India is a country of glaring contrasts: 400 million people living in extreme poverty alongside a growing middle class; persistent and prevalent challenges like unsafe water, air, and sanitation in a nation that just sent a mission to Mars; 2.9 million young people studying engineering but many unable to find jobs.
The Lemelson Foundation believes that invention can reconcile many of these disparities and improve the lives of millions of Indians. But invention-based businesses in India need a more supportive environment in order to realize their full potential.
The Foundation has been working in India for more than a decade supporting businesses that create products like small-scale renewable energy systems, sanitation systems, and medical devices designed to reach the underserved. Tangible products like these are essential for addressing the needs of the poor who don’t have reliable access to electricity or hygienic sanitation, and face death and disability from pregnancy and childbirth complications, infectious disease, and other health challenges.
Through its work in India, the Foundation observed that invention-based entrepreneurs were struggling to build their businesses. To better understand these challenges and help identify possible solutions, the Foundation decided to fund several research projects.
This week the Foundation released a new report, Catalyzing Capital for Invention: Spotlight on India. The report examines India’s “impact ecosystem,” the broad network of businesses, funders, and intermediaries that enable social enterprise, and hones in on challenges within the ecosystem that are currently limiting inventors’ potential. Detailed observations and data collected from interviews with more than 60 investors, entrepreneurs and intermediaries are presented in the report, along with actionable solutions for addressing the challenges.
This new report builds on the findings of two studies the Foundation supported last year: a report by the Lawrence Berkeley National Laboratory for Innovative Global Transformative Technologies – 50 Breakthroughs – which highlighted global development challenges that can be solved through innovation in science and technology; and a report by the Aspen Network of Development Entrepreneurs – Impact Inventing: Strengthening the Ecosystem for Invention-Based Entrepreneurship in Emerging Markets – which mapped the gaps in the invention-based business environment in developing world markets.
It was clear from this research that the Foundation needed to look more closely at how the financial component of the ecosystem might be improved to better serve early stage companies working on social impact. The Foundation partnered with Enclude, an advisory firm dedicated to building more sustainable businesses and institutions, to do the necessary research and analysis.
Three main challenges
The research revealed that the impact ecosystem in India is heavily fragmented—businesses tend to be categorized by a particular sector, such as health care or agriculture. Invention-based enterprises often are not recognized as having social impact, making it difficult for them to attract the support they need.
The report identifies three specific challenges faced by invention-based enterprises in India that hinder their ability to navigate critical business junctions between product development and the market:
- Ecosystem gaps. Investors do not understand or are not aware of the complex business models and unique needs of invention-based enterprises. The size and regional diversity of India present additional challenges.
- Financial gaps. It typically costs invention-based enterprises between $50,000 and $500,000 to develop, test, and prove their business models. Investors often view such early-stage businesses as high-risk with limited potential for growth. Financing instruments lack variety and flexibility.
- Capacity gaps. It is hard for science- and engineering-based enterprises to find the technical assistance and mentoring they need to help guide their businesses to viability.
Catalyzing Capital for Invention presents five recommendations to address these challenges and thus strengthen India’s impact ecosystem:
- Develop an early-stage grant facility that funds enterprises to develop prototypes or core technologies, and helps them prepare to attract additional, non-grant investments.
- Pilot a “proof of concept fund” that provides the $50,000 to $500,000 that invention-based businesses need to do market testing and development of their products. This could be done in a variety of ways, including equity, convertible debt, subordinated debt, and low-cost program-related investments.
- Create an affordable working capital fund that helps businesses in their start-up phases with operations costs such as salaries, office space, manufacturing facilities, and technical equipment.
- Establish a fund to finance intermediary services, helping entrepreneurs raise capital and attract investment, and linking them with the right investor partners and the right types of financing.
- Facilitate access to financial expertise through targeted training or mentorship so that entrepreneurs get the coaching they need on financial analysis and decision-making.
The Foundation hopes this research will encourage dialogue and collaboration among entrepreneurs and investors in India and beyond. Driving social innovation to have maximum impact requires inventive minds to build new solutions and an equally innovative network of supportive partners. With that support, invention-based businesses thrive, thus spurring investment, fostering job growth, and improving lives. The full report can be found here.
Through our work in developing countries over the past decade, The Lemelson Foundation saw over and over again how invention-based entrepreneurs struggled to build their businesses. To better understand these challenges and help determine possible solutions, we’ve funded several research projects, including the report we’re announcing this week. You can find each of the reports at www.lemelson.org/studies.