Vineet Rai is working to establish socially motivated venture capitalists as a new asset class in India to unlock the potential and stimulate productivity, efficiency, entrepreneurship and ultimately, development, in rural areas.
The creativity of these innovators and their innovations, however, remains confined to their immediate communities. Another village 100 miles away struggles with a similar problem and may only have a sub-optimal solution, or worse still, no solution at all. The potential of an individual innovation remains untapped and the work of the innovator unknown. These obvious inefficiencies create viable business opportunities to reduce waste and enhance productivity. Indeed, there are competent people ready to exploit these opportunities, but they lack the needed support to create sustainable micro ventures.
Many government and non-government institutions are engaged in documenting rural innovations and in developing viable and relevant technologies, but few resources are dedicated to nurturing and creating micro ventures based upon these commercially viable technologies. Along with professional expertise and mentoring, timely availability of capital is a crucial missing ingredient. In general, availability of funds from financial institutions for new enterprises, particularly for small projects, is scarce. High transaction costs make such investments uneconomical.
Venture funding in India is nascent and has thus far focused mainly on high technology and internet-based ventures; equity investment vehicles do not consider small innovators/entrepreneurs. Micro-credit agencies may initially support some innovations but once past the prototype phase, the amount of financing available is no longer sufficient to support growth. Many commercially viable enterprises never materialize for want of timely funding and lack of professional support.
AIMVCF works with private, government and corporate entities, COs, and the financial sector, to solicit investment proposals for projects consistent with the objectives of the organization: ventures that benefit the rural people and economies of India and that are socially-conscious, environmentally friendly and commercially viable. Specific attention is given to ventures unable to raise funds elsewhere and applicable or replicable throughout other parts of rural India. These ventures, at least for the early years of AIMVCF, must be in the process of commercial scaling-up of proven innovations or technologies. The ventures may be developed locally or may originate outside of rural India but have strong local application. This means that, depending on the size of the opportunity, AIMVCF will consider investments in both the companies developing these technologies and the local entrepreneurs franchising the technologies.
Vineet’s reduces risk by partnering with rural incubators, COs and government agencies working with rural innovators and ventures and to develop a transparent and detailed investment process. He will also establish exposure limits on an absolute and percentage basis and design exit options prior to making investments. A diversified portfolio will be achieved by limiting the maximum investment in any one project or projects to 20 percent of the corpus fund.
AIMVCF intends to offer two investment products: equity and bridge financing. To support the commercial scaling-up of they will provide equity funding of up to 49 percent of company value equaling no more than US$50,000. This policy allows the entrepreneur to maintain control of the company while receiving what ever assistance possible from AIMVCF. The Bridge Financing model begins with a six month investment in the entrepreneur, followed by a loan if necessary. The total amount of financing invested in or offered to a given venture would be limited to the maximum of $100,000.
A trained team within AIMVCF will be responsible for: i) sourcing (in cooperation with partners) opportunities; ii) undertaking due diligence and preparing detailed analysis of prospective projects for submission to the Management Board for approval; iii) structuring AIMVCF’s investment; iv) monitoring investee companies on an ongoing basis; and v) managing the exit of investments. A careful three stage due diligence process will be followed by the team at AIMVCF in order to maximize the efficiency of AIMVCF’s limited resources. This will begin with screening, analysis by a project manager, an onsite due diligence visit, an in person interview with the entrepreneur, and review by the Avishkar managing board. Once an investment is made, AIMVCF staff is responsible for monthly, quarterly and comprehensive annual review of investment performance.
AIMVCF is looking at 15 investments over the next three years. They have already made their first investment in RIN, Ashoka Fellows Paul Basil’s organization, for development of a rain gun. Vineet sees a potential for his idea to spread in the entire South Asian and South-east Asian region. He is planning to use established networks of social and business entrepreneurs to spread his idea.
Vineet increasingly saw the faults of this model. Rural enterprises remained small in scale since substantial capital was not available to fuel their growth. Vineet short listed eight high potential enterprises requiring additional capital and pitched the idea to a group of senior IIM Alumni living in Singapore and Avishkar was born.