Mumbai: The charitable foundations of investor-philanthropist George Soros, eBay Inc. founder Pierre Omidyar and Google Inc., have jointly placed $17 million (Rs68.34 crore) in a fund that will invest in Indian start-ups from Hyderabad’s Indian School of Business (ISB), hoping to boost the growth of small and medium enterprises (SMEs) in the country.
This will likely be the only private fund based at a university and among the few that hope to have a social impact such as creating jobs and growing sectors that help people, who earn less, in addition to achieving returns.
Some funds, particularly those interested in clean-technology investments, have asserted that both goals can be achieved and with high returns.
A person familiar with socially conscious seed fund, who did not wish to be named, said that right now it is an experiment to see if both these goals can be met. Achieving double-digit returns in this type of investment is considered successful, even though typical private equity returns have been around 30%.
The fund, set up by Soros Economic Development Fund, Omidyar Network and Google.org, will seek to place between $500,000 and $3.5 million into early-stage companies in areas such as skills training for low-income individuals, waste management, low-income housing and low-income housing finance.
“We want to invest in areas that are undercapitalized and underinvested,” said Reuben Abraham, ISB’s director of the Base of the Pyramid Learning Lab Network and professor of entrepreneurship. He is a senior adviser to the fund and a board member of The Soros Economic Development Fund.
“If we make a successful exit…we hope others will come into the space (we invest in) and there will be no more need for us,” he said.
The size of the deal makes the fund among the few seed investors in India. It is the third seed investor out of Hyderabad after non-profit global social venture fund Acumen Fund Advisory Services India Pvt. Ltd, which may do co-investments with the fund, and the recently announced Nasscom-ICICI Knowledge Park Fund.
The Indus Entrepreneurs (TiE), ISB and the department of science and technology are also expected to float a seed fund based in Hyderabad.
“There is a reason why they decided to locate here (for this new fund—this ecosystem is home to the SME (small and medium enterprise) space,” Abraham said, referring to early-stage companies. “And we see constant business plans.”
The idea for this fund took shape during a 2006 dinner in New Delhi when Abraham and Soros met to talk about the SME sector and its potential positive impact on the economy when such companies are grown to scale.
The concept of raising money came together after ISB held a closed-door SME workshop in early 2007, and understood the issues facing the sector.
“While SMEs in rich countries represent half of GDP (gross domestic product), they account for a much lower portion in developing economies such as India, partly because SMEs don’t have access to the same type of financing,” said Sonal Shah of Google.org.
“Our goal is to increase the flow of capital to SMEs in India. This is an important step in helping to attract commercial capital and reduce dependency on philanthropy or soft capital to fund this industry.”