mean we talk about various impact investors who have been able to achieve great returns while doing a lot of social good, and a theme across all these investors is they've used new age technology to be able to drive affordability and accessibility of a lot of these products and services, and that is where the name HIT Investing comes from.

Speaker 1:

Got it Now. You told me privately that there were some other acronyms that were being considered for the name of the book.

Speaker 2:

Yeah, so initially the name of the book was the Mad Investors, m-a-d. Uh, which stands for making a difference, and this was the name that penguin came up with. It was very interesting, and they thought that, um, you know, this will also, uh, be provocative enough. And, uh, you know we'll, I will get a lot of people to pick up the book and at least see what it is. Um, but and very, very rightly, some of the investors pointed out that it would not be right because, while they were okay, it might not be the right way of representing the entire impact industry. Right, because this can be picked up in a very wrong way by different people. And that is when we decided to change the name.

Speaker 1:

Well, I hope you have a big hit with the word hit investing and with the book. Maybe you can back off a little bit. Tell us a little bit about your background and how you got into high-impact investing or leveraging technology. Yeah, so.

Speaker 2:

I had spent 10 years in private equity in India across Franklin Templeton's private equity I'm called Darby Then IDFC private equity, which then has become invest corp. And then I joined leapfrog investments and it was completely by chance and I was not thinking of getting into impact investing, but leapfrog was, you know, is now one of the largest investors in impact on the equity side and and they were looking for somebody to handle healthcare out of Asia for the entire Asia, and India is a focused market for them. So they ended up finding somebody. They were looking for somebody to address healthcare. What I really liked about that role I was not too much focused on impact investing, but what I really liked about that role is that it gave me the opportunity to look at the entire wider geography. But what I really liked about that role is that it gave me the opportunity to you know, look at the entire. You know wider geography. So I was doing largely India at that point of time. It gave me the opportunity to do Southeast Asia and you know other geographies as well. And then it also I really like the people who were working there, so people leading healthcare.

Speaker 2:

There were Michael Fernandez and Dr Felix Solale, both of them, mckinsey people from McKinsey. I had great feedback on Michael. Everybody said that he's a great person to work with and it turned out to be equally great. So those are what led me to Impact Investing. But then I you know again, what led me to this book from impact investing is that when I was outside of impact investing, there's a certain way in which I perceived impact investing and after a few years I'd forgotten how I perceived that. But then there were some questions. You know, whenever I have conversations with people, the questions come up and I thought that you know there's a lot of miscommunication about what it means and how it works, and I thought the best way to address that would be to show the results of some of the people who have been doing this. Well, and that's how the concept and the thought for the book came.

Speaker 1:

Wonderful, so maybe we can dive in a little further on what you just said, which is, what are some of the key misconceptions that people have about impact investing?

Speaker 2:

Yeah, so even when I was first of all, I think people outside don't understand the impact investing very well. Right, it's equated to philanthropy by some people, and I would say that is wrong, because impact investing, as a definition, covers all of that. So impact investing covers the entire spectrum, from philanthropy all the way to commercial capital and with even blended finance in between. But a large part of that happens on the commercial side, right, though there is some philanthropy involved, there is some blended finance involved, and the people that we cover in the book are all commercial investors, right? So that is the key difference. I mean people are not able to understand outside of impact investing that there's a wide spectrum of impact investing.

Speaker 2:

The other thing is that, in general, because of this, people generally perceive that impact investing has access to concessionary capital and they don't need commercial returns, while it's the completely other way around, while impact investors are trying to generate commercial returns and they're going after the sectors because there's an opportunity to generate, you know, huge commercial returns and and that is what I know we are trying to bring out that uh. And also so at leapfrog or at blue orchard, we also run funds and uh, if we don't generate returns, we'll be out of business very soon, right? So that is? Uh, that is the reality got it, got it.

Speaker 1:

So, um, perhaps we can discuss a couple of examples. You know, maybe from the book itself, uh, whether it's other investors or through your own journey, companies which, uh, are, you know, very, very successful, have generated strong, solid returns for investors, for founders, uh, and yet are classified in your mind as impact investments, because it's also a little bit of a subject to interpretation. I guess some of this aspect of it right, and maybe as a follow-on question or I can come back to that later, what would you see and say, okay, this is not an impact investment, right? So we can come back to that separately, but maybe we can start with some examples for the audience.

