More Funding Needed for Startups, AI to be Significant in the Future Significant resources and funding is needed to create a strong impact in the startup ecosystem artificial intelligence (AI) starts to play a more significant role, Vineet Rai, Founder and Chairman of Aavishkar said on the sidelines of the recently-concluded Sankalp Bharat Summit in Varanasi.

Significant resources and funding is needed to create a strong impact in the startup ecosystem artificial intelligence (AI) starts to play a more significant role, Vineet Rai, Founder and Chairman of Aavishkar said on the sidelines of the recently-concluded Sankalp Bharat Summit in Varanasi.

The Global Impact Investing Network defines impact investing as investments "made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return." At the core of it, impact investing is largely about aligning the investors' beliefs and values with the subsequent allocation of funds and solving social and environmental issues.

According to the Impact Investors Council (IIC) research, India saw USD 2.9 billion worth of equity investments made toward 275 impact companies, a significant decrease from 2022 with USD 6 billion. However, the slowdown witnessed in the global venture capital climate does not indicate the proposition that India, as an attractive investment destination continues to offer.

Climate startups have played a big part in the world of impact funding, with the onset of climate change being one of the biggest results of global warming. Kushal Agrawal, Partner at Lightrock said that climate is not the only part of impact but rather a subsection. "While we do have specific products focused on climate, Lightrock as a whole focuses on all aspects of impact. We have typically defined ourselves as people, planet, and productivity."

Lightrocket's portfolio features companies like Porter, a company which has had significant impact on the truck owner or the small-cargo fleet economy. Since its introduction, small-medium truck owners have benefited from access to clients and gigs through its app which has changed the way these fleets operate.

"Companies like Porter are commercially successful companies and have been market leaders. And that's what our dream is, to create market leaders in spaces that make a difference," said Agrawal.

Lightrock has a total investment portfolio of over USD 1 billion across sectors like healthcare, education, and financial inclusion. The firm's portfolio spans Europe, India, Africa, and Latin America with impact outcomes in areas such as sustainable agriculture and clean energy.

Despite the slowdown last year, 2024 has shown that business models that address critical problems attract interest from investors. With a population exceeding 1.4 billion, out of which 60 per cent are rural, the scope remains immense for companies to innovate and create impact within the country.

Vineet Rai, Founder and Chairman of Aavishkar Group said that as an investor, it is more of a responsibility without choice to see if the community can play a role in actually addressing the needs of the climate or climate issues.

"Otherwise, not only would we face issues, but humanity will face issues with survival. So I don't think there is a choice anymore, especially for people who manage capital. We have to find opportunities and options that would address the climate issues and address them effectively, emphatically, and hopefully quickly as well," said Rai.

While metro cities in India are bustling with global capability centers (GCCs) and international enterprises, startups in tier-2 and lower areas are significantly gaining traction by solving hyper-local challenges mainly because the founders understand the problems that exist in their location in a more personal way.

"When we go into tier-2, tier-3, and tier-4 towns, you are looking at entrepreneurs who have an intimate understanding of local challenges. And some of those local challenges have country-wide ramifications and potentially, global ramifications. So as investors, what we are looking for is an entrepreneur who can identify a challenge, understand the solution, and come up with a solution that is not only relevant locally but is relevant in the global context," said Rai.

Speaking on the current impact investing environment and the future, Rai said that there is no dearth of data or startups and that more capital needs to go into the startup ecosystem so that they can scale and meet the real challenges.

"A software will not solve every problem. Maybe somewhere down the line AI or GenAI will play a more significant role. But for that to happen, a significant exchange of data has to take place, or data warehouses need to be built that would allow generative AI to come up with solutions using the data as a background. There is a large amount of high-quality management that is thinking about new solutions for the problems that we see in agriculture. Most of these solutions are still very small but in a short period of time we will see them scale," said Rai.