3. plenary aavishkaar ii mr.vineet

Aavishkaar II

BUILDING BHARAT SUSTAINABLY

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© 2010 Aavishkaar Venture Management Services- Confidential and Proprietary Information

What we set out to do

What we have done

What we learnt

What has changed

What we will do next

Aavishkaar - II

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What we set out to do : Aavishkaar,2001

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Identify entrepreneurial initiatives targeting low income socio-economic

groups in Rural India

Educate entrepreneurs about venture capital and provide initial risk capital

Unleash entrepreneurial energy focussed on bottom quartile to create sustainable and

scalable businesses by providing support in operations , strategy and networking

Demonstrate potential for venture capital investment in rural and BOP markets . Generate

social and commercial returns



What we have done

What we learnt

What has changed


Aavishkaar - II

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• Pioneered Early Stage Venture Capital Investing in Rural India– Set up two early stage venture funds focused on rural

India to invest in enterprises- which procure, serve or sell products/services or create employment / equity ownership in rural communities

– Invited LPs willing to provide patient investment that could create near-commercial returns over a longer period of time with strong developmental outcomes

• Incubated Businesses with High Growth Potential– Developed an on ground team to identify entrepreneurs

serving these markets– Picked up exciting enterprises and backed them with

capital, intensive engagement and networking support

• Focus on West and South India – Economic activity and infrastructure was conducive for

entrepreneurs – Geographic proximity to the team

What we have done: Our Strategy & Execution Plan

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What we have done: Funds launched

First FundAavishkaar – I

US$ 14.3 millionFirst Closing ;

2007Final

Closing :2009

Investment in companies addressing market failures in Rural India

Sectors : Healthcare, Education, Dairy, Technology, Agriculture, Handicrafts

Current status Fully committed No. of Portfolio Companies 23 Attracted 9 follow on investment rounds 2 exits at a discount 2 partial exits at IRR of 43% and 65% 3 write offs

Investment to build financial infrastructure in Microfinance space

Investments in marquee MFIs in India Current status Fully deployed No. of Portfolio Companies 7 1 partial exit at an IRR of 168% Attracted 8 follow on investment rounds

Second FundAavishkaar

Goodwell – IUS$ 18.3 million

First Closing 2007Final Closing 2008

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WAVE ONE (FY’2002-06)

Servals

SKEPL

Tide Technocrats

Craftsbridge

Net Systems

Naveen gram

CHARACTERISTICS • Entrepreneurs: Local focus, honest and ethical• Stage: Very early stage / high risk ventures• Capital needs: Low• Scalability: Modest • Exit: Unforeseeable exit at time of investment

OUR EFFORTS• Handholding / Mentoring: Extensive engagement

Making companies investment ready Putting systems and processes in place Developing business plans Strategic and operational support

QUESTIONS FROM ENTREPRENEURS• What is Equity?• What do I have to give in return?• Do I have to pay dividend?• What rate of interest does Aavishkaar charge ?

Number of Investments Made : 6Total Invested Capital: INR 18.5 Mn

Our first few portfolio companies required extensive support post investment

What we have done: Portfolio Buildout

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WAVE TWO (FY’2007-08)

Vaatsalya

Vortex Engineering

CK Technologies

DAH Jaipur

DAH Bhuj

Rangsutra

OUR EFFORTS• Handholding / Mentoring: High engagement

Scale up support Fund raising support Strategic advice

QUESTIONS FROM ENTREPRENEURS• How much equity / dilution?• What will the company gain due to equity

infusion?• How will Aavishkaar help in improving our

business?

CHARACTERISTICS • Entrepreneurs: Very focused; with Vision clarity• Stage: Early stage / Moderate risk ventures• Capital needs: Moderate• Scalability: High • Exit: Strong potential exit opportunities

DAH Delhi

Our next wave of investments were in business models which were more proven and profitable

Number of Investments Made : 7 Total Invested Capital: INR 111.3 MM


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WAVE THREE (FY’2010-11)

OUR EFFORTS• Handholding / Mentoring: Moderate engagement

Strategy and long term vision formulation Networking support Fund raising support

QUESTIONS FROM ENTREPRENEURS• What valuation and which instruments?• Tranches and Investment Structuring• Benefits of Aavishkaar’s partnership• Board participation and key rights

CHARACTERISTICS • Entrepreneurs: Sophisticated and articulate• Stage: Early stage / Proven business models• Capital needs: Significant• Scalability: Rapid • Exit: Strong potential exit opportunities

