Why the Market For Impactech Businesses Is Growing Like Never Before In this article, we give you an overview of this up-and-coming sector

Businesses using responsible technology for the betterment of the world, commonly called impactech startups, are no longer the stereotypical non-profit companies. Today, impactech is a sector that has seen the entry of profitable startups that have proven that we can build a sustainable business with a social cause with the use of technology. They have broken the myth that impact, technology and profitability have to be treated separately.

These companies typically leverage technology and innovation to tackle diverse global challenges and contribute to the realization of sustainable development goals and help create a positive impact on the world. They aim to achieve both financial success as well as positive social or environmental outcomes. Simply put, they leverage technology to make the world a better place and tackle issues such as climate change, inequality, poverty, healthcare, education, and more.

The specific sectors that can be classified as impactech may vary over time, but some common sectors that fall under this umbrella include:

• Companies offering sustainable energy and energy efficiency technologies
• Organizations developing healthcare innovations
• Companies providing technology-driven solutions to enhance education
• Fintech companies focused on providing financial services to the underserved population
• Tech companies that facilitate or support social enterprises and impact-driven initiatives
• Agritech, cleantech, civictech that aim to enhance civic engagement, government transparency, and public services
• Companies leveraging tech to promote physical and mental well-being
• Organizations using technology to monitor, protect, and restore the environment and natural resources, smart cities and the like.

The impactech sector has traditionally been highly under-penetrated in India as compared to its global counterparts. For instance, while the global AUM in such companies has already crossed a trillion dollars across sectors in impactech, in India, out of over 114 unicorns only about 11 are in the space.

However, Covid-19 has given the sector, the first boost, which experts believe will soon push the sector to the fore.

The Covid boost

"With ESG and climate financing swiftly gaining traction in PE-VC circles, impactech startups will receive a significant impetus. Impact startups, armed with cutting-edge technology, show the potential for rapid expansion," said Abhimanyu Bisht, general partner, CapFort Ventures.

The global cleantech sector is projected to dominate power generation by FY2050 and the worth of India's cleantech market is projected to grow to $41 Bn by 2040.

Bisht also tells us the reasons behind the sector not taking off so far. "The under-penetration has been due to the complexities of getting funding. Accurately measuring the impact of these businesses can be difficult. Some investors prefer clear and measurable metrics, which can make it challenging for impact-driven startups to secure funding. The lack of awareness regarding this sector has also resulted in a smaller number of players in the market, thereby leading to under-penetration. However, with impact investing gaining momentum, there will be a higher influx of capital into the impactech sector, promoting its growth and expanding its reach."

Experts say that pre-covid, the market for impactech businesses was relatively underpenetrated, but it has been showing significant growth and potential. "Impactech has been gaining momentum as more entrepreneurs, investors, and consumers are recognizing the importance of addressing social and environmental challenges through technology-driven solutions," said Somdutta Singh, founder and CEO, Assiduus Global and angel Investor LLP in several marque funds.

The current challenges

Scaling a startup can become a major hurdle, particularly when the business undergoes swift expansion. "Startups need to efficiently handle their resources to fulfill the needs of a growing customer base while ensuring they remain profitable. Challenges in impactech startups also come in product development. Developing a product can be a challenging and time-consuming process. Startups need to pinpoint market demands and create products that fulfill those needs while managing budgets and adhering to deadlines," said Bisht.

Measuring impact along with market competition and sustainability also adds to the list. "Impactech is sometimes misunderstood as merely adopting impact metrics as an afterthought to attract investors or using new technologies only for impact without considering their full potential. However, the impact created may be invisible or indirect, which leads to difficulties in measuring it," he added.

Compared to traditional technology sectors like e-commerce, fintech, or software development, the presence of Impactech companies is still relatively smaller.

Somdutta Singh shares several factors that contribute to this:

• Awareness and understanding: People are still not fully aware of the concept of Impactech and the potential it holds for driving positive change.
• Early Stage of Development: Impactech as a sector is still in its nascency, with many startups working to establish and gain traction.
• Regulatory and Policy Challenges: Some regions face regulatory and policy hurdles that make it challenging for such companies to operate or scale effectively.
• Access to Funding: While Impactech has been gaining interest from investors and social venture funds, funding opportunities are still limited compared to more established technology sectors.
• Market Perceptions: Some investors and stakeholders might be skeptical about the profitability and sustainability of Impactech businesses, impacting their willingness to invest

However, experts believe that impactech has gained considerable attention and investment interest over the years and by resolving the above challenges, it will soon become a prominent sector.