Very soon many villages without electricity in the western ghat section of Karnataka, Kerala and Maharashtra will have the opportunity to light up. Bangalore based Tide Technocrats plans to hit the market with its latest innovation—a cheap captive power generation unit that will use water resources. However, being only seven years old and no collateral to offer, Tide was facing a financial crisis when Aavishkaar India Micro Venture Fund decided to fund the company’s initiative.
Not only this, Aavishkaar also plans to fund another of Tide’s innovative projects that will procure agricultural waste and convert it into fuel to be used in sugar plants. Vineet Rai, chief executive officer, Aavishkaar India Micro Venture Fund, explains that urban innovations targeted towards rich consumers still find investors but no one is willing to invest in rural innovations. “Also, there is a big market in rural areas that has not been catered to. However, it’s a tough market but we expect that even if half of our investments do well, we would have converted small businesses into very larger ones.”
Says K Dinesh, co-promoter, Tide Technocrats, “We cater to remote areas, which are not connected to the national grid, or the grid is unreliable. At a cost of Rs 80,000-Rs 85,000 (inclusive of maintenance and other civil costs) the unit can produce up to 0.5 kW of energy and only requires a perennial flowing stream. We were providing consultancy work in this area but wanted to develop and produce the power generating unit ourselves, with an aim to fund projects that have not necessarily a rural origin but more importantly have a rural application and are environment friendly.’’
Aavishkaar was born out of the efforts of a group of people. It was initiated by current CEO Vineet Rai, who as the head of GIAN, was trying to look for risk finance for setting up small enterprises based on local innovations. Realising that there is no mechanism in the country whereby one can raise such finance without having to offer, Rai’s idea to set up a venture fund for such businesses appealed to a group of NRIs— Anantha Nageswaran, an economist with CSFB Singapore, and Arvind Singh, GM at StantChart Singapore. Besides, NRIs like Arun Diaz, Jennifer Meehan and Professor Mukul Ashar also got interested because they wanted to do their bit for India. Today, most of them are investors in Aavishkaar International and hold key positions in the company.
Subsequently, Aavishkar International was set up in Singapore to collect money and invest it in Aavishkaar India Micro Venture Fund.
The global arm has already committed an investment of US$ 1 million to Aavishkaar India. The latter is also in talks with SIDBI and SBI for making further investments. The company has been operational since September 2002. Aavishkaar makes it clear that the project has to be commercially viable. Says Mr Rai, “Aavishkaar is an investment company and not a charitable organisation. We have a mandate to make money by supporting socially sound, rurally oriented commercial ventures. We would not invest in an organisation, however socially relevant it is, if it is not commercially viable as that investment is not sustainable.” On the anvil is another project initiated by the Banglore-based company Calypso Foods. This horticulture company plans to make a foray into cultivation and exports of Gerkins as a bottled vegetable along with a strong network of producers, essentially the farmers. Aavishkaar hopes to create direct benefits for entrepreneurs, who have good ideas, but no money because they are either located in rural areas or do not have personal money or property.
Aavishkaar has also invested Rs 8.1 lakh for 49 per cent stake in the Chennai-based Serval Automation Ltd for assembling and distributing an energy efficient burner and water conserving rain-gun irrigation product. Explains Mr Rai, “The energy efficient stove burner can save 20-30 per cent of kerosene. If the company succeeds in the market with its new product, it will provide poor people with a chance to cut down on their monthly budget on kerosene, and helps India cut down its oil pool deficit. The impact would depend on how well the company does.”
The rain gun was designed by a farmer in Karnataka, Anna Sahib, to reduce the need for flood irrigation, use water more scientifically and was priced at half of the imported rain guns available in the market. Says Mr Rai, “We found Serval a good investment opportunity and strengthened its assembling, marketing and distribution channels and promoted its products. Aavishkaar offers funds up to Rs 50 lakh to companies that have a business plan. It can invest in a company anything from 5 per cent of its equity to 100 per cent depending on the project and confidence.”
Adds Mr Rai, “By 100 per cent, I do not mean to say we would own the company. We would give the person with the idea the value of his sweat equity.’’
Aavishkaar has three stage due diligence process before it makes an investment. The first stage is where it approves the process based on the feedback provided by the project manager.
The second stage is when it develops a memo on the social and rural applicability and the strength of the concept and the details of the capability of the promoters, his standing, any references, etc, with a passing reference to the commercial aspect of the enterprise. This memo goes to the board and normally seeks approval before the venture fund goes into the details of taking the project further on more commercial terms. In case the social and rural criterion are very clear and the credentials of the entrepreneur good, it gets a go ahead for detailed working. The memo is a costly exercise and often the final decision rests on it.
The third stage is when it actually works very closely on financials of the enterprise, its operation in the field, and viability of the number and the plan, assigning a value to the company.
Despite the in depth due-diligence, the company expect 20-50 per cent of its investment to fail. Says Mr Rai, “We are willing to live with the reality.
However we are hopeful that the remaining projects would do very well. If a investment fails, we lose our money. Rural India is where most Indian lives. It does not have any means of venture finance which is essential to promote new ideas and new businesses. In absence of new businesses it is not possible to promote a developed India. Aavishkaar hopes to bridge this gap.”