Post on 07-Jun-2015
University of Cambridge – Business and Poverty Leadership Programme
Aavishkaar India Micro venture capital
Vineet Rai, Co-founder and CEO
November 14, 2006
Business at Base of the Pyramid are complex
The vision for intervention thus has to look beyond the bottom line issues !
Small businessesLocal communities External environment
Supporting new entrepreneurs and established small
companies
Integrating local communities into the
value chain
Working with government, competition,
customers and NGOs
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200,000
300,000
400,000
2003-04 2004-05 2005-06 2006-07
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100,000
200,000
300,000
400,000
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Projected Actual
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The Challenges of Small Business (I) An Example: Servals Automation
Servals manufactures and markets kerosene burners which utilize 30% less fuel than standard kerosene burners
Annual number of burners sold Annual profits (INR Million)
Note: Projections made at time of investment in Dec 2002. Dotted line represent current forecasts based on half year performance
The Challenges of Small Business (II) Lessons Learned
A good product doesn’t guarantee a market: Innovation is not enough–Marketing strategy is a frequent stumbling block–Need to build sound capacity along with projections
Support needs to be patient and nurturing–Take a long-term view – Ride through the bumps
Relationships with entrepreneurs need to be close and open–Ongoing feedback and advice–Partners, not just investors
Involving Local Communities (I)
Challenge The intervention
Fragmented and weak suppliers of textiles and other artisan products
Missed connections and weak points in the value chain
Lack of supplier working capital
Product delays and quality issues
Sales growth limited by production capacity
Recognized importance of strong institutions across the value chain
Integrated backwards to work with local producer groups, NGOs and small businesses
Established a fund to create and support community businesses
Provided capacity building and access to working capital
Networked with other funding
Involving Local Communities (II) Lessons Learned
Community based distribution chains need to be strengthened from the bottom up
Working with local community can provide financial as well as social returns
A corporation’s responsibility goes beyond its customers and employees
–Significant role to play in supporting communities and players across the value chain
Scaling up effort – Franchising Social Businesses
It is clear that the effort to scale up is a must. One can look at two possible strategy to do the same.
$
$ $ $ $
$ $
$
the outreach of the existing organizations
has to be expanded
a large number of new institutions have to be
created
OR
Approach A is interesting but ….. Approach B has a multiplier effect to growth.
Both approach working together would lead to maximum impact
Approach
A
Approach
B
Managing the External Environment (I)The Intersection of Social Business
NGOs Government
Social business
Earn Profits and provide a return to shareholders
Regulate and develop a supporting
environment
Ensure connection to social goals
and measure outcomes
The point of intersection can create confusion and complexity
Business
Social business
The slide is inspired by a presentation at a recent conference by Mr Vijay Mahajan, Founder of Baisx
Managing The External Environment (II) Lessons Learned
Players in the operating environment are frequently working towards different goals and under different assumptions
Possible to look at other players as partners, but need to develop roles and understanding early on
Social businesses needs to understand motivations of other players • Crucial to develop risk management techniques to deal with likely conflicts
The Pie logic
The sourthern Perspective
Investor
Promoter
SurvivalControl
Contentment
SizeScale
Growth
Key Attributes Key Attributes
I
I
I
I
I
I
I
I
I
I
I
I
I
I
The northern perspective
Investor
Promoter
Circa 2001
Findings
Intervention
Analysis
• Definite lack of economic activity at BOP• Start-up businesses in rural India: - Lack access to funding from conventional sources - Lack management bandwidth - Seek hand-holding, operational & strategic support• That entrepreneurs were not open to equity funding was a myth
• VC model was befitting, however, conventional VCs cater to big businesses and seek high financial returns• There was a need for an innovative VC approach to cater to micro, small and medium enterprises (MSME) • The model would seek socio-commercial returns for its investors
Aavishkaar India Micro Venture Capital Fund
