Now, VCs to invest in rural tech

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Venture capitalists (VCs) in India, having so far preferred to invest in firms that cater to urban segments or the technology sector, are now starting to invest in firms that cater to rural markets too.

Other than Avishkaar India Micro Venture Capital Fund, VCs such as Acumen Fund, and Rural Innovations are also becoming active. It is also understood that E+Co, a non-profit investment firm having invested in more than 28 countries, plans to set up operations in India. The firm with $183 million capital mobilised and $24.6 million investment portfolio will focus on clean technology.

“India has very few funds that look at investing in rural India. But what’s heartening to see is that the sector now has a few options and entrepreneurs can approach for investment. The other positive aspect of those investing in such business look at this as a commercial activity,” said Arun Natarajan, MD and CEO, Venture Intelligence.

Most of these VCs get their funding from philanthrophic activities. Rural Innovations Network (RIN) gets funding from various donors such as HIVOS, The Lemelson Foundation, Sir Dorabji Tata Trust, and The Rockefeller foundation. Whereas, Google, Gates, Cisco, and others form the investor base of Acumen Fund.

Acumen India has been in India since end of 2005 has invested in 12 entrepreneurs. The focus is to fund innovative businesses that target the poor as consumers, and demonstrate to the world sustainable ways of bringing access to critical goods and services – like healthcare, water, housing and energy – to low-income households. So far Acumen India’s total approved investment is $17.4 million.

“Our capital commitments range from $300,000 to $2,000,000 in equity or debt with a payback or exit in roughly five to seven years. Our average investment is about $1 million. We also do follow-on investments as our portfolio companies’ scale, leading to anywhere up to $4-5 million exposure to a given company,” said Clara Bardy, India Portfolio Associate, Acumen Fund.

Bardy also notes that, while Acumen uses the traditional venture capital investing approach of measuring financial return and financial exposure on an ongoing basis, it also defines an additional set of social metrics that signal investors where and how they are having the greatest impact.

The importance of these funds is that they provide investment at an early stage when even Angel investors do not fund. Moreover, unlike other VCs these players stay invested for a longer period and are not in a hurry for exit. Take for instance, Tamil Nadu-based DesiCrew Solutions founded by Saloni Malhotra in 2005. The company incubated at IIT Madras had a difficult time in raising its first round of funding. “We were looking for an investor who was much more patient and was willing to be with us for more than 2-3 years. We went to all the programmes and events and met lots of people for the first round of funding. While fund houses liked our business model and wanted to invest they would recommend us to change our approach and ask us to set up in tier II cities rather than rural areas,” said Malhotra.

But Malhotra finally got her first capital infusion from Rural Innovations through its L-RAMP programme. DesiCrew with close to 70 people in five centres across Tamil Nadu is scouting for its third investment. “After Rural Innovations we raised funds from an Angel investor and are planning to approach other VCs. Most of the funds have been used as capital expenditure,” said Malhotra.

Rural Innovations Network (RIN) usually invests in innovators/ Individuals not any firms. IT acts as an incubators does through its project L-RAMP for Innovator. RIN gives interest free loan upto Rs 25 lakh. Till now under project L-RAMP has invested in 23 innovations and invested about Rs 88-90 lakhs.

The impact is fairly important. As Dimple Bhargava, Communication Head of RIN puts it, “RIN provided critical market research, development and services to the innovator. Over the period of time 300,000 rural users have been impacted by RIN. It has generated Rs 19,50,00,000 of consumer surplus (social returns) and Rs 6,20,00,000 sales by mentored innovations.”