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August 29, 2011

"A Stake In Everyman's Dreams"

Business Today has a profile of Ventureast's Micro Equity Fund which invests in a variety of small businesses that don't get looked at by traditional VC investors.

The fund has so far invested into companies like Akshara Print Forms Pvt. Ltd, a manufacturer of pre-printed business forms and stationery such; Murugesan Silver Casting Works, a manufacturer of jewellery based; Rex Miller Garments, a garment manufacturer; Studio Essential, a unisex salon and V Cube Automations, which markets a device that automatically turns off motors pumping water into overhead tanks when they are full.

"These entrepreneurs are often from the lower middle class, with limited savings and little parental help. Their personal assets are secured with banks against working capital loans. They also take personal loans at high interest rates to make up for the deficit," says Sarath Naru, founder and managing partner of VenturEast, a venture capital fund.

.."Suppose a microfinance institution has $100 million (Rs 450 crore). It will disburse it among thousands of impoverished people, while a typical venture capitalist will, perhaps, invest the same amount in 20 enterprises. We will look at financing a few hundred people," explains Naru. Adds Snigdha Rao, the fund's chief operating officer: "The people we target do not have unique business propositions. They belong to an eco-system where hundreds like them compete for attention. Their businesses often survive on volumes for which they need to be adequately capitalised."

Rao and her team have had to face their share of challenges, beginning with the shortlisting of clients. "It took us six months to exercise due diligence to get our first investee and two years to get the first five clients," says Rao. The experience provided important lessons to the team. "Now the evaluation process takes just 30-45 days," says Rao.

...Over the next 12 months, Naru hopes to get a working model ready for every type of business. After that, it will be 'plug and play', he says.

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