India: Investors Commit Over Rs 400 Crore For Funding New Ventures For The Poor
India, March, 28 2013 -
Investors have committed at least Rs 400 crore to a government-backed fund that will provide capital to new ventures serving the needs of India's low-income communities.
The fund, whose eventual size is envisaged at more than Rs 5,000 crore, is the first such by the government, which is taking increasing interest in venture capital investing.
The India Inclusive Innovation Fund, first announced in 2011, is expected to receive Cabinet approval in the next few weeks, said Sam Pitroda, the chairman of the National Innovation Council and the man regarded as the father of India's telecom revolution. "We will begin operations as soon as we receive approval," said Pitroda whose council will manage the fund. "NIC is in talks with banks and foreign lending agencies, including government-backed funds in the UK, to raise capital."
The government will provide seed money of 15-20% of the total corpus that will be used to provide early-stage capital to ventures building innovative products and services in areas such as healthcare, education, water, sanitation and agriculture. The social venture sector in India has mostly been the preserve of a few specialised funds such as Aavishkaar Venture, Acumen Fund and Lok Capital. Increasingly, more mainstream investors are making a cautious entry into a segment that most investors had turned away from following the microfinance crisis of 2010.
This year, Motilal Oswal Private Equity expects to raise a social venture fund of up to Rs 300 crore, while risk capital firms such as Matrix Partners India and Tata Capital have also invested in companies that cater to the country's rural and base-of-the pyramid populations.
In recent months, the government has been attempting to become more active in the risk capital space. In February, finance minister P Chidambaram announced during his budget speech that a Rs 200-crore fund would be created to scale scientific innovations. Pitroda expects it to be a venture fund for mature companies that have already proven the idea and need additional capital to scale up. "We are socialising the idea," he said.
Social entrepreneurs are welcoming the government initiative. "It is a fantastic step.
Though there are venture capital funds focused on social impact in India, they are still in their infancy," said Rajesh Bhat, cofounder, of the Head Held High Foundation, which trains rural folk and places them in sectors such as business process outsourcing. "There is a notion that government-run funds lack flexibility; I hope this fund will not only be flexible but also provide mentoring," said Bhat. NIC has a pipeline of 85 ideas and is expected to receive another 200. It will invest between Rs 20 lakh and Rs 5 crore in each company, Pitroda said.
"There is a big gap of funding for very early-stage ideas. I hope this fund will fill that gap," said Ashwin Naik, cofounder and CEO of the Vaatsalya chain of affordable hospitals. Naik is a member of the National Association of Social Enterprises, a networking forum that is helping the NIC identify potential investment targets for the governmentbacked fund. NIC will not hire independent managers to run the fund nor will it provide capital to other venture capital funds. Instead, it will directly invest from the corpus. "We know the technology pretty well. So there is no sense in creating another overhead," said Pitroda.