Speaker 2:

Yeah, so see, it is impact investing. The definition itself is very I mean, it's subjective, but at least for a long period of time, it was unclear as well. So the impact investing term got coined in 2007. In 2018 or 2019, ifc came up with a report where they defined what impact investing is for the first time, and they said you need three things for something to be called an impact investment. The first one is intent. Right, so you have to define what is the intent that you're trying to.

Speaker 2:

What is your intent and what are you trying to solve? Is it that you're trying to solve healthcare, affordability and accessibility? Are you trying to solve for inclusion? Are you trying to solve for a wide segment of the population, saying that these low and middle income people is what I need to upgrade? So you decide what it is. Then you have to contribute towards those investments, and it becomes easier to do that in the private world rather than in the public world because we are on the boards of the companies. We guide them on the direction. So there's a lot of hand-holding. We can do support, we can provide. That counts as contribution, and then you should whatever targets that you started with, saying that this is what I want to achieve. You should measure whether you're achieving those goals or not. Right, that is again.

Speaker 1:

So there's intent there's action, and then there is intent, contribution and measurement.

Speaker 2:

You have to fulfill these three things to be called an impact investor. Now, if you look at the intent itself, can be very wide and it can be different for different people. While I was at LeapFrog, my focus was on healthcare, affordability and accessibility. Leapfrog had a slightly wider mandate. They were focused on wider financial services and health care. At blue orchard, our focus is on climate resilience through insurance. So very niche mandate and we focus on a much narrower set of opportunities. But that is the impact that we have chosen for ourselves. Got it. So within that I mean um, but essentially in general, if you look at the wider impact definition, it's about solving for the low and middle income people, and one good example I mean that is not in the book, but that is both of us are privy to is Finag. Excellent business, I find Finag's business really beautiful. Excellent business. I find Finag's business really beautiful. They provide loans at 18 to 20% to Kirana stores or retail outlets who would otherwise not get that loan, even at 25%, after giving property as collateral Right.

Speaker 1:

These are working capital loans.

Speaker 2:

These are working capital loans, but even that access to capital is not possible for them. Without somebody like finag, then, um you know the various.

Speaker 1:

Actually, from what we've experienced, a good chunk of these are owned by women as well. Right?

Speaker 2:

so there's that element of exactly women and inclusion of women and and there are quite a few things at play there. But again, at the same time it is leveraging technology so that that it works on lower margins. Right, because you're charging lower, which means you work on thinner margins, but in that it is able to generate very good profits. I mean, we know, you know the kind of profitability it has. Uh, I mean so very good profits because it leverages technology so that, you know, the loss ratios are lower, the collection costs are lower, the uh, you know sourcing costs are lower. So it's a beautiful model. So that is one good example among the companies that both of us know.

Speaker 2:

But in the book I've covered quite a few other other companies as well. Uh, indiamart is one such case which, which is not exactly in financial services, but essentially it is a backbone for the entire SME economy in India. So many SMEs depend on India Mart and it provides affordable services for them. Then I talk about Veritas, which is again solving the problem for small and medium enterprises from a financing perspective. Mintify, which is a business very similar to Finag enterprises from a financing perspective. Mintify, which is a business very similar to Finag, and one of the business that I like is Better Place, which is actually solving, for you know all the gig workers right, which is a segment that was completely ignored for a long period of time, and they've been able to establish a profitable model around that right. So, quite a few businesses in that sense which are solving, and in a country like india, you'd usually find a lot, of, lots of businesses, because there's a large part of the population that is unaddressed right, or rather, uh, is not underserved, underserved, yeah, so.

Speaker 1:

So, in that sense, there's a huge opportunity in india, I generally say in financial services in india, people are either unserved unders, underserved or poorly served, which is even segments like us. Right, but we may have a lot of choices but really it's far from an ideal solution. But there are other segments which are completely unserved and inclusion or just access to financial services are going to be life-changing for those segments Exactly.

