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.