The case for impact-first capital in India

Over the last decade, I have seen the journey of over 200 impact entrepreneurs through The/Nudge Incubator, Accelerator and Prize challenges. The for-profit founders among them came to us through our Prize challenges, and watching them, I saw one pattern repeated. Early money arrived in small amounts, from angels and incubators. The round that takes a company mainstream either never came, or came years later than the business deserved.

Over the past year, we studied over 125 companies working on jobs and incomes in India, and the pattern holds. The typical company is real: revenue, returning customers, measurably higher incomes for the people it serves. It needs three or four crores to grow, and it cannot raise them. The problem is not the quality of the business. A company like this will likely return two or three times its capital over eight years. A venture fund needs each investment to have a realistic chance of returning twenty or thirty times, because one or two winners pay for the whole portfolio. This company does not offer that chance, so the fund says no.

Companies like these need a different investor: one who accepts a longer return horizon or a lower financial return in exchange for more impact, and who underwrites with the same rigour as anyone else. That is what impact-first investing means, and India has very little of it.

What impact-first means.

Every investor in this field eventually faces a decision where more impact and more return point in different directions: a portfolio company can move upmarket to customers who pay more, or stay with poorer customers and grow slower. A finance-first investor resolves that conflict in favour of returns. An impact-first investor resolves it in favour of impact, while holding returns to a floor stated in advance.

The distinction is old. Monitor Institute's 2009 report defined impact-first investors as those who optimise for impact with a floor for financial returns, willing to give up some return if they have to.^[1] In practice, that means the return target is set where the business actually is, and written into the fund's documents rather than left to goodwill.

Why markets will not fund these companies.

This is not a market failure. Markets price these companies correctly and decline them, for the portfolio arithmetic described above.

In 2012, Monitor Group and Acumen, drawing on Monitor's research across India and Africa and a decade of Acumen's investing, named the answer the pioneer gap: the early, expensive stages of proving a new model with low-income customers, which almost no investor will fund.^[2] Kevin Starr of the Mulago Foundation described one company caught in it. Komaza had spent eleven years building smallholder forestry in Kenya, with five million trees and twenty thousand farmers planting them, and still found itself at risk of dying while it waited for its next round, “drowning in 3 inches of water, 5 feet from the shore.”^[3]

Some companies survive the gap by changing shape. To fit venture expectations they move to richer customers and easier geographies, which removes the impact that justified the company in the first place. Starr made the underlying point in 2012: few solutions that meet the fundamental needs of the poor will return investors' money at all.^[4]

Why the term is spreading.

In 2009, when the terms were coined, both kinds of investing were expected to grow. Only one did. The Global Impact Investing Network now counts $1.57 trillion in impact assets,^[5] and 79% of the investors it surveys target risk-adjusted, market-rate returns.^[6] Most impact capital is finance-first capital.

The imbalance produced a correction. In 2019, the MacArthur Foundation, Rockefeller Foundation and Omidyar Network launched the Catalytic Capital Consortium to fund investments that accept lower returns or higher risk in order to draw commercial capital in behind them; development finance institutions, foundations and family offices have since joined its work.^[7] In 2021, Bridgespan published a report arguing that wealthy families are best placed to occupy what it called the “neglected middle ground” between market-rate impact funds and grants.^[8]

In December 2025, Kevin Starr argued in Stanford Social Innovation Review that impact investing does not exist: there is philanthropic investing, there is commercial investing, and there is “nothing in between.”^[9] He is right about what exists today. The middle is missing because almost nobody has built it, not because it cannot exist.^[10]

The gap in India.

India's headline numbers hide the problem. The Impact Investors Council counted $4.96 billion of impact equity across 438 enterprises in 2024,^[11] but recent tallies include $340 million into Udaan, a B2B e-commerce platform, and $420 million into PharmEasy, an online pharmacy.^[12] When the impact label covers late-stage e-commerce, it no longer identifies the companies that need different capital.

India's first impact funds have graduated. Aavishkaar started in 2001 with almost no money, backed thirteen companies before its first close in 2007, and today manages eight funds and roughly half a billion dollars, writing $5 to 25 million cheques with commercial returns as a stated objective.^[13] Most of that founding generation followed a similar path. Their success is real, and it emptied the stage they started at.

What remains is funded at the bottom and at the top. The bottom works. CSR alone moves about ₹30,000 crore a year.^[14] First cheques reach impact-first companies through technology business incubators, funded by the Department of Science and Technology alongside philanthropic and CSR capital. Global impact-first investors like Elea, Acumen and Yunus Social Business take the same early risk. At the top, market-rate capital is available for companies whose risk and returns it can underwrite.

What is not funded is the round in between: three to five crores of institutional equity, at a return target matched to the business, for a company that has proven its model with low-income customers and grows too slowly for venture funds. In the agriculture companies we track, a $2 to 4 million round takes seven or eight years to close, against under two for consumer technology, and exits take eight or nine years against a global median near five. Companies stall there for years.

The objections.

A lower return target means lower standards. It does not. The diligence, governance, milestones and path to exit are the same. The concessions are the time horizon and the return target, stated in advance and chosen knowingly by investors who want more impact per rupee of return given up.

Cheap capital keeps weak companies alive. It can, if it never ends. Impact-first capital is designed to end: its purpose is to de-risk operations so companies can transition to mainstream commercial capital, whether that is commercial bank debt, working capital credit, strategic M&A or growth equity. The test is whether the business reaches financial self-reliance, not whether it forces itself into a venture round.

There is no way to verify that impact decides. The verification is in the documents. Impact should appear in the fund's legal mandate, its measurement obligations, and its carry. If the fund earns the same whether impact happens or not, the label is marketing.

Grants could do this instead. Grants are needed: for nonprofits, and in social enterprises to build early solutions and prove models. Growth needs downstream capital. And a grant is spent once, while returned capital funds the next company.

Where TILT stands.

TILT First Edition is a ₹250 crore early-stage equity fund. We plan to invest between ₹2 crore and ₹16 crore in each of 20 to 25 companies serving The Next Billion: the 140 million households earning ₹1.5 to 5 lakh a year. We expect our strongest companies to earn returns any investor would recognise. Being impact-first shows up in what we accept alongside them: a higher failure rate, longer holds, and no pressure on founders to move upmarket or rush an exit. Our carry is linked to measured impact. The mandate is narrow: take companies that first cheques have proven, hold them to commercial discipline, and hand them over ready for other investors' capital, impact-labelled or not.

That is the round India is missing, and it is the one we intend to fund.