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Indian microenterprise attracts venture capital

Indian microenterprise attracts venture capital
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First Published: Mon, Aug 13 2007. 07 52 AM IST

Getting noticed: Maya Organic chief executive J.P. Solomon (second from right) in the workshop.
Getting noticed: Maya Organic chief executive J.P. Solomon (second from right) in the workshop.
Updated: Mon, Aug 13 2007. 07 52 AM IST
Bangalore: A network of micro-level entrepreneurs specializing in wooden furniture, toys and apparel from villages around Bangalore will receive $3 million (more than Rs12 crore) as funding from start-up financiers Nadathur Holdings and Aavishkaar India Micro Venture Capital Fund.
Also chipping in will be the Canadian chapter of CARE, an international non-governmental organization fighting poverty, and Volkart Investments, the commercial lending arm of Swiss agency Volkart Foundation. Their aim is to help transform MAYA, a Bangalore-based NGO that was founded in1989, into a commercial venture in which the workers will own a portion of the equity and also receive a share of the profits. The new entity is being called Maya Organic India Pvt. Ltd or MO.
The investment also indicates the growing interest of venture capital firms (venture funding is seeing a renaissance in India) in atypical microenterprises. MO will focus on the marketing, design and development of products that will be sourced from clusters of self-help groups. “For every Rs100 earned by MO, the cluster of producers will receive up to Rs45…(and) 10% to 15% of the equity in the company will be offloaded to the workers,” says J.P. Solomon, the NGO’s founder and MO chief
Getting noticed: Maya Organic chief executive J.P. Solomon (second from right) in the workshop.
executive.
Last year, MO earned Rs3 crore retailing wooden toys under the Moogli brand, MO-branded designer furniture and supplying apparel. Exports to the UK and South Africa contributed more than half of the earnings. In a world dominated by plastic and stuffed toys from China, “Moogli toys do not need any window dressing; it sells itself,” says Norina Williams, director, Y-Organix, a Cape Town, South Africa, based distributor for eco-friendly products.
MO first began as a vocational training unit set up by MAYA—short for Movement for Alternatives and Youth Awareness—that was active in the area of child education and adult livelihood projects. As the market for its range of eco- friendly handcrafted furniture and toys picked up, MO channelled grants from the Ford Foundation, Volkart Foundation and the America India Foundation to help groups of workers set up their own micro enterprises. Today, there are three large clusters that the company draws from.
A 220-member group of garment workers turns out pre-shrunk and hand-embroidered apparel. From Channapatna, a town about 50km west of Bangalore, a cluster of 100 workers produce a range of wooden toys coated with ‘lac’, a natural resin, while a third cluster produces the MO brand of furniture. “We have invested close to Rs4 crore to set up the back-end at each of the three clusters we source from,” says Solomon.
But as the domestic market for branded furniture, estimated to be worth Rs3,500 crore by CSIL Milano, a specialist market tracker, grows at 20% annually, MO is finding that size of operations matters. The inability to scale up quickly was most visible while selling to institutional buyers, who form the bulk of MO’s clientele in India. “I have placed orders worth Rs14 lakh with Maya Organic for a single project, but if I had an order for Rs1 crore to be delivered in 45 days, I don’t think they can deliver,” says M. Shashidhar, director at Cicon Engineers, a building consultancy firm in Bangalore that counts MO as one of its vendors.
Customer feedback of this sort led Solomon and team to decide that an NGO structure was not suitable for their operations any longer. “For us, the interest in Maya Organic comes from its scalable business model and the way in which commercial potential has been allied with social causes,” says Anand Nadathur, director Nadathur Holdings, a Bangalore-based investment firm that also runs a technology venture capital fund, Ojas Venture. The firm, founded by N.S. Raghavan, a former joint managing director of software services vendor Infosys Technologies Ltd, has in its portfolio start-ups engaged in activities ranging from spice cultivation to aerospace engineering.
MO will use the venture funding to expand the supply network of the company and to set up a chain of new retail outlets across the country. “Till now, about 20-odd self help groups with 350 members form part of this network. The aim is to take this to 7,000 micro enterprises in five years,” says Sanjay Anandaram, a partner in Bangalore-based JumpStartUp Venture Fund, who mentored MO during its transition from an NGO into a commercial venture.
Investors such as Vineet Rai, managing director of Aavishkaar Venture, who expects to invest up to Rs2 crore in MO, say the challenge for the company will be to merge the social entrepreneurship principles on which it is based with the hard-nosed business decisions that a commercial venture demands. “Over time, we expect to invest downstream in the micro enterprises which will supply products to MO,” says Rai. This is not the first time an NGO has spun off commercial ventures. In Bangalore alone, a similar effort by another NGO, Technology Informatics Design Endeavour, or TIDE, has spawned over 15 small micro enterprises as independent companies, with a combined turnover of up to Rs2 crore. “By being focused in the areas of furniture, toys and apparel, MO will be able to build scale into operations that are the really big differentiator,” says Svati Bhogle, chief executive of TIDE.
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First Published: Mon, Aug 13 2007. 07 52 AM IST