APC Fireside Chat with Aavishkaar: A Pioneer of Impact Investing

APC Fireside Chat with Aavishkaar: A Pioneer of Impact Investing

by Mianmian Fei

As part of its ongoing activities for the APC Member Interest Group on Social Entrepreneurship, APC invited Aavishkaar, an Indian advisory and fund management company specialising in early-stage impact investing, to Singapore for an intimate session with APC members and friends.  Held at Collision 8, a private co-working space focused on start-ups and innovation, the event featured Aavishkaar’s founder and CEO Vineet Rai and his team who discussed the company’s impact investing strategy, successes and lessons learned, and how it is bringing its approach to Southeast Asia with a new fund.

Vineet started the session by sharing his bold vision for Aavishkaar: To build businesses with and/or for the 3 billion marginalised and poor of the world.  The company has pioneered early-stage impact investing through its approach of “taking extraordinary risks in conceptualising business ideas that commercial capital will not and cannot do”.  However, once invested in a business, Aavishkaar works closely with entrepreneurs to develop sound operational and management structures and a value proposition that is compelling enough to attract commercial capital.  Vineet underscored the need for ecosystem development to sustain the growth of these businesses.  Currently, the Aavishkaar-Intellecap Group includes equity funds, a venture debt vehicle (IntelleGrow), a micro-finance company (Arohan), and an advisory business.  Together, they provide the knowledge, capital and networks to help entrepreneurs grow.

Over the course of 11 years, Aavishkaar has raised six funds totalling USD 300 million in India and South/Southeast Asia, investing in areas such as microfinance, healthcare, waste-management, and education.  Sanchayan Chakraborty, partner of the Aavishkaar Frontier Fund, provided a glimpse into some of the companies that Aavishkaar has invested in.  In 2013, they funded Let’s Recycle, an Indian waste management services company that sources waste from unorganised rag-pickers.  Just a few months after its investments, the company’s operations burned to the ground, but, in an unusual move by any investor, Aavishkaar did not pull its funds.  Instead, it ramped up support, encouraging the business to grow by mechanising its operations.  Today, Let’s Recycle has an advanced technical facility handing 400 tons of waste a day, and has impacted over 5000 waste collectors.  It is the only waste management business in India to have developed an in-house inventory & workforce management system to track and monitor operations.  In Indonesia, meanwhile, in 2017, Aavishkaar invested in Sei Balai, recognising a market opportunity from growing demand for tapioca starch.  The company built the first “Green” tapioca starch processing plant in Sumatra, providing significant income increases for small farm holders.  These success stories demonstrate how Aavishkaar is able to identify early stage enterprises and grow them into pathbreaking, commercially viable businesses, often with no existing peers.

One APC member raised the question of whether Aavishkaar can replicate the successful commercial model of companies like Let’s Recycle and bring it to other countries.  Vineet emphasised the importance of local presence in markets, adding that the applicability of models and lessons learned are indeed relevant but one has to spend significant time studying local regulatory, market and product specificities prior to investing.  After foraying into Southeast Asia with eight investments in Bangladesh, Indonesia and Sri Lanka through the Aavishkaar Frontier Fund, the organisation is now ready to expand its investment methodology to a bigger market in Asia with the Aavishkaar Asia Fund.  The USD 250 million fund will focus on agri-business, financial inclusion, and livelihood sectors. Senior managers of Aavishkaar will develop local teams in Bangladesh, Indonesia, Myanmar, Vietnam, and the Philippines to cultivate the necessary ecosystem to support the companies they invest in.

When asked how Aavishkaar differentiates itself from other traditional commercial institutions offering livelihoods to people, Vineet gave an example of Amazon in India.  Despite a value proposition to provide products at a cheaper rate to its customers, Amazon does not have the commercial ability to reach people living just 30 km outside Mumbai, naturally excluding those who need this access as much as the privileged and wealthy.  Aaviskhaar invests in the businesses that address these gaps. The session ended with a lively debate on the advantages and disadvantages of investing versus providing grants to impact enterprises.  Members raised the issue of the inherent tension between financial and social return in many impact investment funds.  Vineet stressed that Aavishkaar does not invest in businesses that have the potential to yield a better financial return by compromising on social impact.  All of the businesses that Aavishkaar invests in have a linear alignment of the two – if the business is going to scale, so is the impact.  Over 15 years their strategic approach has produced solid financial returns for its investors while growing companies that provide social and economic benefit for the poor and marginalised.  It hopes to expand this model in Asia.  APC has offered to facilitate introductions of members and friends to Aavishkaar for further conversations and interest.