UpSkill Capital · successfully for well paying jobs VET providers Goal: Fulfill mission –...
Transcript of UpSkill Capital · successfully for well paying jobs VET providers Goal: Fulfill mission –...
UpSkill Capital 'Lifting young adults out of poverty through educational lending'
May 7, 2013
2 1. Accumulated need to maintain current growth level Source: Reserve Bank of India Economic Statistics; globalpost.com – Indian economy faces labor shortage; Expert interviews
The problem: India's entry-level labor market faces unaddressed skill shortage
Resulting skill gap
450
Trained at current capacity
50
Skilled labor need
20221
500
India faces major skill gap for entry-level labor...
...government intervention proves insufficient...
Million workers (#)
"Already today, one of the key factors limiting our growth is finding – and retaining – qualified entry level employees" G.R. Venkatesh HR head future group
• Employer demands not reflected by Industrial training institutes
• Outdated curriculums and poor teaching quality lead to poor employment rates
"Most of our two-year courses do unfortunately not lead to skill related employment " Placement officer ITI in Delhi
...NGO vocational schools try to fill gap but lack funding
• Growing, highly fragmented NGO vocational training infrastructure in place
• High variance in quality of teaching and placement rates across concepts
• Top schools' growth hindered by funding restrictions
"We could teach so many more students, if we didn't have to rely on donation funding" Dr. Meenakshi Nayar Founder of Etasha Society
• Awarded a certificate in Customer Communications
• Secured 6-month internship as a customer service officer
• Left school at age of 10
• Working in temporary jobs with unreliable income
• Struggles to support his family
Lower middle class
Learned basic communication skills in
a 6-month training program which allowed him to seek employment in the growing service
sector Earns on average
$22 per month
Below poverty line Vocational Education
Mukesh, 24, Delhi
Earns a steady $144 per month salary
12 months
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Path out of poverty: From $22 a month to lower middle class in 12 months
Source: UpSkill Capital Team
Success story of example student
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Select best VET programs based on performance metrics
Provide tuition funding for students enrolling in these
programs at a low risk to the student
Collect on students earnings in first 6
months of employment
• Willing to give up a share of increased salary
Students
Goal: Leave poverty – increase salary from $22 to $144/ month
• Funding gap, cannot pay for tuition upfront
• Willing to pay high salaries for skilled workers
Corporates
Goal: Fulfill growth trajectory access to qualified employees
Not willing to pay for education
• Can prepare students successfully for well paying jobs
VET providers
Goal: Fulfill mission – educate as many students as possible
• Funding gap, cannot claim tuition of student / corporates
Our solution: UpSkill Capital aims to be the ‘missing link’ between disadvantaged young Indians, VET providers and corporations
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1
2
6 Bulk of
wage
7
Principal + Return 5
100%
3
Unskilled learner
Employer
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• Investors provide funding to UpSkill Capital
1
• ...which funds VET provider
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• HR OpCo passes on the bulk of wage to student
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• HR OpCo passes on portion of wage to investor (through UpSkill Capital)
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• Employer pays HR OpCo 5
• ...who trains students 3
• ...who are then employed through HR OpCo after training
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100% owned by UpSkill Capital
Operating model: UpSkill Capital funds training, places graduates with partner companies and collects a portion of salary
Source: UpSkill Capital Team
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144
12
144
10%
11
15%
10
20% 25%
8
30%
9 4 3 2 1
-150
7
1441
35%
6 5
USD 150
100
50
0
-50
-100
-150
16
144
15
144
14
144
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INTERNSHIP PHASE TRAINING PHASE
Installment kept by OpCo Salary paid to student Student loan (via VET)
Graduation
Months
FULL EMPLOYMENT
∑ = $ 194 $ 22 $ 19
+ +
∑ = $ 245 18% IRR (assuming 25% default rate)
Placement fee (paid by employer) Down payment (paid by student)
Sum of installments
Full salary payout to student
Fund mechanics: Tuition funding is recollected from salaries during 'internship phase'
1. Average post graduation salary at Etasha Society Source: UpSkill Capital financial model
Cash flows on per student basis
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Risk assessment: Key risks along value chain anticipated in operating model
Placement internship Mobilization Training phase Full employment
Mitigation strategy
• Programs with attractive prospective salaries and 'job guarantee' upon graduation
• Select 'best' performing VET schools
• Student pays deposit upon enrolment
• Anticipation in financial model through conservative assumption of 25%1
