Impact Investing in India – McKinsey
- The global market for impact investments is projected to grow to $300 billion or more by 2020
- Mainstream investors have entered the arena and are bringing scale to what was earlier considered a niche
- Between 2010 and 2016, India attracted over 50 active impact investors, who poured in more than $5.2 billion. About $1.1 billion was invested in 2016 alone (equity investments only, not including debt)
- Much of the growth has come from a doubling or more of average deal size, which rose to $17.6 million in 2016, from $7.6 million in 2010. The volume of deals has remained stable, at about 60 to 80 a year.
- Impact Investors funded 65% of deals by volume (including coinvestment deals with traditional PE funds) and 52% of investments by value. The balance has been funded by PE firms and VC firms.
- Industry diversification is increasing but still dominated by financial inclusion and clean energy which made up 64% of deals in 2016 compared to 88% in 2010. Education, agriculture and healthcare deals have been increasing.
- There were 48 exits between 2010 and 2015 with the median IRR at 10%. The top 1/3 had a median IRR of 34% and a range from 18-153%.
- Financial inclusion stands out for profitable exits as nearly 80% of the exits in financial inclusion were in the top 2/3rds of IRR performance.
- Holding periods at exit have been about five years in both average and median terms.
- McKinsey believes impact investments have the potential to grow 20 to 24% a year between now and 2025, reaching $6 billion to $8 billion in deployment annually in India.
- The article goes into how impact investors and conventional PE and VC firms bring complementary skill sets.