Social Startups in India: What is the situation?
Created on 02 Oct 2020
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Updated on 03 Oct 2020
India has become well known for the startup ecosystem it has created, and mostly, this ecosystem is known for a large number of tech startups it has.
However, a lesser-known type of startup is the social startup. Read on to know more about it.
What are Social Start-ups?
Social startups or social entrepreneurship are businesses whose main purpose is fulfilling some social mission or goal. Since it is a social startup, many people confuse it with NGOs and feel that these businesses do not aim at making money. However, that is not always true.
Social startups are sometimes for-profit organisations, but their main objective is not earning profits. They aim to make the lives of their beneficiaries better by providing them products or services that solve their problems, and they try providing viable, sustainable, and innovative solutions to some societal problems that exist in the country.
Such social startups can be mainly of three types:
- Leveraged Non-Profit- This type of social entrepreneurship uses leverage in order to come up with innovative business models.
- Hybrid Non-Profit- This type of startup uses profits for some of its business activities so that it can sustain its business.
- Social Business Ventures- These are for-profit organisations that use the profits earned to fulfill societal goals and objectives of the organisation.
Social startups operate in various sectors, like agribusiness, health tech, clean energy, etc. In 2019, the number of social startup initiatives in India was around 400, and that number is increasing with a growth rate of more than 20% per year. This growth can be attributed to the various schemes that have been launched in the country, to help such startups to grow.
The schemes include various government initiatives like StartUp India, StandUp India, and various third-party schemes like the 10000 startup initiative by NASSCOM. Schemes like these help in providing a boost to such startups.
Some Popular Social Startups in India
Some famous social startups include:
This is a social entrepreneurship venture that aims at understanding the customer and household needs and providing them with viable solutions and service options. It aims to create more sustainable energy options for the customers, which might even help in eradicating poverty in the rural areas.
Harish Hande, the co-founder of Selco, has also been the recipient of the Ramon Magsaysay Award in 2011. Apart from this venture, Selco also has its own incubation centre which helps other social startups like itself.
This social startup was founded by Akansha Hazari in the year 2014. It is a marketing and data analytics company that provides local retailers with a platform to attract customers. This is done by a mobile-based loyalty program that aims to provide key resources to the local retailers.
It also enables retailers to access valuable data and insights that can help them in operating their business more efficiently. m.Paani was recently also able to raise around $5.5 million in a Series A Funding Round.
This is an image and video processing product company that uses a special technology to sort cashews on the basis of its shape, colour and quality. This special technology uses low-cost cameras and certain computer algorithms. It aims at providing an integrated testing model and grading and sorting method to farmers so as to minimise the manual labour required.
So, we can see that social entrepreneurship is something that can be really looked at because it not only leads to more growth in the startup ecosystem, but it also leads to the growth of certain backward areas and a better standard of living for some people.
However, one of the major challenges that social startups in India face is the difficulty in raising funds. Let’s look at the reasons why this is the case.
Why is raising funds for social startups a challenge?
Raising funds for any startup is quite difficult, be it a tech startup or a finance startup. However, raising funds for social startups can be even more challenging. Some reasons why this is the case is:
In such startups, the government plays quite an important role. It regulates this sector and creates policies around it, and for that reason, it has quite an amount of influence over this sector. Due to such policies and regulatory frameworks, it becomes difficult for startups to operate sometimes, which also affects their performance.
This is one of the reasons why some players in the private sector tend to opt out of investing in social entrepreneurship. In such cases, the regulatory frameworks need to be more transparent and balanced, so that it can encourage investments from private players as well.
Longer Time Periods Involved
Another reason why social startups find it difficult to raise funds is due to the long time span involved. Businesses, in general, require a longer time frame; however, the gestation period involved in social startups can be quite large. The larger the time period, the riskier the project becomes.
This risk-return analysis is something that the investors would need to do because a lot of times, investors look at an exit period ranging from 5-10 years, and that may not be the case in social startups. A good example would be any startup based on medicines or vaccines.
Gaining enough traction
Another reason why such startups are probably unable to raise funds would be because these business models might not be able to get a suitable market for their products or services. The ideas may be feasible, but they may not be scalable, and it might happen that those ideas may not be able to get a lot of traction.
Many investors also tend to invest in products or services that have markets with high potential for growth and scalability. For these reasons, investors might not want to invest in social startups.
Restricted Nature of Government Grants
The government grants and subsidies that are offered sometimes become too restrictive for startup owners. The grants may fix or allocate certain percentages or amounts that must be used for a specific purpose only, even if it made more sense to use that amount for some expense.
So, in such cases, the social startup gets funds, but they are not able to put it to the right use.
Despite facing problems raising adequate funding in most cases, social startups are something that is gaining the attention of both domestic as well as foreign investors.
There are many angel investors and venture capitalists who offer funds for social ventures specifically. These include Upaya that provides seed funding and developmental support to businesses. Other organisations are Villgro, Action for India, etc.
Other than that, many corporations also offer support to such startups that may be beneficial as well. Utilising such funds and resources can be useful for the growth of the organisations.
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