Story link: http://www.goodnewsindia.com/index.php/Magazine/story/aavishkar-innovators

The story of Aavishkaar is a fine example of sophisticated paying back by educated, affluent Indians spread all over the world. They realise it was India's knowledge-edge that leveraged them to good lives and so they have sought to widen that edge, by funding small town Indians whose innovations can increase productivities and wealth in the countryside. Aavishkaar itself is a notable innovation. It pioneers the idea of barefoot venture capitalism, so to speak. It bets on the Indian mind. Its experience so far has been that it's a safe bet.

An IIM caucus:

At the Indian Institute of Management at Ahmedabad [IIM-A] , Prof. Anil Gupta pioneered the idea of mining rural India for marketable innovations. He identified the knowledge and skills with India's poor as an untapped resource, thus unlocking a huge treasure which everyone suspected existed but no one had bothered to pursue. His work resulted in a vast and growing database of simpleton inventors. [You can read the full story of his work here]

Early 2000, when Prof. Gupta was visiting Singapore a few IIM-A alumnus met him informally. And the talk veered around to how difficult it was for the small innovator --often little educated-- to find patrons. Gupta's Honeybee network had identified many commercial opportunities. And his GIAN was labouring away trying to connect investors with entrepreneurs. Present at the meeting were Dr. V Anantha Nageswaran, Prof Mukul Asher, and Meenu and Arvind Singh. Out of that meeting was born Friends of Sristi in Singapore [FoSS]. It would be a micro venture capital [MVC] firm! A novel concept for India.

MVC is a cousin to micro-credit, but a bold and different variant. Micro credit movement in India is a runaway success. Several million Indians --almost entirely women-- have been benefited by the availability of small, low cost loans to earn micro incomes. But the lenders and borrowers are members of small groups. They are risk averse. FoSS on the other hand, would bring the rigour of modern management to evaluate ideas and then risk investing in them. The business model that fueled the growth of high tech industries was about to be down-sized and right-sized to meet the needs of an entirely different sort of entrepreneur: one rich in ideas but with few skills to develop them for the market. FoSS was entering virgin territory and hoped to learn and grow as it went.

First probes:

FoSS made two small test investments in late 2000. By now Arun Diaz, Vineet Rai and Jennifer Meehan had joined the executive team [Profiles of the key people who built Aavishkaar can be found here.]. Both the investment ideas they chose are worth looking at in some detail.

The first was an innovation by Mansukhbhai Patel in Gujarat. He had watched the painful labour put in by women and children in stripping cotton seeds of the Kalyan variety. Kalyan is sown for its hardiness in arid parts of Gujarat. But extracting the cotton out of the doughty seed was the price one paid. Patel was close to his fiftieth year and had done just ten years of schooling. But he came from a farming background and sensed an opportunity. He conceived and built a mechanised cotton stripper.If the traditional separation process yielded 20 kg/hour, Patel's machine stripped 600. FoSS invested just Rs.250,000 [$5200]. That was all that was required to nurture a major improvement. FoSS got back its capital in 5 months with 35% annualised returns.

The second investment in 2001,too occurred in Gujarat. Young Kalpesh Gujjar had struggled to pass class 10 but he had mastered computer aided design [CAD]! He lived in Gujarat's oil extraction country. He had many friends in the industry and often helped them out of mechanical problems. He would ponder the power hogging oil expellers and of the many ways they can be made efficient. He then built one incorporating his ideas. He replaced the sheaves and pulleys with a direct coupling. He built in an efficient planetary gear box, and arranged the whole for compactness. For the same yield, his Swastik Oil Expeller required 30 horse power, against the 90 HP average for the traditional plant. Its compact design required half the earlier floor space. Overall operational savings were 30%. After due evaluation FoSS again lent Rs. 250,000 in return for a pre-agreed 20%. The principal was returned within a year. Kalpesh went on to win the National Grassroots Technological Innovations Contest as well as Gujarat state's Dr.Vikram Sarabhai Young Scientist Award.

Many lessons were learnt from these two investments. One, that a good idea often stood to be lost for want of a relatively small sum of money. Two, the traditional exit route of venture capitalists --premium earned during initial public offering [IPO] -- is not available here. They must make do with a pre-agreed return, owner buy-back or rely on mergers and acquisitions. Three, management costs and evaluation processes had to be right-sized, without compromising quality.

Raising money:

FoSS and Anil Gupta's GIAN parted ways here. FoSS had decided to look for ideas outside the GIAN stable as well. They have gone about constructing a robust framework under the banner Aavishkaar, meaning 'innovation'. At the fund raising level is Aavishkaar International [AI] based in Singapore. Dr V Anantha Nageswaran a senior executive with Credit Suisse and Mr Arun Diaz, head of Reuters Consulting are two of its many activists. AI gathers capital from people who believe in India's potential and want to invest in support. There is a minimum level of Rs. 500,000 for one directly investing in into AIMVCF. There is no such limit for investing in foreign currency into AI, Singapore. They have so far raised over Rs.20 million. Their target is Rs. 50 million.