Speaker 2:

And India is such a great market for impact investing because when you're trying to provide affordable services, you're exactly not trying to squeeze every customer on the margins, but essentially you're playing on volumes, and India is one market which gives you a lot of volumes to be able to drive those returns.

Speaker 1:

In some ways in the FMCG sector. When HUL introduced the saccharit sector, you know, when HUL introduced the sachetization right, they actually probably had much better unit economics than when they were selling it in bulk to people like us who could afford to buy a 400 rupee bottle of shampoo versus someone who's paying five rupees per sachet. But they're probably making a lot more on a per milliliter basis, right? So unit economics. So that was my learning also from some of these journeys is that you're not necessarily charging less. It's just that you need to be able to leverage technology and build it at a scale where you're able to service the customer, you know, in a manner that makes it accessible. But they're not necessarily paying less than others would.

Speaker 2:

Yeah, it is very well put. They might not be paying if you look at it that way, but ultimately you're trying to make it affordable for them, so that it makes sense.

Speaker 1:

You know I have a personal example that I'll share from my very early days in mobile payments with Mcheck, where we ran a survey of you know. I have a personal example that I'll share from my very early days in mobile payments with Mcheck, where we ran a survey of you know how much would you pay to pay your electricity bill through your phone and most air-conditioned office? White-collar folks said zero because they all already had four or five years of paying their bill. But you went downstairs to the basement and asked their driver and they would say you know 10 rupees without a problem, right, and I asked them what is the logic?

Speaker 1:

and they said look, typically that for us and most blue collar workers is we have to give up half day of our salary because we have to. That, you know. We only, we can only get paid when we are at the site and it costs 20 rupees by bus to go up and down. So you know, of course we'll happily pay 10 rupees as a service fee, right, and it really occurred to me. It hit home that time is money for this segment and literally right, people like us can work in the night and can make up or whatever, but for them, you know, if they're not there during those hours, they actually lose income. Right, and it was quite an eye-opener for me and I think this is different examples.

Speaker 2:

Right. The hardships of that segment are very different compared to the hardships of the.

Speaker 1:

And it sort of was a lesson for me that those segments in India they are actually very value-conscious, they're not cost-conscious and I think we keep saying India is a very cost-conscious market. I really feel we're a very cost conscious market. I really feel we're a value conscious market and if people see the value, they might actually pay some disproportionate amounts. They're subject to affordability.

Speaker 2:

Yeah, so the lower segment pays significantly for value in education, in healthcare, because they see value in, you know, getting their kids educated.

Speaker 1:

So let's talk a little bit on the technology side, right, Because this is also a segment. The other misconception perhaps has always been that anything impact has an offline element to it, has a people element to it and has much more of a service. As you said, you know charity type of an element to it, type of an element to it, but technology is possibly the platform on which a lot of this can typically be leapfrogged, to use a pun. So what are your views on how technology has been used and how is that changing, also given the digital public infrastructure we have here in India, for example, and the impact of some of that?

Speaker 2:

Yeah. So technology, as I was just saying, is, at least from an impact investing perspective. The key elements that you're trying to drive are affordability and accessibility of service, and on both those parameters, technology is very, very critical. Some of the businesses that we invest in would not even exist. I mean, you could not even dream of those things without technology right. So it is very important and India, in that sense, is a great.

Speaker 2:

You know, what they have achieved with UPI is phenomenal because we invest across emerging markets, and I tell a lot of the people that sometimes we take it for granted the kind of growth that we see in India and this became apparent to me only when I started looking at other markets we would assume that our GDP per capita is a certain level, there's a catch-up that we are anyway supposed to do, so that should happen, but it is not that clear.

Speaker 2:

Without naming the markets, let's say, when I looked at Southeast Asia or Africa, that there's a lot of things that India is doing right as a country to be able to deliver that growth consistently, year in, year out, and UPI is a great example of the way that they have set themselves up for a long-term growth right. So a significant portion of the population, which is, as you said, underserved, unserved are able to access services which are relevant, are able to access services which are relevant, they're able to unlock that productivity and that productivity is ultimately the value that is created for the economy. So, in that sense, it's a key enabler technology for all these things.

Speaker 1:

Yeah, it was yesterday actually, speaking to my domestic help, her son runs a delivery service and he used to have a car and he recently bought an EV and so the family keeps going, not that far from Bangalore, but they go every alternate weekend and she was saying that it used to cost us 2000 rupees to go to our hometown, which is Tumkur, which is not too far from Whitefield. But now he comes in the EV and you know we charge it and you know, go up and down Cost us 300 rupees. Wow, and to me that was. You know, as you know, climate is a big part for a lot of things we all do and you know EV is one aspect of it do, and you know eb is one aspect of it. But it really hit home because you know now, I was just telling some of our co-investors in that, based on that example, in the rest of the world, you know, eb is seen as sort of a environmental, environmentally better solution.

Speaker 1:

But in india, in addition to that, it's actually going to be about inclusion, right, it here's a family that would not have afforded to go buy their own private car, now that once they can afford the car and EVs, of course, are not that expensive anymore. The running costs are actually extremely low and we also saw in a few other places where people were going from a cycle to an electric cycle because the running cost for an EV was, you know, really, really low compared to. They couldn't afford a petrol scooter. They could buy the vehicle, but they didn't have. The running costs were prohibitive. But now, all of a sudden, the running costs are also getting, you know, extremely attractive.

Speaker 2:

Right, it is changing. I think there is all this transition, right. I mean, these are the good examples of what Bill Gates calls green discounts. Right, there are discounts available Already. The solutions that move us to green are at a discount, right. Obviously, there are a few things where there is green premium, but this is a very good example of a green discount in the economy. Correct, yeah.

Speaker 1:

And the impact of that is just phenomenal, right, because we are used to reading stories about, you know, tesla and BYD and all the sort of first world benefits of EV, right, but this is one which I don't think has really been experienced yet at the scale that it can. Maybe we can talk a little bit about, you know, the founders themselves, right, because we are all used to sort of the dot-com era of the 90s in the US and then the mobile first era in India, whether it was the Zomatos or the Swiggy's or the Zepto's and things like that, which are sort of bringing mostly conveniences and, along the way, of course, they're employing a large number of people, so there is a strong impact as well. But they're, you know, intended to be sort of high growth companies with a certain type of a investment structure and a cost structure and and growth I wouldn't say at all costs, but there have been phases in our journeys where there have been some of that as well. Um, and that takes a certain type of a sort of a founder who you know is is certainly sort of the workaholic who is, you know, trying to get there as fast as possible, right, and you know with, uh, generally.

Speaker 1:

You know certain characterizations, um, but how do you characterize founders? You know certain characterizations, but how do you characterize founders? You know needing impact investments right, or technology-based impact investments. Are they similar? What are some differentiations? What is their outlook? Like you know, how do you say this is the right type of founder to back for such a startup?

Speaker 2:

Yeah, so I can share from what our learnings I've had from our investments. Right, the critical thing is you know, the impact goals are our goals. We don't say that this is what the company should do. We try to find an alignment, saying that, okay, we are trying to achieve this. Is there an alignment? As long as that is there, we are not saying that these should be the company's goals or whatever. So we are essentially trying to understand the businesses. So we are essentially trying to understand the businesses.

Speaker 2:

But what we have seen in general is most of our founders are a little more mature, most of them either mid to late 40s or maybe late 30s, and they have been in the industry. They have understood the problem statement of the problems that exist in the industry and they know the solution. They know the people who will get them dealt to deliver that solution. They have the network to solve for that and uh, and that is the common theme. So when I look at our investments whether it is pinag, where nippon uh, you know he comes from such rich experience in supply chain finance um, at probas, um, it is Rakesh who comes with, again, strong experience in the entire distribution space. We invested in Vietnam in a company called Tech Co-op Again the founder there. She comes with a lot of experience in the food space, in the tech and financial services space.

Speaker 2:

So I think that is what, at least maybe that is what we are attracted to, because we are looking for businesses which scale profitably. You know, and and this is what you know, one of the persons in the book also mentioned uh from future planet. He said there is no impact in, you know, having to shut down the business and 500 people right, uh, ultimately you need to figure out models which are able to sustain. So for the impact to sustain, the business has to sustain. And because we look for that sustenance of impact, we end up veering towards founders who have solved for that, while their businesses are already impact-oriented. They already know they have built a business which can sustain and hence sustain that impact as well.