Waterlife India

Saraplast

B2R

Swas Healthcare

Zameen

Butterfly Fields

G V Meditech

INI Farms

Milk Mantra

M-health

Our most recent investments have been in highly scalable enterprises led by very professional management teams

Number of Investments Made : 10 Total Invested Capital: INR 232.7MM


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What we have done : Refined Our Investment PhilosophyLearnings from our experience between 2002-08, has helped to considerably refine our investment philosophy

Greater focus on scalable businesses

Dealing with fewer “unknowns”-Investments with defined investment-demonstration-progress linkage-Clarity on capital needs

- To demonstrate viability of idea- For further growth

Ability of entrepreneurs to scale and build the business

Investees would in turn, need more support in capital planning, fund raising and organisation building

On account of the above, these companies needed more capital to support their growth and scale as reflected by the higher ticket sizes of our investments undertaken between 2010-11.

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What we have done: Development Impact of Portfolio Companies

Over 60% of the investee outreach comprises women

For every rupee invested our portfolio companies have generated an economic value benefit of 22x

Aggregate economic value benefit of over US$40 during 2010-2011

Carbon Emission Reduction 84,295MT

Our Portfolio companies outreach totals over 2.6 million disadvantaged people

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What we have done

What we learnt

What has changed


Aavishkaar - II

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What we learnt: How to tap potential of rural economy

OBJECTIVES• Talking about high risk

investments in meltdown times of 2001

• Explaining ‘equity’ to entrepreneurs

• Learning investing by doing it

• Seeking the manner of ‘EXIT’

• Use investing as a tool to bring about development sustainably to Rural India

• Demonstrate effectiveness of venture capital model toward early stage investing in Rural Economy

CHALLENGES

• We were right in our hypothesis “ Rural India has opportunities galore”

• We were early in our estimation “ Rural India is ready for equity”

• Our lack of understanding of challenges was adequately supported by the right amount of over confidence

LEARNING

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What we have done

What we learnt

What has changed


Aavishkaar - II

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The market has evolved– Quality professional manpower getting interested in the rural

economy– Changing landscape in the rural and underserved market with

heavy public investment in infrastructure– Growing levels of income and awareness creating need and

demand for quality products and services

Investor interest has taken off; Mainstream and social funds have emerged on the horizon– Rural India has emerged as a big market in the last decade

with all major corporations vying for a share– Mainstream and Social Venture Funds willing to support

enterprises serving these markets, reinforcing our beliefThe underserved/poorer parts of India have seen improved governance and experienced exceptional growth – States like Bihar, Rajasthan, MP, UP have started experiencing

investment activity in sectors such as renewable energy, agriculture and microfinance

– Investors interest at these states as untapped market for basic products/services

What has changed

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© 2010 Aavishkaar Venture Management Services- Confidential and Proprietary Information16

What has changed: Underserved states as new opportunities

The poorer states are going through a political and developmental renaissance with highest growth indicators making them the new opportunity states

700 Million people live in Rural India and a large percentage of them live with in less developed states

Opportunities

Aavishkaar believes that Rural India and changing development dynamics offer new opportunities that are largely untapped

These states are very attractive for early stage equity investing due to lack of competition, reasonable valuation expectations and huge market demand that remains untapped


What has changed: Demand Growth

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• Rural Monthly Per Capita Consumption Expenditure growth has overtaken urban rate• Consuming HHS in rural India 2X in urban India• Stark differences between urban-rural consumer spending pattern, different business models needed to address rural needs

Rural Employment Guarantee Scheme

Rising Farm Income

Consumption Growth

•Cumulative government spend in various rural areas to double in three years from the current USD 27Bn• Efficacy of this spend will improve due to the UID programme• Yield growth acceleration & rise in prices of soft commodities have ushered in buoyancy in incomes• Tractor sales, for example, have grown at 10% annually in the past 5 years versus 3.4% annually in the previous ten

Rural population offers a potentially huge market opportunity but requires goods/services which match their needs

Source: NCAER, IIFL

No. of Households –’000)

No. of Households –’000)


Major funds’ interest in rural India is on the rise, but prefer larger ticket sizes

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Company Sector Investor Amount

Suminter Organics

Agriculture

Nexus Ventures, Capricorn USD 6.2 mn

Dlight Design Renewable Energy

Nexus Ventures, DFJ, Acumen Fund, Omidyar Network, GGV

USD 5.5 mn

IL&FS Education and Technology Services

Education Services

India Equity Partners USD 37 mn

Vasan Eye Care Healthcare

Sequoia India USD 22 mn

Long track record, local presence, high visibility and deep insights in the emerging pipeline in the market provide Aavishkaar an unique advantage over both established and emerging funds in the space

