Driving Impact, Not Just Economic Value
We speak to Vineet Rai, founder and CEO of Aavishkaar, India’s first social venture capital fund which was launched in 2001.
Where did the idea to start Aavishkaar, a micro-equity fund, come from?
The idea was very simple, actually. I used to run a business incubation fund for the Government of Gujarat at IIM-A, and while running that, I realized that people need small amounts of money, which venture capitalists and bankers don’t want to give. So, I thought it was a brilliant idea to take venture capital to the emerging social, rural space.
People told me it won’t work because as a venture capitalist, you cannot have 40 investments under your belt! After thinking about it, I came to the conclusion that it was just ‘greed’ that stood in the way! Investing partners need a certain kind of salary which means that there can only be four people. That’s why one can’t invest in more than 5-7 companies. So I decided to change the equation. I said we’ll all take low salaries so then we can make 30 investments!
People said I was stupid and yes, it was tough. It took us 6-7 years to raise 5 crores.
What does Aavishkaar do? What is the problem it is addressing?
We do early stage equity investing where the person not only wants to create value for himself, but wants to work in a business that will make a difference to the lives of people as well. Basically, one needs to create employment and ownership, and build products and services that will ease the lives of those at the so-called bottom of the pyramid.
Which companies that Aavishkaar has invested in, reflect this ideology?
Suppose, you want to set up a low cost hospital and you want to still provide the same quality of service that Apollo provides? So there’s Vaatsalya Healthcare! Vortex Engineering is making the world’s cheapest ATMs so that banks can install ATMs in rural areas. Shree Kamdhenu Electronics provides an auto milk collection system which creates significant transparency in village co-operatives. And if you’re looking to produce the world’s most efficient burner in villages; that is Servals Automation!
Have you been an entrepreneur yourself?
Everything that I have done is entrepreneurship. I’m 38 years old and for 14 years I’ve done this. And I started with no money. Aavishkaar started with zero capital.
Infact, I would say, we are extremely high risk taking entrepreneurs. We went without salaries for seven years when we started. So when I invest in a company, I have no hesitation in asking the CEO to immediately take a huge salary cut. Secondly, we ask them to keep their costs low and thirdly, we try and build that culture for a long term basis so that they actually make a difference to the people rather just making a difference for themselves.
What got you interested in the social investment space?
I never saw it as ‘social investment’. I want to become a mainstream fund but I have chosen to take a difficult path to go mainstream. I think this goes back to my childhood. I was never a great student nor was I a great athlete. But I was the best student among the best athletes and I was best athlete among the best students! I decided to be number 1 because there was no number 2, 3 or 4 there and I wanted to be the best. So to be the best, I chose to start something that nobody else was interested in! But no, I didn’t do this to further any social goals as such. I came to this space to do something that made me happy and it seems that this keeps me happy! I just choose to work with those who are struggling slightly more.
What is your investment strategy?
We basically look at who the entrepreneur is and his ability to take risk. And then, what business he is in and what is the ability of the business to create impact, in addition to just creating value. But all our investments generally focus on just trusting the entrepreneur. So if we make a judgement, it’s more a judgement of the individual.
What kind of companies does Aavishkaar typically invest in?
We do a due diligence to get a very clear idea of what exactly the company does. So if you’re starting a dairy business, we check whether it is just a dairy business or is there something very different about it? That is critical for us and we spend a lot of time doing it. The other thing that we try and find out is, where does the entrepreneur’s interest lie? If he wants to just become rich, then we normally move on, because that is not a good investment opportunity for us.
How large are your investments?
Our smallest has been 8 lakh rupees and the largest has been 3 crores.
How would you say Aavishkaar is contributing to solving some of India’s many challenges and in the process, building a sustainable ecosystem?
About how we are creating impact or contributing to problem solving: you have people defecating in the open, so we’ve made an investment in a mobile toilet company and we’re working very hard to ensure that soon we’ll have one million 2 Re toilets across the country.
So problem: open defecation.
Solution: We need public toilets. Sulabh has done a great job but Sulabh needs land. So can we replace it by mobile toilets? One answer.
How many people actually have access to healthcare? Vaatsalya is another answer.
We have invested in agriculture, in innovative businesses that will help people to consume less carbon and less kerosene. That’s our third way of making an impact.
Everything that we have done is actually creating an ecosystem and we now need to make it more effective. We want to make 500 investments over the next 10 years and we want to raise a lot of capital. And we want to create entrepreneurship, real entrepreneurs, and support them. Sometimes we’ll fail, sometimes we’ll succeed. And if we are going to make so many investments, we’ll create so many role models which will inspire so many more people to take up entrepreneurship!
To learn more about Aavishkaar, visit www.aavishkaar.in