Speaker 1:

Got it so deep domain experience and expertise, understanding of the, the problem space and the right and the solutions which are financially viable where the business is going to be around.

Speaker 2:

because, you're right, customers are trying to depend on this business and and it'll be a bigger damage to them if the business goes yeah yeah, so I mean, this is something that we just learned from our own investments, that we have made right, so they end up being this, and I think this is also because whatever we are looking for is exactly in alliance with this set of people.

Speaker 1:

Yeah, yeah, no, I think, having said that, it is interesting now that as we interact more and more with the youngsters also, these are starting to become important criteria for several of them too. I think it's impressive to see how I told my son yesterday that one of my colleagues is moving into the same gated community as us and he said oh, so now you both can carpool. The instinctive reaction was that now that you can do some right, I mean the instinctive reaction was that you know, okay, now that you can do some sharing here, I was quite impressed. That wasn't the first thing that came to my mind, but you know, it's interesting that the youngsters also are quite conscious about yeah, they're conscious, and I think there's a lot of.

Speaker 1:

Can they see a business?

Speaker 2:

opportunity there, Exactly exactly, and they're generally a lot more purpose-driven, the youngsters these days, than probably we were at that point of time.

Speaker 1:

You're a youngster compared to me, but yes, so you know, maybe we can switch a little bit to the India focus and a little bit more back to the book as well. You know you talked a little bit about, you know, the microfinance sector, and particularly our friends at Low Capital have been quite active in that sector as well. You talked a little bit about the microfinance sector in particular. Our friends at Low Capital have been quite active in that sector as well. Maybe we can dive in a little bit in terms of what do you think they saw when they got into this and how has that played out?

Speaker 2:

Yeah, see, this is the exact same question that I asked uh vishal, as well as to uh, how, how is it that, you know, most of their firms becoming ended up becoming so successful, which also translated into good returns, right? So, um, their fund too, was some 22 percent dollar irr in the top decile, uh, so, so they did phenomenally well, um, and uh, you know so. So vishal himself comes from a bent of mind. He is actually more, you know, social oriented. He wanted to do something, uh, socially. He was very socially inclined, wanted to do something in that space, and that's why he came back to india, set up low capital, whatever.

Speaker 2:

And uh, he says that he's trying to understand the exact purpose of the founder. Right, he's saying I want to make sure that this is, uh, this is not something that they are kind of. You know, they're so on opportunity, just building it, because then it will not sustain. And when they have the right purpose, then they're thinking of the customer and solving for the customer and they'll not do anything wrong in that sense. Right, because if you're solving for the customer, in his view the microfinance is a very simple business.

Speaker 2:

People hardly default, etc. Only when you go over aggressive or you know, when you're not aligned with what the customer wants, when you over leverage him, that is when you end up making mistakes. If you think from a customer's perspective, then you will not make those mistakes. And and he says, you know that focus has been there throughout all the portfolio companies, because that is the first thing that they check for when they have conversations with the. And he said you know, 70% of our work was just promoter referencing. What do people think of it? And all the other analysis could be 30% of the work, but 70% is promoter referencing and we want to make sure that they have the right intent or the right thought process on how to address the customer.

Speaker 1:

Very interesting, um, I think from a founder perspective also. Um, you know, during the early days of course you know it's it's really survival and getting things going um, but I think at the end for all founders, the customer satisfaction churn all of these metrics when you start looking at it all comes down to the fundamentally the impact you're having with the customer, right, whether it's yeah, it is very important, but the founder has so many goals and they run after growth.

Speaker 2:

Sometimes they forget that keeping our existing customers happy is also very important, so they don't focus as much on the NPS score. Sorry, whichever way, right, and that is where you know they have. I mean, you can't fault them because there are so many things at play managing the team, managing investors, fundraising and all these things.