Dr. Krithi Ramamritham, a member of the board [--and Computer Science Professor at the Kanwal Rekhi School of IT at IIT, Powai] has invested not only because it's a good cause but also good business. He, Nageswaran, Diaz, Meehan and Singh have contributed 18% of the corpus. So they have put their money where their hearts are. Nageswran says,"the interesting thing about the investor list is that there are two Swiss economists, two Singaporeans [Chinese], one French and one Englishman." It would seem a lot of people around the world would bet on the Indian mind.

Aavishkaar hopes many more would come on board and make it a big India wide movement. They wish to make it more than a money thing. For example, they wish to create a Mentor Corps made of committed professionals in India who are willing to volunteer their time, experience and skills to entrepreneurs that AIMVCF picks.

AI's funds are invested in Aavishkaar India Micro venture Capital Fund [AIMVCF]. AI's investment in AIMVCF was approved by the Foreign Investment Promotion Board [FIPB] within five weeks solely on the strength of the investment idea. FIPB approval means that both capital and returns made by AIMVCF are freely repatriable to AI. AIMVCF is headed by Mr. Vineet Rai who had, in fact, worked for GIAN. He provides the continuity.

AIMVCF is organised as a Trust and is an approved venture fund under the venture capital regulations of the Securities Exchange Board of India. They are focusing on the west and south of India to begin with.

Raising money:

FoSS and Anil Gupta's GIAN parted ways here. FoSS had decided to look for ideas outside the GIAN stable as well. They have gone about constructing a robust framework under the banner Aavishkaar, meaning 'innovation'. At the fund raising level is Aavishkaar International [AI] based in Singapore. Dr V Anantha Nageswaran a senior executive with Credit Suisse and Mr Arun Diaz, head of Reuters Consulting are two of its many activists. AI gathers capital from people who believe in India's potential and want to invest in support. There is a minimum level of Rs. 500,000 for one directly investing in into AIMVCF. There is no such limit for investing in foreign currency into AI, Singapore. They have so far raised over Rs.20 million. Their target is Rs. 50 million.

Dr. Krithi Ramamritham, a member of the board [--and Computer Science Professor at the Kanwal Rekhi School of IT at IIT, Powai] has invested not only because it's a good cause but also good business. He, Nageswaran, Diaz, Meehan and Singh have contributed 18% of the corpus. So they have put their money where their hearts are. Nageswran says,"the interesting thing about the investor list is that there are two Swiss economists, two Singaporeans [Chinese], one French and one Englishman." It would seem a lot of people around the world would bet on the Indian mind.

Aavishkaar hopes many more would come on board and make it a big India wide movement. They wish to make it more than a money thing. For example, they wish to create a Mentor Corps made of committed professionals in India who are willing to volunteer their time, experience and skills to entrepreneurs that AIMVCF picks.

AI's funds are invested in Aavishkaar India Micro venture Capital Fund [AIMVCF]. AI's investment in AIMVCF was approved by the Foreign Investment Promotion Board [FIPB] within five weeks solely on the strength of the investment idea. FIPB approval means that both capital and returns made by AIMVCF are freely repatriable to AI. AIMVCF is headed by Mr. Vineet Rai who had, in fact, worked for GIAN. He provides the continuity.

AIMVCF is organised as a Trust and is an approved venture fund under the venture capital regulations of the Securities Exchange Board of India. They are focusing on the west and south of India to begin with.

New ventures:

In late 2002 AIMVCF made its first investment. Servals Automation in Chennai has licensed and patented two grass roots inventions. One is a water saving, energy efficient 'rain gun' invented by a farmer in Karnataka. It helps in optimising irrigation of cane fields. The other is the Venus kerosene burner that saves fuel and can be used in homes and small

Its second investment is in an ongoing business. Shri Kamadhenu Electronics Private Ltd [SKEPL] in Mumbai has revolutionised the management of village dairy co-operatives. It has been marketing a computerised milk assaying and billing system that has changed the way milk gathering operates. Queueing times have slashed from hours to minutes, milk spoilage reduced and transparency brought about. Farmers come in flaunting plastic cards and go away in minutes with a printed receipt for the milk supplied. SKEPL's machine is called Akashganga ['Milky Way'] and its impact is worth reading in full. It's a truly Indian innovation that uses a DOS based operating system leveraged to serve a huge industry.

After all there are close to a 100,000 village milk co-operatives in 200 districts across India through which over 10 million members market 17 million litres of milk daily. *Take that in*. So, although there are over 500 Akashgangas at work now, they are mostly in Gujarat, a small slice of the huge market. AIMVCF's investment is presumably to take Akashganga country wide. They have invested Rs.1.8 million for a 26% share of equity. Two more investments are likely to be finalised soon.

Aavishkaar has come to imbibe Dr. C K Prahlad's prescription for rapid growth of Indian economy. Concentrate on the Tier-4 market, he says. Tier-4 is peopled by low income masses. Collectively their buying power is enormous and they will buy products and services that improve their lives. Aavishkaar is applying to entrepreneurs within this market, processes like due diligence studies, technical and market opportunity evaluations and management accountability. It manages to pay its lean, professional staff reasonably well, from the interest the uninvested corpus yields. It channels its funds only to businesses that are socially relevant, environmentally friendly and commercially viable. Because in the end, its mission is not only economic returns for its investors but social returns for India as well.

V Anantha Nageswaran
Director
Aavishkaar International
Phone:+65-62352876
Mobile:+65-9731 4261
Email: