Aavishkaar raises $95 million in first close of largest impact investment fund

Mumbai: Impact investing-focused Aavishkaar-Intellecap Group has achieved the first close of its latest impact investment fund Aavishkaar Bharat Fund at $95 million (Rs620 crore), group founder Vineet Rai said.

First close refers to the point when a fund can start investing from the money raised till then.

The firm intends to raise $200 million for the fund, which will make it the largest impact investment fund raised by a homegrown asset manager. Aavishkaar expects to achieve the final close of the fund in the next 12-18 months, said Rai.

Aavishkaar Bharat Fund is the firm’s sixth fund till date. The group has cumulatively raised around $200 million across its previous five funds.

The latest fund—its largest yet—is backed by institutional investors such as the UK’s development finance institution CDC, Small Industries Development Bank of India (Sidbi), National Bank for Agriculture and Rural Development (Nabard) and family offices such as that of Sunil Munjal of Hero Enterprise, said Rai.

In April, Munjal had announced an investment of Rs100 crore (approximately $15 million) in the Aavishkaar Bharat Fund. CDC has invested $25 million in the fund.

“With our new $25 million commitment to the Aavishkaar Bharat Fund, CDC is pleased to continue supporting the Aavishkaar team as it increases its investment activity in India’s underserved communities. Aavishkaar’s track record and experience put it in a good position to continue backing businesses that create economic opportunity and affordable products and services,” said Alagappan Murugappan, managing director, intermediated equity (Asia Funds) at CDC.

With a larger corpus to deploy, the new fund will see a slight departure from Aavishkaar’s traditional investment strategy, which revolved around investing in early stage social enterprises.

“Generally, Aavishkaar has either been the first investor or has been the creator of the company. We used to make small investments, generally Rs2 crore to Rs10 crore. But from this fund, in the first three investments itself, we are making an investment of around Rs130 crore,” said Rai.

Rai added that even though out of the three companies, two are start-ups, the fund is putting in significant quantum of capital because putting less capital means people take less risk and therefore scale slowly.

“So, we are deploying capital in a very strategic manner wherever we are participating in early stage. But more importantly, more than half of our investments will actually not be start-ups. Half the investments will be in early stage and the rest in more mature companies,” said Rai.

The fund has identified target late-stage investment opportunities in sectors such as waste management and financial services. Education and agriculture are other sectors where it is keen to back scaled-up companies.

To raise the largest impact fund in India, the firm has also had to tweak its fundraising strategy, which has seen almost half of the first close being raised from Indian investors.

“We realized that India is no more seen as a developmental hub. The world today acknowledges India not as a country that is poor or developing. Generally, our investors have been development finance institutions (DFIs) and we realized that their interest has moved on to other developing countries or continents like Africa. So, we had to adjust our fund-raising strategy and we made a significant focus on India and our old relationships,” said Rai.

So, in contrast to its expectation of raising a fifth of the contribution from domestic investors, the fund managed to raise 50%, he said, adding that earlier Aavishkaar funds usually had 95% overseas investors and just 5% domestic investors.