Speaker 1:

So so sometimes that focus wears away. Yeah, yeah, it's interesting, I think, just reflecting as you were speaking on some of our portfolio companies that we have not fundamentally classified as impact investments but are actually having a lot of impact in their journey. So in many ways for us it's not necessarily the go-no-go sort of a thing. I think in many of the businesses uh, we've been debating this a lot. Also, right, are there businesses that we will invest in that will wipe out a sector of uh of businesses, if it is in the success case, or will businesses we do really be accretive to whatever is already out there and people's livelihoods? Right, and how will that transform? Right? It's a very especially with AI now coming into play. The business is at risk and, as we see, you know, in some ways we have to almost bet that in a success case. You know it is.

Speaker 2:

No, I really like your portfolio. I really like your portfolio. I really like your portfolio. There are so many investments, as you said, maybe you're not made with the intent to drive impact, but they're really impactful. And also, I have already met so many founders of your companies right, and they are really solving it the right way as well, whether it is Navdhan or Finag or, you know, potion, so really doing good work.

Speaker 1:

Yeah, we're pretty excited. I think all of the companies you named and several others, I think, directly or indirectly, they end up having a lot of impact as well. Let's talk a little bit about you know, if you're a VC fund, right, and most VC funds, of course, are either 8 plus 1 or you know best case 10 plus 2. And a few exception case are 11 plus 3 years, and that's for those who don't know, that's the life of a venture capital fund. So it's 10 years typically, with a couple of years of extension, and the expectation, of course, is that by that period of time you would have exited all the portfolio companies and subsequently you know, so to speak. So, from the point of view of impact funds, do LPs have to think about it from a longer horizon or is it essentially the same? How are they structured?

Speaker 2:

See, as I said, impact funds. While there are some impact investors, again some DFIs were willing to give you that capital for a longer horizon, ultimately when you make a fund, it has a reasonable amount of investment from purely commercial investors and they see the opportunity and impact from a returns perspective right and they have similar return expectations, similar timeframe expectations. At least most of the impact funds I know follow a similar 10 plus 2 structure. I don't know if anybody has an exception, but these days some funds are able to raise evergreen funds or longer tenor funds. Even one of our investors, one of our lps, was keen on doing something like that. But I think as a pool, when you get all the investors together, 10 plus 2 was the common ground got it and now the ira expectations identical higher, lower.

Speaker 2:

Yeah, so the IRR expectations are very similar? If it is not, then, as I said, know the ifc definition right of what is the intent.

Speaker 1:

Uh, what are the?

Speaker 3:

the areas.

Speaker 1:

What is the contribution and how are you measuring the impact are kind of additional parameters to bring into flow, but broadly speaking it has to fundamentally make financial sense from an investor's perspective as well.

Speaker 2:

And yeah, largely batting on, perspective as well, and largely batting on a. That is the non-star metric in both cases, exactly so. So the the way, uh and and this is at both leaf frog and and blue orchard right, I mean the way the impact is framed, is because there's an opportunity here to serve and create value and that will result in value for the businesses that we invest in and in return value for the investors. We're not saying that we have to get concessionary returns or concessionary capital to solve for that opportunity Got it.

Speaker 1:

Excellent, excellent. So, from a founder perspective, as you look at opportunities here, what are the hottest areas in your mind and what are you most excited about? What do you think? What are our startups that would say, okay, I got to take a look at this.

Speaker 2:

Yeah, so assuming that you have a wider definition of impact, because everybody comes with their own definition of impact the sectors that generally have seen the biggest activity are the sector that has generally seen the biggest activities financial services. And it is right in a way, because if you look at even India right, I was looking at the metrics and India financial services has grown 50x in last. The market capitalization of financial services has grown 50x in last 20 years, yeah, right, it's a big, big, disproportionate part of the stock market Stock market and you know it used to be already a large segment. It has now become even larger, more than 30%. 35% is financial services and as we kind of scale, I think financial services will continue to play an important role because there's still a lot of work that needs to happen. There is still so much underserved population, so there is a lot of growth still in that segment, but there are other and that includes the whole BFSI banking.