What has changed: Investor interest in BOP market

These funds do not have pipeline access in this space and are not designed to invest in early stage



What we have done

What we learnt

What has changed


Aavishkaar - II

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What will we do next: Aavishkaar Strategy - Sow-Tend-Reap

T0 - T0+2 yrs T0+2yrs - T0+4 yrs T0+4 yrs – T0+6 yrs

Aavishkaar Inputs• Mentoring • Advisory and execution

support• Network extension

Aavishkaar Inputs

• Strategic guidance • Branding and visibility

Aavishkaar Inputs• Managing growth

complexities• Preparing for IPO /

Acquisition

SOW TEND REAP

Screening Factors

• Experienced Entrepreneurs• Innovative Business models

Screening Factors

• High growth stage• Exit opportunities

• No of companies: ~ 15• Investment Size $0.5- $2 Mn• 15-25% of the capital

• No of companies: ~15• 7-8 SOW stage companies• Investment Size: $3–$5 Mn• 30-40% of the capital

• No. of companies: ~5• Investment Size: $6-8 Mn• 20-30% of the capital

Screening Factors

• Graduated from SOW and TEND stages• Rapid growth and visible exit

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What will we do next: Opportunities and StrategiesCHARACTERISTICS

•First generation / Serial entrepreneurs •Domain knowledge and sector expertise•Prior management experience in similar businesses

Start Ups

300 MM IN 3 YEARS? INNOVATIVE BUSINESS MODELS, KNOWLEDGE EDGE

STRATEGY: FOCUS ON SCALABLE BUSINESSES

INVEST EARLY FOR SIGNIFICANT STAKE: ~20% - 40%

STRATEGY: TAKE LARGE POSITIONS

A LITTLE MONEY, A LOT OF TIME IN THE EARLY STAGES

STRATEGY: EXTENSIVE MENTORING.

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What will we do next: Opportunities and Strategies

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Existing Businesses

CHARACTERISTICS•Existing companies already in the market•Technology, cost and supply scalability of products/services validated•Market acceptance and reach established at a local/regional level

BUILD STRONG MANAGEMENT

STRATEGY: TEAM, TEAM, TEAM!!!

INCORPORATE BEST BUSINESS PRACTICES, CORP. GOV

STRATEGY: OPERATIONS AND SYSTEMS

STRATEGY GUIDANCE, CREATING VISIBILITY, BUILDING BRAND

STRATEGY: TAKE TO NEXT LEVEL


We will invest large amounts into our successful companies at reduced risk

What will we do next: Learning from our past investments

232Current value: As of Mar’14* Fund raising in progress

CASE STUDY: VAATSALYA HEALTHCARE

Series A Series B Series C Series D*

7.1 60200

500

Funds Raised (INR Mn)

AAVISHKAAR - I• We invested early, took higher risk• The upsides were taken away by Series B/C investors who

invested in a relatively de-risked business model

Aavishkaar 2006 2008 2009 2011

Investment 7.1mn 20mn 0 0

Stake 27% 25% 14% 10%

Aavishkaar 2006 2008 2009 2011

Investment 7.1mn 40mn 100mn 0

Stake 27% 45% 40% 28%

Series A Series B Series C Series D*

7.1 60200

500

Funds Raised (INR Mn)

Exit Proceeds (2014E)2 403 mn

IRR 50%Exit Proceeds (2014E)2 1,120 mn

IRR 44%

AAVISHKAAR - II• We will invest early, take higher risk but put more money

in subsequent rounds to avoid dilution, and get rewarded for our early stage investing

FURTHER INVEST IN STAR PERFORMERS, READY THEM FOR MERGER/ACQUISITION OR IPO

STRATEGY: BACK THE WINNERS


Recognition: Our Entrepreneurs

Empowerment through Ownership24


Recognition: Awards and Accolades

G20 SME Finance Challenge, November 2010

UNDP World Business Award, May 2006

L-RAMP Fostering Award for Excellence, December 2007

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Recognition: News Coverage

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What we have done

What we learnt

What has changed


Aavishkaar - II

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Aavishkaar II: Snapshot

Target IRR 20 per cent (net of fees)

Management Fee

2 per cent during investment period and 2 per cent of invested capital after investment period

Hurdle Rate 8 per cent

Size & term Size: $ 120 million (Foreign fund);

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Carried Interest

Focus “Delivering commercial returns to investors by investing in scalable enterprises

in underserved markets of India with strong development outcomes”

Exit Routes Combination of third party sale, acquisition and IPO

Investing Strategy Sow Tend Reap

20 per cent

Pre-op Expenses

Lesser of $750,000 or 1% of the fund size

Term 10 years (1 + 1 year extension)



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• Aavishkaar II achieved its First Close on Sep 30, 2011 with a Total Commitment of USD 64.7 million

• During December 2011, KFW provided additional commitment of USD 6.5 million. Total effective commitment currently stands at USD 70.3 million.

