Early stage ventures are built not born.

That was the assessment of Bob Pattillo, founder of Gray Ghost Ventures, at April’s Sankalp Unconvention Summit in Mumbai. Pattillo suggested that investing in a social venture fund would be a good way for angel investors to dip a toe in the social enterprise market and gain confidence.  Angels should evaluate fund managers, participate in the first tranche’s due diligence, sit on investment committees and learn how decisions are made, he advised.

Not only would this allow investors to gain experience in the investment process, but would also ease them into viewing impact investing as an experiential journey rather than merely a stream of transactions.  As angels become more comfortable and enthusiastic, new relationships can grow between fund managers, impact managers and entrepreneurs, allowing angels to better understand the impact economy and its various players.

Pattillo’s recommendation is interesting considering the context of social enterprises in India, most of which receive far fewer angel investments compared with their commercial counterparts.  Reasons for this could include the limited understanding of the social enterprise space and a fear that these enterprises lack business experience and hence less likely to succeed.  Many investors are unaware that early stage investments in enterprises serving the Base of the Pyramid (BoP) can generate both financial and social impact returns.  As a result, social enterprises with innovative business models face difficulties in surmounting the funding gap at the early stage, and fail to gain momentum in their growth cycles.

Ultimately, when making an investment, angels should really be looking at the entrepreneur – does he or she lead with a moral imagination?  Even if financial returns are lower, there is often more gratification in seeing diversified risk spread through communities in the form of continuing social impact, be it through building sustainable ecosystems, creating jobs for the BoP or fuelling innovative business models across numerous sectors.

There are a number of successful social enterprises in India that have emerged in recent years through angel funding and progressed to receive institutional funding over their growth cycle.

An example is Forus Health, a Bangalore-based start-up, which has produced an ophthalmology pre-screening device to detect major visual problems, which constitute 90 percent of blindness.  The enterprise hopes to address the disproportionate doctor-to-patient ratio in India as well as offering a cheaper device compared to market rates, with more potential to harness advanced technology, having also partnered with Amazon’s cloud service. After obtaining a seed capital of Rs 4 crore sourced from angel investors in 2010, the company grew rapidly and received Series A funding amounting to $5 million from IDG Ventures and Accel Partners in 2012.

Once the perceived uncertainties to investing in social enterprises have been surmounted, angel investors in India have the potential to build, through collaborative efforts, a sustainable ecosystem for the impact economy.