Speaker 2:

Banking, financial services, insurance right and investments, yeah, so yeah, wealth, I mean we are far behind on all those parameters. Then, in general, among the other sectors where we see a lot of opportunities these days and which are also exciting, healthcare, which I worked on earlier, is interesting. There are models which are, you know, healthcare lends itself very well to impact, as well as there are models which are solving for the real needs. Then there is, you know, climate is becoming important, very important area, and I talk about that in the book as well, that you know, climate is something that everybody should try to solve for right, it's the biggest crisis that we are facing, though there is a uh, I mean, these days, with whatever is happening globally, there is a people are not recognizing that as a challenge. And then, other than climate, then we see a lot of opportunity in agri, and you know these areas. So this is, these are the areas that we usually see opportunity.

Speaker 1:

So these are the areas that we usually see opportunity, got it, got it, got it. And in terms of the exit criterias and exit opportunities here in India you're saying exactly the same would apply. So the public markets would be good opportunities for these companies to exit in. Good opportunities for these companies to exit in. Do you see any? Given that the growth is going to be slightly different from the high-growth companies, how do you see the growth stage, investor appetite for these types of companies? Of course, many of them might already be profitable. Do you see different segments coming in there? I know in the tech high growth segment we've had the soft banks and the tigers and the vestiges and some large names here writing fairly large for long capital checks. How is this ecosystem set up?

Speaker 2:

I mean you said it rightly at the beginning that India has a good IPO market. With whatever has happened structurally over the last few years, the kind of demand there is for an IPO is phenomenal and because we look at across markets and this is not something that is easy to achieve, so India in that sense has positioned itself very nicely. A lot of the LPs are seeing exits only out of India. When they get money they're seeing exits only out of India. A lot of the other emerging markets they're not seeing any exits. So in that sense India is in a good sweet spot. But then that IPO is an endgame for a lot of investors in the value chain and that then creates it just percolates backwards Because there's an exit opportunity there, a lot more investors are attracted to this market and in turn creates a better opportunity for all these firms, specifically from the kind of companies that we invest in.

Speaker 2:

We find that because we come on board and then you know, fix a few things, not materially big things, but you know, fix a very few things on ESG, you know impact and all these things. It adds an additional element of interest and a few more people get interested and ultimately that additional interest counts for a better value at some point of time so it's interesting.

Speaker 1:

So you're almost saying that everybody who's interested in a regular, you know, financially viable business, plus those who have an add-on uh thing, so in some ways it should be almost a premium for these companies, because it is more investor interest for exactly equivalent companies exactly the higher inter investor interest for equivalent companies, exactly the higher investor interest in our world equates to.

Speaker 2:

Because the way the private equity world is structured, ultimately there is one winner for the deal. It's not like a book-building process. So ultimately more investor interest leads to higher valuation.

Speaker 1:

That's the best marketing ever for impact investing, in the sense that, yeah, you're right. Actually, there's a certain segment of funds that cannot be investing in the other companies but that are looking for opportunities in the sector as well, but in addition to everybody else, I think that's it.

Speaker 2:

Yeah. So ESG has become such a basic thing, right Because IFC is an investor across so many funds, or all the DFIs are invested across so many funds. It has become a very important part of assessment for a lot of the companies and when they come and see a company that the company has already addressed something. There is a definite and it shows in the way the company functions as well when you have your policies and procedures right and how you kind of look after your employees. It all adds up. It shows in the company's performance as well when you have the governance systems right. So so it it helps the company in many ways yeah, I think we're seeing this across the board, right.

Speaker 1:

I think where there are governments, failures in companies, uh, it catches up with you in very difficult ways over time. So, regardless of whether it's a requirement or not, it is actually mandatory. In any successful company's journey. At some point this starts becoming the focus, and, in fact, you mentioned Navdhan. We were asking Nithin about some of these things and he said well, you have to put all this in place on the day you incorporate the company. In fact, the specific question we asked is when do you think of IPO readiness? He said all the founders were saying, well, two years before or four years before, and he said it's on the day you incorporate the company, because you have to get the good habits into the system very, very early.

Speaker 1:

Maybe a couple of thoughts on the whole. You know wave of AI and the rate of change in tech. Does that pose opportunities, challenges and you know, historically, impact investment or the founders have not really had a, you know, a solid CTO? I think that was one of the exceptions that we liked about Finac right when we first met him also, and and you, of course, have followed us into this journey. So does that change how founders should be thinking about this when they're starting off now, incorporating tech from day zero.

