How does your proposed innovation leverage public intervention in catalyzing private SME finance?
Aavishkaar invests in Rural India in sectors such as Health, Water, Energy, Education, Agriculture and Technology for Development. The overlap with public intervention in this space cannot be overemphasized. All these sectors are key areas of government intervention, but these interventions have often failed to deliver the desired results and have not been effective for many reasons, including the lack of ownership at a local level. The most important intervention by the public sector is in creating much needed infrastructure and the real opportunity for Aavishkaar lies in leveraging that infrastructure to create value that makes the public sector effective, the recipient population happy and the social enterprises profitable and less capital intensive.
As a strategy, Aavishkaar makes small investments in entrepreneurs who have business ideas that can leverage the infrastructure investments of the public sector, or help to provide cheaper solutions to some of the infrastructure constraints. One of the key criterions we evaluate when making an investment is the ability of the entrepreneur to co-opt or further support the work being done by the government or other public institutions.
Our investee company Servals, for example, uses public infrastructure created for local level village industrialization to produce its energy efficient stoves. The company benefits as it does not need to make capital investments and produces the product at much smaller cost. This allows them to maintain an affordable price for consumers and ensures that there is a return for investors. The strategy also creates significant economic activity for people in the villages, which helps to ease migration to the cities.
Vortex, another Aavishkaar investee company, has built an ATM machine that allows the public sector to disburse payments and subsidies to poor people in remote areas at a fraction of the cost. Vortex is thus an application that provides the public sector access to the people it wants to serve, but does not know how to reach effectively.
Vaatsalya, a health care company, works with State Governments and SMEs to provide treatment utilizing the state sponsored micro insurance scheme. This allows the public sector to make affordable and high-quality health care available in a scaleable manner.
Water Life, a community water plant company, works directly with the government to provide clean drinking water in far flung rural areas and keeps the plants running under all conditions. The provision of clean drinking water is one of the key development indexes for the public sector.
Similarly, a proposed investment being made by Aavishkaar in an education company would work with thousands of public schools to improve the learning capability of the children through the provision of educational toys and tools.
What barriers does your proposed solution address?
Asymmetry of information, Informality, Lack of collateral, Lack of financial capacity, Lack of SME access to skills / knowledge / markets, Unavailability of financial products tailored to SME needs, Lack of institutional capacity of financial intermediaries, High transaction costs for financial intermediaries to serve SMEs, Lack of competition / incentives for financial intermediaries to serve SMEs, Underdeveloped local capital markets (term local currency funding, exit options for SME equity), General barriers to SME development related to investment climate, Lack of financing to women entrepreneurs, Specific barriers to fragile and weak states.
If you checked any of these barriers, describe how your solution addresses them
Aavishkaar adopts an ecosystem approach to creating value for SMEs and addresses a broad set of challenges. They can be divided into four key areas, with a particular focus on addressing the challenge of Access to Finance
Access to Finance
Providing access to finance to Social SMEs is Aavishkaar’s mission. The fund provides risk capital to businesses that have the potential to make a difference to the base of the pyramid and scale up profitably. The ability to provide this capital very early and help the company to use this capital effectively is the key value proposition from Aavishkaar. In addition to equity, Aavishkaar provides short term working capital support to help companies tide over difficult times.
In addition, Aavishkaar helps its entrepreneurs to raise debt and further rounds of equity capital from mainstream and social investors. Aavishkaar provides a network or potential investors to the investee companies, and advice in making the right choices when raising funds.
Outreach, Information and Preparation
Aavishkaar has built an effective outreach approach to reach out to entrepreneurs and share information with them. Aavishkaar partners with institutions such as Ashoka, www.Villagro.org www.Intellecap.com www.dasra.org to create a strong network. The fund works with platforms such as www.beyondprofit.com and www.sankalpforum.com to support and mentor entrepreneurs. Aavishkaar employees volunteer their time in training programs organized by these organizations and look at the participants as potential investees.
Business Preparation for Access and Network to Market, Talent, formal business processes structure
One of Aavishkaar’s key differentiators is its ability post-investment to work with entrepreneurs and help them transition from early stage to a scaleable growth business. In particular Aavishkaar provides intervention in building linkages with the market, attracting the best talent and support services (e.g. selecting and hiring a strong auditor), and thinking through key operational and strategic issues.
Aavishkaar employees are a motivated group of qualified people from the investment and consulting world who effectively use their network to make such services available to the investee companies. In addition, Aavishkaar works with a network of highly successful entrepreneurs through TIE (a global organization for successful entrepreneurs from India) to create mentorship networks that help entrepreneurs deal with the challenges of scale.
SME Investment climate, Gender issues and remote and difficult state interventions
Aavishkaar initially invested primarily in the south and west of India where the investment climate is more positive. After gaining experience and demonstrating success Aavishkaar branched out and has now made significant investments in the northern states of UP and Bihar, providing equity finance and creating markets where none existed.
Aavishkaar has been very keen on promoting woman entrepreneurs and has supported some very successful woman entrepreneurs. 20% of our companies’ CEOs and Founders are woman.