1. 25% attrition upon completion of program covers worst case, because full cost have been incurred and no return has been generated (other than student deposit) 2. Includes the assessment of impact on business model as well as probability of risk case occurring
• Student pays deposit upon enrolment
• Anticipation through conservative assumption of 25%1 in financial model
Risk factor
Weak demand for program
Attrition during training phase
Unsuccessful job placement
Early drop-out during internship
Employers unsatisfied with
provided candidates
• Close alignment of training programs with employers' skill need
• Select 'best' performing VET schools
Impact2 High High Medium Medium
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UpSkill Capital Rollout Phases
160
50 20 0.05
1.08m
282k 79k 400
54
17 7 0.05
Test concept with Etasha
Rollout to greater Delhi
Expansion to Gujarat
Fund II 2017 - 2019
Fund III 2020+
Pilot 2013
Fund I 2014 - 2016
India wide coverage
1 2 3 4
UpS
kill
Cap
ital R
ollo
ut P
lan
Fund size ($M)
Avg capital deployed per year ($M)
# graduates (cumulative)
Scaling up: $20 million fund from 2014
Source: Team Interviews with Indian VET Providers; ‚Education Sector in India: A snapshot‘- KPMG April 2011
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2014 Now Q1 2013 Q4 2012 Q3 2012 Q2 2012
I3C Competition
VET School Appetite
Crowd-source Fundraising
Government Policy
Pilot
Past and Present: We have learned much in the past year and are excited by what the future holds for vocational education in India
Government policy focused
on skills training
Raised $25k for pilot program
through crowd-source
fundraising efforts
Hired local resource to run pilot in Banaras
Banaras Delhi
Fund
Appendix
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Market Sizing: Soft-skill VET market to grow to 4.5bn by 2022
annual 2013 annual 2022 # Service sector-
focused VET providers
~150 schools ~1,500 schools
# enrolments per school
1,000-3,000 students
~10,000 - 20,000 students
(based on best practice)
# student enrolments ~150k students ~30m students
Tuition cost per student US$150 US$150
Market Size $22.5 – 67.5m $2.3 – 4.5bn
~1% of the current Indian VET market
+40%
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Fund Duration
• 2.5 years (revolving)
• Option to earn annual yield
Target Return
• 18-22% IRR (pre-Mgmt fees)
• Hurdle rate of 10%
Target Deal Size • > $500k per VET (post pilot)
Fee Structure
• 3% pa management fee
• 20% carry without catch-up
Fund terms Investment comparison
Investor benefit: Good financial return at medium term investment horizon
1. Fajnzylber, Lederman and Loayza. “Inequality and violent crime*”. Journal of Law and Economics, vol. XLV (April 2002) Source: UpSkill Capital Financial Model
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8
6
4
2
0
Expected Return p.a. 100% 0%
Microfinance loans India Payday loans
India PE Funds
India AAA Rated Bonds
50%
Investment duration (Years)
UpSkill Capital
On top of the financial return India's communities will benefit largely from increased wages1
Sensitivity analysis: Default rate and expected graduate student incomes will drive returns for investors
Investor IRR Sensitivity Analysis1
Monthly Worker Earnings
Loan
Def
ault
Rat
e
$120 $130 $140 $150 $160
5% 34% 52% 70% 89% 108%
10% 24% 40% 56% 74% 92%
15% 13% 28% 43% 59% 76%
20% 3% 17% 31% 45% 60%
25% (6%) 6% 19% 32% 45%
30% (15%) (5%) 7% 19% 31%
1. Based on Fund 1 calculations Source: UpSkill Capital financial model
Outlook Fund I Structure: Private Equity entity and HR Operating Company compose UpSkill Capital
UpSkill Capital
Limited Partners General
Partners
Board of Directors • Dr. Meenakshi Nayar, IIM Ahd’78 • Prof. David Chen, Equilibrium Capital • Mark Johnson, retired CEO PwC Australia
Management Team • Apaar Kasliwal • Ian McBride
HR Operating Company Co. Ltd.
Board of Directors (in addition to UpSkill’s board)
• Adarshanand Sudhakar, General Manager, TeamLease
UpSkill Capital – Key Physicals
Company Type Private Equity Fund
Location of Incorporation
New Delhi & Singapore (only feeder fund)
Denomination Indian Rupees (INR) & US Dollars (USD)
Fund Term 3 year term with revolving option
Registered under Indian Company Act 1956
Wholly owned subsidiary
HR Operating Company Co. Ltd.
Company Type Private Limited Corporation
Location New Delhi
Operations advisory • Tobias Schimmer • Meike Scheffer • Kathleen Schindler
Marketing advisory • Lisa Mohr • Yohan Senaratne
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Lisa Mohr • 5 years Finance
and Asset Management in real estate sector
• MBA Kellogg
Meike Scheffer • 4 years consulting
experience in Care and Industrial goods (BCG)
• MBA Kellogg
Tobias Schimmer • 5 years consulting
experience in Automotive Industry (BCG)
• MBA Kellogg
Apaar Kasliwal • Private Equity and
Private Banking in India
• MBA Kellogg Yohan Senaratne • 5 years Retail
Banking and Consulting (ANZ Bank)
• MBA Kellogg
The founders: Connected by a desire for impact
Kathleen Schindler • Product Manager at
DataXu • 6 years consulting
experience (PwC) • MBA Kellogg
• "Traditional MBA careers"
• "Common values and believes"
• "A desire for impact"
• "A Kellogg MBA as an incubator"
Weekly global call to push
progress
Amsterdam 2 pm Stuttgart 2 pm
India 5:30 pm Boston 8 am Houston 7 am
Melbourne 10 pm