Speaker 2:

See, my learnings, or AI, is largely from what I hear from different CTOs across our portfolio companies. Right, we also believe and one of the investors in the book Capria Ventures they were ahead of the game. They hired some people to start so, on their own, they hired people who would then figure out how to solve for their portfolio companies, how to embed ai. Uh, and there are two ways. Right, I mean you try to improve the customer service as of now, the gen aips, or you try to focus on the uh, improving your operations yeah, so, um, there are um ways and means of looking at this.

Speaker 2:

But you know, we ourselves are trying to figure out what is the best uh thing for our portfolio company. So, uh, in, in march, uh, this march we had a um, we got all all our portfolio companies together in london and then just to kind of brainstorm and debate what is and learn from each other, right, because everybody is on a different journey and everybody thinks of it very differently. There are some companies in our portfolio which are ahead and already integrating AI in various ways into their business. So we ourselves, as we go along, are trying to figure out, because there is so much uncertainty on how these things will evolve. But one thing is very certain that it is very important for everybody to incorporate this in their solution, right, otherwise you'll be left behind. So the important thing is not to be left behind. Even if you have to stay at the same place, you have to figure out how to incorporate the solutions.

Speaker 1:

Yeah, I think that's well said. I think there is no getting away from it and in many ways, well said. I think there is no getting away from it and in many ways it makes customer access. You know, the ability to provide more personalized services, because I think the segment that needs heavy personalization and that's actually probably been the bottleneck in the past for, you know, adoption right and, I think, personalization and instant support. I think people are most hesitant to get on a call of an 800 number and be on thing and it's also devastatingly expensive for the other side, right when, if you're on hold, your customer NPS is going down and your costs are going up, and I think there's definitely going to be the start of some very efficient businesses here as well, but probably even higher expectations from the customer. So maybe we'll end with some thoughts on some, you know, personal questions. You know what is Mahesh doing when you're not writing a book and when you're not investing in companies. What do you do for fun?

Speaker 2:

So I have two kids, 11 and 4. And because there's such an age gap between them, you know both me and my wife have to be involved taking care of both of them. But outside of that I enjoy watching sports like any Indian. You know, cricket is something yeah.

Speaker 1:

I know I was calling you the other day and you said well, the IPL match is starting in Singapore, so yeah, so so I was.

Speaker 2:

I follow cricket religiously test matches as well, and then I try to, you know, keep myself a little fit. Though it doesn't show, I put in a lot of effort yeah, it is given up on that, the show part. I just think I'm very fit and you know, favorite movies, favorite books, favorite authors so quite a few favorite movies Again. I watch a lot of movies, so I was born and raised in Andhra. I mean movies are such a big part of the culture there.

Speaker 2:

Maybe, one from an entertainment perspective and one from an inspiration perspective. I quite like, from an entertainment perspective, the recent release that came Pushpa. It was not the second one, the first one Then from, I think, overall movies. I think this I'm not able to recollect the name now I quite liked Shah Rukh Khan's movie that he did with Aashtosh Gowrikar. I forget the name of the movie Swadesh, Exactly.

Speaker 1:

Nice, Great Well, Mahesh, pleasure having you on the show and I wish you all having you on the show and I wish you all the best with the book and, of course, with your journey, on continued journey on impact investing. Thank you for sharing some insights here. You know that were a bit new to me and I'm sure will be to our audience as well.

Speaker 2:

And we look forward to continuing to work together on hopefully more companies.

Speaker 3:

You know FNAIC being you so much, sanjay, I really liked it. Thank you, loved it. Dear listeners, thank you for listening to this episode of the podcast. Subscribe now on your favorite podcast app for free and you'll be the first one to know when new episodes are available. Just search for Prime Venture Partners Podcast in Apple Podcast, spotify, castbox or however you get your podcasts, then hit subscribe and if you have enjoyed the show, we would be really grateful if you leave us a review on Apple Podcast. To read the full transcript, find the link in the show notes.