Impact Investing -- Three Lessons

In 2000, I joined hands with Deval Sanghavi and formed Impact Partners, the first venture philanthropy firm focused on India. 


What we did was non-profit impact investing -- backing organizations that had a purely societal mission. Our approach was in part an attempt to apply venture capital principles to backing non-profits.

I was the money guy -- I helped raise the funds -- and Deval did all the hard work (which he has continued at Dasra). We made just nine "investments" but were fortunate to back a handful of remarkable non-profit organizations. Magic BusAkshaya Patra and Akanksha are three examples from the "portfolio" that have gone on to great success. I have remained closely involved with Magic Bus, and serve as a trustee of Magic Bus Global and chair of Magic Bus Singapore.

There is unbelievable need throughout the world, and there are tens of millions of causes that are deserving of support. But resources are not infinite. For most donors or volunteers, you will want to choose very carefully as these commitments can last decades (in time, mental energy, money or all of the above). Here are three lessons from the Impact Partners experience:

1. Figure out your sustainable level of involvement

There are many levels of involvement: pick the one that is most likely to be sustainable for you. I learned that for me taking on one or two causes and going extremely deep is what gives me the greatest sense of accomplishment, and this is how I allocate my nonprofit time and resources today. 

This is absolutely not the right answer for everyone — for you, it may be that supporting dozens of causes is the right answer (or, all the way at the other extreme, taking on a near full time role in a nonprofit if your life and lifestyle permit you to do so). But introspect on what the right answer is, as doing so after having taken on commitments is not ideal at all.

2. The team is 90% of the outcome

There are many similarities between impact investing and regular VC investing, one of which is that outcomes are closely correlated with the quality of the founder/team. This will seem like a statement of the brilliantly obvious — except that much of the time investors fall in love with the concept or with the founder’s passion (that's *definitely* like regular VC!).

The best cause can go nowhere if the team does not have the competence; one that can execute across the full complexity of functions from fundraising to service delivery to working with ecosystem partners to recruiting and retaining great employees. If you back the wrong team, you will wake up in five years and not have a whole lot to show for it.

3. Stop agonizing about administrative expenses

I am constantly amazed at how much attention gets paid to admin expenses as a percentage of total costs. Yes, it’s an important metric. But it’s not the only metric, and there are circles in which that has become the case. I am forever hearing about donors who've zeroed in on this metric as providing some kind of revelation as to how "good" a nonprofit is.

One of the things that Impact Partners got right was to make its contributions multi-year and leave the allocation of the monies entirely in the hands of the founder(s). I believe, passionately, that it is incredibly harmful to be overly focused on admin expenses. We know that nonprofit founders are not going to pay themselves luxuriously. In the first 3 or 4 years, a hugely disproportionate percentage of expenses can and should go into building “the product”, which will show up as administrative expenses. And in later years, an excessive focus on minimizing admin expenses simply means that a nonprofit is always underequipped to handle scale.

As a result, what you have is nonprofits that see constant employee churn as people are paid at a very steep discount to for-profit careers; are constantly cutting corners on “overhead”; and pay the price in effectiveness and sustainability. Here’s one simple example: if a nonprofit founder might be much more effective with their time by hiring an assistant who can handle all kinds of simple chores, I’d always be in support. But it will show up as admin overhead. So what?


The team at Impact was small, and like for-profit venture capital funds, managed ‘investees’ in the portfolio – working closely with the founders to help build their organizations across strategy, teams, processes, fund-raising and regulations. Salone, in addition to working closely with Akshay Patra, Akanksha, and Magic Bus (among others), also helped develop our excellent investee dashboards. Shumona, part of Impact from its inception, worked so closely with some of founders that they viewed her not as a donor but one of their own. Deepak joined Impact later and worked closely with Magic Bus; and was so good at what he did that he moved to Magic Bus full-time as Impact exited.

Impact Partners had a short life almost two decades ago. It had an outsize impact, however, and I’m glad to be chronicling some of our learnings here.