Aavishkaar Venture Management, a venture capital firm focused on enterprises in India’s rural and semi-urban areas, is expecting bigger investment deals this year, with rising quality of startups engaged in the social impact space.
Aavishkaar plans to make 5-6 investments along with some follow-on funding this year. It will continue to invest between $2 million and $5 million at early stage, but the total quantum in a deal can rise up to $15 million, which marks a higher deal size than in previous years.
“Ticket sizes have gone up with opportunities getting bigger. The quality of entrepreneurs is improving, and they are more keen to scale,” said Vineet Rai, CEO of Aavishkaar.
The firm will deploy between $30 million and $35 million, a higher sum than last year. It invests mainly in financial service providers, such as Ujjivan Financial Services and Equitas, and in handicrafts, renewable energy, agriculture, health and education.
The firm is also raising additional capital, in the form of a new $300 million India-focussed fund, and expects to reach first close by the end the current financial year. This fund, its sixth, would take total assets under management to Rs 3,500 crore ($526 million).
It is also in the process of raising Aavishkaar Frontier Fund, with a focus on South and Southeast Asia, which had reached first close of $45 million last June. “We hope to reach the second and final close of the fund by the end of this year,” Rai said.
The fundraising environment has been tough. “The climate has been shaky for some time now. It has been challenging for new funds and some of the established names have also struggled to raise capital,” Rai said.
Aavishkaar’s last fund, in which it had a final closure, was raised in 2013. The $94 million (Rs573 crore) Aavishkaar II received investments from German development bank KFW and other institutional investors.
Microfinance provider Equitas, in which Aavishkaar was an early investor, saw its initial public offering getting oversubscribed 17 times, a strong performance in the otherwise tepid IPO market. “We continue to believe a good company would provide a great return even in turbulent times through IPO,” Rai said.
Several VC firms have become active in the secondary market, because of the weakness in the primary (IPO) market. But secondaries often result in lower returns.
Rai said that the secondary exits have earned a premium to the firm’s primary investment. “Having said that secondary return are more troubling as there are other factors like fund life and tax indemnity that become cumbersome and are more difficult to deal with given limited life funds.”
The firm will also expand to more countries this year. “We just announced our second investment outside India in Sri Lanka and we are hopeful to soon announce our third investment in Bangladesh. Strategically over next 2-3 years we are looking to raise a fund dedicated to Africa as well.”
Aavishkaar will continue to focus on startups that are engaged in social-impact issues. “The standard approach is to look at the business model and its implication on society and people living at the lower strata of economic pyramid. We want to have the business model either impacting the livelihood of the people or reducing their vulnerability and the screening is done based on the above two criteria. A business due diligence starts only after the screening confirms that the business would make impact,” Rai said.
Aavishkaar has invested in 53 enterprises in India over the last decade, across eight sectors. About 90 per cent of the companies have their main operations in rural and semi-urban markets of India. It has had 15 full exits and six partial exits from its portfolio firms to date.
Recently, Aavishkaar invested LKR 30 crore ($2 million) in Sri Lanka’s MA’s Foods, prior to which it had led a $5 million funding round in ethnic goods online retailer Jaypore.