Funding ‘inventions’ that solve grassroots issues

Vineet Rai, Managing Partner & CEO, Aavishkaar, which invests in ventures that solve problems for people at the bottom of the pyramid, has set his sights on a larger global play. Aavishkaar has been investing in ventures in Sri Lanka, Indonesia and Bangladesh for about two years. It now plans to raise a $150-million Africa fund in 2019 to invest in ventures in sub-Saharan Africa and is also looking at a $300-million Asia fund by 2021.

Why invest abroad when the opportunities in India itself are enormous and the unmet demand is huge, you ask him. The opportunity in the US is huge, but McDonald’s is in India, right, he argues. Likewise, with Uber which has enough to do in America, he continues. He points to Abraaj, a Dubai-headquartered fund, which started out at around the same time he launched Aavishkaar, in 2001. Now, he says, Abraaj is managing over $11 billion and its new fund is going to be the same size as it had raised in the last 16 years.

“Why would we not have the ambition to be the world’s largest impact fund when we have the oldest impact fund,” asks Vineet.

Getting into social sector

He says globally the need for funds that invest in social enterprises is huge, around $2.5 trillion every year. Mainstream venture capital and private equity funds are getting into the social sector.

For instance, global private equity player TPG will be managing the $2-billion The Rise Fund. Though Aavishkaar has more experience in investing in social enterprises, it does not have the brand equity of a TPG, says Vineet, adding that there is an opportunity for Aavishkaar to become much better known. “If we don’t do that, we will continue to remain small,” he adds. He wants to make Aaviskhaar the go-to company for managing or handling large impact funds in future.

He maintains that India remains the priority for Aavishkaar, but that does not mean it will ignore international opportunities. “It is doing India and going international,” he says.

Aavishkaar has so far raised $200 million through five funds. In 2017, it achieved a first close of $95 million of a $200-million Aavishkaar Bharat Fund. This fund will have to raise the remaining $105 million in the next 12 months. Aavishkaar invests in six sectors – financial services, clean energy, water and sanitation, agriculture and rural business, healthcare, and education and vocational training.

Overseas expansion

It will continue to focus on these sectors, even when it expands its presence in Asia and enters sub-Saharan Africa. So far, Aavishkaar has invested in 58 companies and exited its investments in 23, leaving it with a portfolio of 35 companies. From its exits, it got an average of 3.3 times return in dollar terms, which, says Vineet, is quite a good return.

Aavishkaar will invest in 15 companies in the next 3-4 years.

On Aavishkaar’s investment strategy, Vineet says it will invest in a venture right from the idea stage. Most often, Aavishkaar is the first investor in a venture. It writes cheques from ₹2-3 crore up to ₹100 crore. Once it closes the $200-million Bharat Fund, it will be able to write even larger cheques, according to him.

The Aavishkaar-Intellecap group has a network of companies that provide equity financing, venture debt and consultancy. The group’s subsidiaries include Arohan, a microfinance company; IntelleGrow, a venture debt company; and IntelleCash, a microfinance incubation company.

Vineet believes that financial services will continue to remain one of the most attractive sectors for both entrepreneurs and investors.

Target areas

There may be more innovations, emerging models and new thought processes. He also believes that affordable housing will be a large sector, probably bigger than even microfinance, given the thrust that the Centre is giving to it.

“We believe that agriculture across the board is going to be a huge sector, given the significant change in the palette of Indians. We are eating different food now and the innovation that will take place in that space is going to be significant,” says Vineet.

Another sector that Aavishkaar expects serious action is logistics. This will not be typical logistics companies, but those that create value for a farmer. For instance, he says, Aavishkaar has invested in Ergos, which is building an integrated agriculture supply chain and has created a network of micro-warehouses close to farm lands in Bihar. “What you have to do is define your area,” says Vineet.

For example, he says, Aavishkaar has invested in Connect India, which is building the last mile distribution network for e-commerce companies like Amazon. “Connect India is creating massive jobs in rural India through an entrepreneurial opportunity.” It is also allowing a rural Indian to have access to the same product from an e-commerce company like Amazon that urban Indians can easily buy. And, it is expanding the market for e-commerce companies, adds Vineet.

According to him, Aavishkaar’s assets under management has crossed $300 million, while that of the Aavishkaar-Intellecap group’s is over $650 million. By this fiscal year-end, Vineet reckons that the group’s assets under management will be in excess of $800 million.