(USD million)

• Final Close expected be achieved by March 2013

Investor

Total Commitment at First Close

Addl. Top-up Commitment

Aggregate Commitment

Effective Commitment Comments

I CDC 25 25 25

II IFC 15 15 14.1Effective Commitment capped at 20% of the Aggregate Commitment

III CISCO 10 10 10 IV FMO 7.5 7.5 7.5 V KFW 7.2 6.5 13.7 13.7 Total 64.7 6.5 71.2 70.3



Strategies No. of DealsTotal Invested

(USD M)I Health Water and Sanitation 6 27II Education 5 19III Agriculture 6 25IV Renewable Energy 4 18V Other Emerging Sectors 2 9

Total 23 98

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Expected Sector-wise Investment split


Aavishkaar II : Six investments made till date

Vortex Engineering

Vana Vidyut

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• Design, manufacture of Low‐cost ATMs capable of operating in remote rural/ semi‐urban regions at fraction of cost of conventional ATMs

• Tend Stage Investment

• Commitment - $ 2.4 Mn

• Biomass‐based power generation using owned / leased energy plantations as the source of feedstock

• Sow Stage Investment


Karadi path Milk Mantra

• A non‐linear English teaching methodology suitable for large number of government and affordable private schools



• Farm to table dairy company based in Low Income State of Odisha

• Tend Stage Investment


mHealthEPS

• Provides medical advice by phone for rural mass markets.



• Manages and deploys ATMs on behalf of banks, thus enabling branchless banking in urban and rural India




Aavishkaar II: Our edge in impact investing

• A proprietary pipeline of start-ups scouted through our long -term partnership with incubators and on-ground presence of 10 years

• Our investments have been catalytic in triggering subsequent funding rounds

• We are recognized as a sector builder and have facilitated prominent events such as Sankalp and Srijan in the bottom-of-the-pyramid and microfinance space

• High quality portfolio comprising companies that are innovatively and sustainably targeting fundamental market needs, inefficiencies and defining the sector. Most of our companies are considered as pipeline for strategic acquisitions and major venture funds

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• A collaborative approach with active need–based hand holding on diverse dimensions including fund raising, strategic advice, networking, early-stage support

• Early stage nature of investing in a space with limited competition allows us to get in at low valuation


Aavishkaar II: Key Principals

Vineet RaiManaging Director And Founding Partner

Vineet is founder and Managing Director of AVMS with over 17 years of experience in leading innovative interventions in the development sector.

He has experience in small business incubation, SME sector, microfinance and venture capital investments.

He is CEO and co-founder of Aavishkaar India Micro Venture Capital Fund and the Co-founder and Director of Intellecap.

He is an Ashoka Fellow and holds a Post-Graduate diploma in Forestry Management from Indian Institute of Forest Management, Bhopal.

Pradeep has been associated with Aavishkaar since its inception in early 2002 and brings with him over 16 years of operational and investment experience in sectors including farming and allied activities, agro processing, renewable energy, manure and fertilizers, healthcare services and delivery, micro-finance and financial services delivery.

Pradeep has been closely involved across all stages of the deal spectrum for all investee companies, both pre and post investment, and also is a board representative on some companies

Earlier, he worked for an integrated sugar complex engaged in the production of sugar, molasses, alcohol, manure and cogeneration of power, where he had been closely involved in the financial structuring for new domestic projects, valuation and takeover procedures of co-operative sugar factories as well and in discussions with overseas venture capitalists for sugar projects in the ASEAN region

Pradeep holds a MBA with specialization in finance and is a Bachelor in Applied Sciences (Engg.).

P PradeepDirector And Partner

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Aavishkaar II: Company structure

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Contact usVineet Rai

Email: [email protected]: +91 98206 45736

P PradeepEmail: [email protected]

Mobile: +91 98403 95004

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Investment AdvisorAavishkaar Venture Management Services

516, Palm Spring l Link Road l Malad (W)Mumbai, India

Tel: +91 22 4200 5757

mailto:[email protected]

mailto:[email protected]

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3. plenary aavishkaar ii mr.vineet