2024-11-08 05:30:18 :
The startups Aavishkaar hopes to support are typically those that employ skilled workers in small towns while selling their products in big cities. This creates a double bottom line, creating social impact by providing stable employment opportunities in underserved areas while ensuring profits.
“The gross margins on such investments are higher, making it an attractive proposition from a purely business perspective. Our thought process is to build connections through impact and at the same time make impact profitable,” founder of Aavishkaar Group Vineet Rai said in an interview with Mint.
“India’s rural economy has changed dramatically, so we have to shift our investment philosophy as well. We call it a systemic impact because it directly impacts what is happening on the ground,” he added.
Rai’s confidence in India’s rural economy has been confirmed by recent data showing that a revival in rural consumption is a major factor in India’s private consumption outpacing the country’s economic growth.
Aavishkaar Capital has raised approx. $Six India-focused funds raised Rs 4,000 crore in 17 years. The sixth fund raised about 2.5 years ago was $Area 1200 Crores.
So far, the impact investing firm has returned all money from its first three funds to investors and some from subsequent funds.
Aavishkaar Capital, which also has operations in other parts of Asia and sub-Saharan Africa, typically invests in three main categories: food and agriculture, essential services and financial inclusion.
Typical investment sizes per fund range from $5-$25 million, targeting 12-18 companies in the early stages of Series A/B (the first round of institutional financing for startups). “We also reserve some funds for zero-revenue companies,” Rai said, referring to investments in startups, taking into account the risk that they might not survive.
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rural opportunities
Last month, Aavishkaar Capital led a $10 million funding round for direct-to-consumer luggage brand Zouk. The startup employs semi-skilled workers from tier-II and tier-III areas to manufacture its products and then sells them in major cities. Aavishkaar also supports Go Desi, AgroStar and Milk Mantra.
“As India’s ability to engage with local creatives has improved significantly over the years, you will see more variety across our portfolio. This gives us the opportunity to take a step back and evaluate the new ideas that are emerging,” Rai said. “We are looking for business ideas that have the potential to scale in a short period of time and deliver commercial returns to balance our overall business portfolio and also invest in high-risk companies.”
In addition to its equity financing operations, Aavishkaar is working on the ground in various districts of Uttar Pradesh and West Bengal through its foundation, which receives funding through various corporate social responsibility initiatives.
“The aim is to create jobs and provide livelihood to the rural economy rather than shifting it to metropolitan cities. Today, people are very keen to return to their towns as the operating costs are low and this is the key to success or failure,” Rai said.
Rai is a staunch supporter of reverse migration and hopes to create more local employment opportunities for people in second- and third-tier cities to develop and build the rural economy instead of migrating to metropolitan and first-tier cities. He expects tier-2 and tier-3 cities to play an important role in India’s next phase of growth.
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Create quality jobs
As top talent migrates to suburbs and rural areas, capital will also move outside metropolitan areas, Rai explained, adding that much of the future demand will come from these areas and may see more other mainstream investors participation.
However, establishing a presence in Tier 2 and above regions may also face challenges due to factors such as lack of access to the affluent class and limited access to capital, which may delay the time it takes for startups to monetize.
The government’s latest periodic labor force survey shows that while job opportunities have improved, the quality of jobs has not. The survey found that India’s rural labor market is still dominated by agriculture, and the vast majority of rural youth hope to find a paid job.
Through various initiatives, the Aavishkaar Foundation has educated children in several low-income areas how to build businesses sustainably and come up with ideas to solve local problems.
Rai also noted the importance of technologies and tools such as artificial intelligence in democratizing access. He concluded: “Artificial intelligence has made every ordinary person intelligent, which means that even a person in the village with some understanding can guide an artificial intelligence program.”
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