Micro venture capital is coming of age. Mumbai based Aavishkaar India Micro venture Capital Fund plans to take its fund size to $15 million by end of the year. Aavishkaar recently announced its second close at $6.1 million by raising an additional $4.8 million. This fund raising was done in record eight months. The fund, launched in 2002 with an initial corpus of $50,000, had its first close at $1.3 million in December 2006, which essentially took four years to raise that much money. Now the fund raising pace is getting quicker with appetite for such capital increasing. Vineet Rai, CEO and founder of Aavishkar India Micro Venture Capital Fund, told VC Circle, "We are in fairly advanced stages of talks to raise another $89 million. We want the commitments to close by December (2007)."
Rai doesn't think it will be a tall order since there is institutional appetite for his micro VC fund. For its second close, Aavishkaar has raised monies ($4.8 million) from institutions like India's National Bank for Agriculture and Rural Development (NABARD), Care Enterprise Partners, a Canadian social venture capitalist, Cordaid, a Dutch agency, besides from Aavishkaar International, the Singapore based parent. The life of the fund starting from December 2007 will be 10 years, says Rai.
What is that? Rai, a graduate of Indian Institute of Forest Management, Bhopal, and ex-CEO of Ahmedabad based incubation fund Gian.org, says it's a stage of funding between microfinance (sub Rs 10,000) and venture capital ($1 million plus). Aavishkaar intends to play in this range where there are not many funding avenues for businesses. Says Rai: "We were earlier investing Rs 5 lakh ($12,500k) to Rs 50 lakh ($125K) in a business. Now we intend to scale that up to Rs 10 lakh ($25,000) to Rs 2 crore ($500K)." That's mainly because the funding requirements have also gone up for micro ventures. Commercial Angle Rai says Aavishkaar is the first commercial social venture capital fund in India. The company was initially set up as a trust under Indian Trust Act. Now it has taken a VC form as they have registered an advisory company with SEBI. The fund has a management fee of 3.5 per cent a year and a 15 per cent carry. (That may not impress a typical VC who takes home 22.5 per cent and 20 per cent carry of large sized funds ranging anywhere from $150 million to $1 billion and more.) Rai says, in India, most VC funds are driven by management fee and dollar salaries, while the country needs funds that are suited to invest in enterprises in rural and semi urban centres. Aavishkar has already invested in 14 companies. And half of its 14 investments make profits currently, while hardly any has been written off. Rai recalls how he made his first investment Servals Automation, a Chennai based company that makes kerosene burner which reduces kerosene consumption by 30 per cent. In 2002, Aavishkaar picked up 49 per cent stake in Servals for $20,000. For three years, there was not much progress. But the wait has paid off. This year, it will record revenues of $1 million. Says Rai: "Now I get twice my investment money as dividend." Even if I sell the stake back to the promoter at 50 per cent IRR, I will make significant returns on the investment.
Rai says the bottom of the period market is interesting, and one can make money since the volumes are large although the margins are thin. The key is in reducing costs. According to him, there are opportunities in every sector like healthcare education, retail, handicrafts, technology products, multilingual software, irrigation equipment, renewable energy and so on. Rai says his fund will invest in companies which has a double bottomline impact (social and profit). Besides Aavishkaar, there are more micro funds eyeing opportunities in India. New Yorkbased Acumen Fund, which recently set up in Hyderabad, has invested in companies like MedicineShoppe, Drishti and Ziqitza Healthcare, a Mumbaibased company that provides emergency medical services like ambulance. Acumen, however, is a notforprofit fund, unlike Aavishkaar.
Disclosure: Aavishkaar is an advertiser on VC Circle's job board.