The missing middle in India’s impact investing landscape

In 2025, the Impact Investors Council reported $5.29 billion of impact equity across 256 enterprises. This is 7% higher than the $4.96 billion invested in 2024, but that money reached 438 companies. Cheque sizes have nearly doubled, while the number of companies funded has fallen by 42%. For the businesses built to serve low-income India, capital was never abundant, and what existed has been moving toward larger deals.

Where good companies get stuck

The early years have some support. Founders raise from friends, family and angels. Funding also comes from more than 175 Technology Business Incubators and centres under the Atal Innovation Mission, which take early-stage ideas to MVPs. Philanthropic first-cheque funders such as DBS Foundation do the same.

Capital is also available from Series A onwards, from mainstream venture funds and impact investors, both seeking market returns.

Between the two lies the gap: institutional equity of roughly $150,000 up to $2 million, for what’s working in the field to grow enough to be of interest to a Series A investor. Companies serving low-income India can absorb investments that seek 2–3x capital over eight years. A venture fund needs every cheque to carry a realistic chance of 20–30x, because 1 or 2 winners pay for the whole portfolio. Many of these companies may not offer that chance, so they are unable to raise the early-growth capital they need. This is where many good businesses get stuck, and some close.

Rational choices, widening gap

The venture capital model is built to find outliers, and it has served India well. Expecting it to also fund steady compounders is misunderstanding its economics.

A second dynamic widens the gap. India’s pioneering impact funds succeeded, and success moved them upmarket. Aavishkaar began in 2001 with almost nothing. Its equity business alone today runs eight funds and close to $500 million, writing cheques of $5–25 million, with commercial returns as a stated core objective. Most of the successful impact funds did the same, and the early growth they were funding is no longer addressed.

The label has stretched too. When impact investing reports count late-stage e-commerce and pharmacy rounds of $300 million+, the average hides the mix. “Impact investing” now describes the fund positioning more reliably than the purpose of the investment.

Two more dimensions of the gap

The missing middle is not only a gap in round sizes. It has two more dimensions.

On returns, the middle sits between grant capital, which expects nothing back, and market-rate capital, which expects full commercial returns. It needs return targets that are set in the reality of businesses serving low-income India.

On the kind of company, it sits between the nonprofit and the conventional startup. There are two kinds of businesses here. Some serve India's Next Billion directly, the 140 million households earning roughly $1,500 to $5,500 a year. When these companies grow, the incomes of their customers and suppliers grow with them. Some build what other businesses depend on: missing links in agricultural value chains, and the shared digital infrastructure and public goods that make whole markets work for low-income households. Most of these neither fit a grant nor a power law.

Impact-first capital

The right kind of capital for this gap has a name: impact-first investing. The term has been in use since Monitor Institute defined it in 2009, for investors who put impact first when impact and returns pull in different directions. India already has impact-first capital at the early stage. What it lacks is the same capital at early growth.

This capital funds companies the market cannot yet underwrite at venture returns. The promise is impact first, not return maximisation, so fund-level returns may run below venture. It accepts more failures and longer horizons, and puts no pressure on founders to drift upmarket. The mandate does not require a 20x outcome. A 20% compounder is just as welcome, if it is viable, growing, and improving the lives of the people it serves.

Impact-first does not mean a lower bar. The diligence, governance and exit discipline stay the same, and incentives are tied to impact. Success is when the company grows its impact and gets a commercial investor to scale. Because this capital is scarce, it belongs only where regular funds cannot go, and this provides additionality.

India is ready for it

There are tailwinds enabling impact-first businesses. A decade of public and private investments in infrastructure has changed the economics of serving the Next Billion: near-universal cheap data, widespread UPI, Aadhaar-based onboarding, logistics that reach small towns. Business models that could not cover their costs in 2015 can cover them now. For many of these companies, the binding constraint has moved from the model to the capital.

The second tailwind is the entrepreneurial energy sweeping across India. Around half of the country’s government-recognised startups now come from Tier II and Tier III cities, spread across more than 700 districts, built by entrepreneurs who live close to the customers this middle serves. The pipeline of companies that will need this round is growing. Whether they are funded will decide who India's growth includes.

What public money already covers

In spirit, taxpayer money is India's original impact-first capital, and the government has deployed it well. Grants and incubation reach the earliest stages through the Department of Science and Technology’s incubators and the Atal Innovation Mission, and allocations to research and deep tech keep rising. Through Sidbi’s $1 billion-plus Fund of Funds, NABVentures and vehicles like the SRI Fund, the government has already fuelled venture capital for the rest.

Public money, however, is yet to reach businesses that don’t fit the traditional VC model. Private capital must fill this missing middle first, and government programmes can then scale what works.

India’s next asset class

Impact-first investing can be India's next asset class. Family offices, foundations, corporate capital and development finance institutions can build vehicles here, the way they once built venture, credit and infrastructure allocations.

Some are starting to take the lead, with direct investments and early impact-first funds. The category will be real when a founder here can choose among many.

The companies are already there. The conditions that once held them back have changed, and more founders are building for these customers every year. What is missing is the round. Funding it is how a Viksit Bharat by 2047 becomes an inclusive one.

(Satija is the founder of TILT, an impact-first fund; Kalra is the founder of MakeMyTrip. Views are personal)