The Fund aims to achieve both a Social and an Economic Return
Economic Returns
Aavishkaar Investment
•Ownership and empowerment at a grassroots level
•Livelihood creation and increased economic activity at BOP
•Bridging the poverty divide and enhancing entrepreneurial spirit
Financial capital + Strategic advice + Operational support + Contacts & network
Social Returns
•Aavishkaar works on a for-profit basis
•The fund expects to provide returns to its investors in the range of 12-18% IRR over an investment horizon of 10 years
Fund Target Industries
•A significant growth area in rural India •Strong contacts with IITs and IT incubators provide an advantage in scouting•Potential opportunities in software advancements for BoP financial services and technologies for health service delivery
•A huge opportunity: Despite a plethora of traditional crafts, India has only 1.2% of the US$ 100 Billion international handicrafts market•Aavishkaar’s experience in the sector and a partnership with Fab India places the fund in a unique position to help build this market
•The Fund seeks to invest into companies engaged in the power generation using renewable sources such as biomass•This could include both independent power providers (IPPs) as well as manufacturers of related equipment
•Growth in rural retail is stimulating a large number of small start-ups looking to supply to large retail initiatives such as Reliance, Big Bazaar etc.•Other major agri-business opportunities exist in export markets of organic foods etc. and in developing the marketing and distribution systems
•Aavishkaar will continue to seek out companies which provide innovative and affordable products and solutions that result in resource savings for the rural population•The fund will leverage its association with grassroots networks such as the Rural Innovation Network etc. to source projects
Technologies for
development
Handicrafts
Renewable Energy & Waste
Mgmt
Agribusiness
Rural Innovations
Aavishkaar’s journey since 2001
Servals Automation
Resource efficientburners & sprinklers
2002 / Chennai
Shree Kamdhenu Electronics
Automated Milk Collection & Milk Analyzer
2003 / Anand (Guj.)
Tide TechnocratsMicro-hydel & biomass energy
2003 / Bangalore
CraftsbridgeIndian handicrafts
2004 / Pune
Net SystemsTechnical Writing
& Accessibility2005 / Mumbai
NaveengramMarketing of
Agri-technologies2005 / Jodhpur
(Raj.)
CK TechnologiesLocal Language S/W
2006 / Chennai
A healthy pipelineof 8 prospective
investments
Vortex Engineerin
gRural ATM
2006 / Chennai
Aavishkaarset up in
2001
VaatsalyaRural Healthcare
2006 / Bangalore
The Majority of Aavishkaar Investments are Showing Strong Growth
Company revenues
0
50
100
150
200
250
300
2005 2006 2007E
Rev
enu
e (l
acs)
SKEPL Craftsbridge N-Syst Servals
Tide Technocrats Naveen Gram CK Technologies
India’s Rural Environment Is Changing, and Aavishkaar is Uniquely Positioned to Both Contribute and Benefit
Increasing economic activity in rural and semi-urban India
New industries taking hold
Quality entrepreneurs and managers moving into rural India
•Large companies and MNCs beginning to focus on the immense opportunities at the BoP
•An increasing number of entrepreneurs will emerge from this dynamic market and look to Aavishkaar for funding
•Aavishkaar’s current companies receiving greater interest from mainstream companies and investors
•Top managers following the opportunity to rural markets•Aavishkaar entrepreneurs are successful professionals, entrepreneurs and community leaders
•The retail and IT sectors are penetrating new communities daily•Aavishkaar investee companies are first movers in this trend, allowing Aavishkaar early exposure to a booming market
•Aavishkaar’s track record in rural IT solutions will help the fund to identify the best innovations going forward
Aavishkaar have proven that the opportunity is there; The fund must now scale up to capture it
Fundraising Efforts Are On To Develop a $10M Fund (I)Fund Details
No. Features Particulars
1 Target Fund Size US$10 Million
2 Target Investors HNIs and Individuals
3 Final Closing Q1, 2007
4Minimum Investment Size
HNIs - US$ 25,000 - 100,000Institutions – US$1,000,000
5 Commitment Period 10 years from Final Closing
6 Bonus Hurdle rate 6%
7 Management Fees3.5% pa during Investment period2.5% pa of the Invested capital thereafter
8 Performance Fees15% carried interest with 6% hurdle rate
9 Fund ManagerIntellecap Venture Management Services
www.aavishkaar.org
Aavishkaar India Micro Venture Capital Fund201 Atlanta Estate, Dr. Ambedkar ChowkOff Western Express Highway, Goregaon (E)Mumbai – 400 063, India.
Tel: (+91 22) 3253 5292 / Fax: (+91 22) 2877 8255E-mail: vineet_rai@aavishkaar.org