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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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

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I

I

I

I

I

I

I

I

I

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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

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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