Unlocking Sustainable Returns: Upaya's Blueprint for Impact Investment Exits

Upaya Social Ventures is a nonprofit organization building an inclusive economy by providing investment and support to early-stage businesses creating dignified jobs for people living in the most extreme poverty. We first partnered with them in 2016 and we've been amazed to see how their model combines true social and financial returns. We invited Upaya to share what they've learned from their impact-first investments.

AB Chakravarthy, coCEO & Ankur Mehta, Director of Investments & Portfolio

2024 has been a watershed year for Upaya and our portfolio companies. By year-end, we will have successfully completed four full exits and three partial exits. An exit is not only a marker of a good investment but also of a fertile and thriving ecosystem, making way for more capital to flow in. More importantly in impact-first investing, an exit signifies that the company has achieved sustainable impact. All the companies we are exiting this year have cumulatively created 9939 dignified jobs for those living in poverty.

Upaya’s investment exits are currently at various stages of transaction, and we will continue to announce them throughout the year. Each of these companies operate in vulnerable geographies affected by underdeveloped job markets, climate change, and/or extremism. Achieving impact, growth, and successful exits in these challenging environments has been especially gratifying.

Upaya was founded in 2011 with a mission to fight extreme poverty with dignified jobs. We do this by investing in and supporting enterprises that can create dignified jobs at scale for those living in extreme poverty. Our portfolio of 40 ‘missing middle’ companies in sectors such as waste management, agriculture, and handicraft or artisan-based have enabled more than 42,000 jobs till date. Around 46% of those jobs are being created for women and 50% of our portfolio is led by women founders. While we are very proud of all our portfolio partners, these exits are driving home important learnings for us.

Profitability Does Not Come At The Expense Of Social Mission

We believe that businesses can grow in harmony with their impact objectives, and that profitability does not need to come at the expense of their social mission. This reflects in the exits we are experiencing. At Upaya, a marker of scale is for our portfolio companies to create at least 1,000 jobs within 5 to 7 years of our investment. Upaya, with its expertise, has identified and worked with these companies to gear them up for growth and generate returns. Take for example, Resham Sutra, a company that has been replacing the physical drudgery and injury-prone thigh reeling techniques used by women weavers with its innovative suite of products in silk reeling and spinning. During the investment period, they have been able to reach 10,000 women producers, expand to new geographies in Northeast India, and launch the Gram Sootra digital platform, a full stack solution for rural textile producers that increases productivity and income of the women weavers.

We have also partially exited Go-Desi (who secured the last round of investment in May 2024), a packaged confectionery food brand that has no added color, flavor, or preservatives. Their products are made in rural Karnataka, employing more than 250+ women, ensuring 40% of the value that the consumer pays goes back to the rural economy. During the last impact survey conducted by our impact measurement team, the jobholders reported a 253% increase in their average daily household income.

Flexible Investment Approach Meets The Enterprises Where They Are

We recognise that all of our investments may not grow exponentially but they can grow to be sustainable and profitable businesses while achieving deep impact. Our financial instrument of choice — the convertible note — provides this flexibility for both, the companies and us. This methodology and profiling helps avoid the typical expectation mismatch between investors and businesses, allowing companies to grow at a pace that suits their DNA while aligning exit planning with their unique circumstances.

We use a unique methodology in our portfolio construction where (a) one-third of the portfolio are debt candidates i.e., they use our capital like debt and only once they grow profitable, they can service interest in earlier years and in later years, redeem our convertible notes hence paving the way for exit. These companies carry a low risk of failure. (b) Another one-third grows exponentially like a typical venture-funded company and attracts large follow-on capital and generates exits through it. (c) As for the remaining one-third of the enterprises, we keep enough space and time for them to evolve and take the route of either (a) or (b) as they build the business.

Impact Investing Resources Are Scarce And Additionality Is Key

One of the key challenges in impact investing is the scarcity of capital for high-impact and job-creating enterprises. Less than 5% of global venture capital goes towards creating jobs for the 2 billion underserved people. Less capital is available for impact enterprises as there is a lack of predictable returns and exits. Most investors are often chasing tech-driven startups in the impact ecosystem, neglecting thriving small and medium enterprises (SMEs) with low-tech focus but efficient operational models. It’s a classic chicken and egg scenario: investors shy away from these businesses due to the perceived lack of predictable returns and exit opportunities, but without investment, impact companies cannot unlock their full potential in order to offer attractive exits to their investors. At the core of it, there is a non-alignment of returns and impact expectations. There is less focus on deep-impact companies and often suboptimal impact returns are accepted for business scalability.

At Upaya, our promise to funders is to create a deep impact while delivering stable and predictable financial returns. This is further supported by our underwriting process, which ensures we invest in businesses with strong fundamentals. Since 2016, we have made 40 investments without a single write-off. Out of our 29 active portfolio companies, 18 are already profitable, and the rest are well on their way.

Extreme poverty is complex to address. It really takes a village to create success such as this and we owe this success to our pioneering funders who supported us in creating the Pool of Recoverable Grants Model which has allowed us to invest in these impactful businesses; portfolio companies who remained flexible and aligned with our exit strategies; our co-investors and follow-on investors who are as mission-aligned as we are; and the amazing team at Upaya that works passionately to make it all happen.

As we move forward, we remain open and eager to collaborate with stakeholders who believe in our model. We firmly believe that investing in deep-impact companies can generate solid returns while driving real social change. If you share this vision, we’d love to partner with you to unleash more patient capital into impact investing and demonstrate that small and growing businesses can indeed be powerful engines for creating dignified jobs and transforming communities.

If you would like to get involved or explore some partnerships with us, please reach out to Shruti, coCEO at Upaya Social Ventures at sgoel@upayasv.org.