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Aspada Investment Advisors oversees Aspada Investments, an equity and structured product venture capital investment vehicle. It aims to provide early-stage risk capital to businesses in India that "expand market access, improve livelihoods and create large-scale employment opportunities in under-served communities". It is backed, among others, by the Soros Economic Development Fund. Founding partners Kartik Srivatsa & Thomas Hyland detail how they intend to go about this, in an interview with Raghuvir Badrinath. Edited excerpts:
Getting the backing of the Soros fund is a significant development. To what extent are they helping you weave a strategy in India?
Theirs' is a foundation which supports investments in small businesses in emerging markets that provide access to essential services or improve livelihoods. They sit on our investment committee and provide strategic and operational advice. This committee will expand over time and seats will be offered selectively to new investors as they come in. The foundation possesses significant experience as an investor in not only India but other emerging market geographies. They bring expertise in small business investment across agriculture, logistics, financial services and healthcare. They have backed us as a team to execute on the ground, so the performance of, and responsibility for, the portfolio falls on our shoulders.
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We are speaking to a handful of institutional investors, foundations and family offices. The quantity we are looking to raise is modest, relative to other funds in the market; having a relatively smaller fund enables us to maintain focus and provide adequate support to our entrepreneurs. We would like to take money from investors which are interested not only in the financial return opportunities but can add value by helping to support our entrepreneurs in building large businesses in under-served markets.
You are raising funds in a situation when the economic environment for India-focused private equity (PE) funds is muted.
True, but the earlier SONG Fund (an early stage venture capital fund capitalised by the Soros fund, to which Aspada provides investment advice and portfolio oversight) has demonstrated a significant track record in a market in which many VC/PE funds have under-performed. There has been one complete exit (K-12 Technoservices), one partial exit at a significant valuation uptick (Eye-Q) and two remaining companies which are tracking well and would expect to take rounds of capital from outside investors over the course of the next year.
SONG has demonstrated that money can be made in these spaces and there is a process in place to source, structure, execute and work with high potential investment opportunities. Many funds play in overly crowded spaces (larger ticket and high technology) and backing high cash burn models. We're more deliberate and focused on a segment that is un-crowded, yet critical to support for India's sustained growth. I'd argue that as capital flows to India dry up and money becomes scarcer, our role becomes more critical, as we fund essential services and businesses that are recession-proof and require attention regardless of which way the larger macro economic winds are blowing.
What is the story you are selling to your investors on how they will make returns by investing in your fund?
Investors will make money in our fund in the same fashion that they make money in any venture fund but they will have done so by having provided capital to help a business that can have a direct impact on the lives of people who lack access to basic services. The primary differences are that our sectors of focus do not include Silicon Valley-style technology and are focused on firms building the stories we believe are critical to support the continued India Inc story. And, the time horizon, as the unit economics in many of these businesses can take a longer time to play out. We are willing to be more patient than a traditional VC fund and will not push for an exit prematurely, if the business needs more time to reach scale.
Of late, there is a spurt of PE funds investing in social causes and in for-profit ventures. How do you intend to be distinct from the crowd?
There is a wide range of funders in the 'social causes' space, everything from philanthropic to commercial to a range of the two. We focus on models that can commercially scale and we are not a source of subsidised capital. While we are willing to be patient, we think it is absolutely critical that our businesses can attract further rounds of follow-on capital from purely commercial funding sources, as that is the only way the companies can truly scale to their potential and have the large-scale impact we hope they will have. Whether it is education, health care or access to basic services, India greatly lags world averages, even in a developing market context.
These are large and complex challenges and there is simply not enough philanthropy or blended investment capital available to begin to address these in any sustained fashion. The quantity of money in the commercial markets is significant larger than in the social causes spaces. It is our view that market-based solutions are critical to building lasting businesses in these sectors. In addition, with the experience of the earlier SONG fund, we've developed a nuanced approach as to what will work at the last mile and what won't.
