Talking to 42-year-old Sandeep Farias, you hear him use the word “counter-intuitive” quite often. He uses it to describe Elevar Equity’s strategy and investment outlook. An impact investment venture capital firm, Elevar was one of the early investors in the micro-finance sector in the country. “We are still perceived as a micro-finance fund. I understand that, but it is not true,” says Farias, Founder & Managing Director, Elevar Equity.

Elevar invested in a handful of micro-finance institutions, including SKS, Ujjivan and Madura Microfinance. “Then we stepped out,” says Farias. “In 2009, counter-intuitively, when the peaks of the micro-finance market were being raised, we took a call to step out of micro-finance and we said we will only do follow-on investment in existing portfolio companies,” he says. The reason: there wasn’t much fun in investing in yet another MFI.

Business strategy

So, what did Elevar do? It went back to the drawing board, spent time in the field, listening to customers and putting together all the views to arrive at its strategy. The result is that from predominantly investing in the micro-finance sector Elevar now puts money in ventures in the fields of education, healthcare, low-income housing finance and MSME lending. Its overall investment theme is to finance entrepreneurs and ventures that deliver essential services and products to the under-served sections.

Does it mean that Elevar is not keeping an eye on the multiples when it exits an investment? Farias explains that there are the impact-first funds, which are those willing to settle for a low return on their investment in return for a higher social impact. Then there are the finance-first funds, which, in case there is a trade off between the two, will focus on the finance side and settle for a little less impact.

“If you put impact on the X axis and commercial returns on the Y axis, it is clear which quadrant the impact-first and the finance-first funds are. We are in the quadrant where we are high on both,” says Farias and adds that you can build a lot of wonderful businesses that drive a lot of impact. This outlook to investing is also why Elevar does just about a couple of deals a year.

Elevar, according to Farias, manages three funds from which it invests in India and Latin America. It has the mandate to invest in South East Asia too, but has not yet done a deal. For India, Elevar draws from the global pool and is usually the first institutional investor in the venture. “We are comfortable with start-up risk. There have been a range of investments where we have been the founding investor in those companies,” says Farias.

Elevar’s strategy is to back entrepreneurs who have experience of having worked elsewhere for 15-20 years. They know how to build companies, how to build teams. “They might not have been entrepreneurs but would have worked in large organisations and built teams and built companies,” says Farias.

Investment model

It invests anything from $300,000 to $5 million and will go up to $10-12 million through the lifecycle of the investment. It picks up a significant minority stake, typically 20-25 per cent in the companies it invests in. Its view on the exit is that the methodology of exit is the entrepreneur’s call so long as it is at the fair market value at that point in time. On the innovation in the ventures that Elevar invests in, Farias says innovation is in how they reach the customer.

“You have to innovate on how they deliver. The innovation is in the delivery, not in the product. Look at all our companies, they are all innovators on delivery. That is why we focus on people who have the relationship with the customer and are focussed on delivery,” adds Farias.

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