MUMBAI: Aavishkaar, India’s biggest social entrepreneurship focused venture capital fund, would be investing about Rs 500 crore ($75 million) in start-ups from Pakistan, Bangladesh, Sri Lanka and Indonesia.
This would be for the first time that an India based fund has raised funds and would invest in South Asian countries. Aavishkaar would invest through Aavishkaar Frontier Fund (AFF), which is registered in Mauritius. Replying to an email questionnaire Aavishkaar said the investments in these countries would be in healthcare, education, sanitation, agricultural services, energy and technology amongst others. All the investments would be made in social sector where the returns or internal rate of returns (IRRs) are on a rather lower side when compared to other venture capital funds and private equity funds.
In last ten years Aavishkaar has been operational in India and has invested mostly in start-ups in the rural or semi-urban areas. In some of the cases the fund also invested at a seed stage. Aavishkaar currently has about $150 million under management, made some 48 investments through its four funds and has managed to get about 13 exits and 6 partial exits in two of its funds.
During an earlier interaction with ET in December Vineet Rai, CEO and MD of Aavishkaar had said that impact investment funds may have lesser returns but that is not akin donation. “Investing in these social enterprises is not like giving donations or government subsidies,” said Rai. So while the returns could be stressed the entrepreneurs the fund tends to make some money and the entrepreneur gets access to funds when other financial institutions are unable to service his needs.
In Pakistan, Bangladesh, Sri Lanka and Indonesia too Aavishkaar could look at investing in companies who need seed funding. The fund plans to invest in social impact sector which could create jobs and opportunities on the middle and bottom of the pyramid.
Aavishkaar was looking to raise anywhere between $75 mn (Rs 500 cr) and $90 mn (Rs 574 cr) million and has already raised Rs 300 crore. The remaining money would flow in the coming months. The fund has attracted two major investors from Germany and Netherland.
“Outside India, there are not that many funds reaching out to the ‘missing middle’ of growing smaller, early stage investments – a segment which is in the centerpiece of our mandate,” said Clemens Gerteiser, head, Fund of Funds Investments, DGGF investment team. Amstradam headquartered DGFF is one of the investors in Aavishkaar.
However, the investments could become tricky, especially with Pakistan with whom India shares a different relationship. Often both the countries treat investment coming from the other country directly or indirectly and involvement of any company from the other country suspiciously. With Aavishkaar it could be a different situation due to its focus on the social entrepreneurship sector.
While the rules are quite straight forward for investment coming from Europe, US and Mauritius in Pakistan, it would be interesting how Islamabad treats Aavishkaar’s impact investment. To an emailed question about the laws in Pakistan and other countries the fund said, “The target countries have opportunities for foreign capital to flow into enterprises in the sectors that AFF is interested, and have regulations/ procedures for facilitating the same. The impact sectors receive no special dispensation from these regulations/ procedures.”