The India Inclusive Innovation Fund


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A key proposal emerging from National Innovation Council deliberations: is the proposal to establish the India Inclusive Innovation Fund. This Council effort seeks to establish a Fund that will drive and catalyse the creation of an ecosystem of enterprise, entrepreneurship, and venture capital, targeted at innovative solutions for the bottom of the pyramid.

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The India Inclusive Innovation Fund

  1. 1. The India Inclusive Innovation Fund January 2012 National Innovation Council
  2. 2. Driving Inclusive Innovation• India faces key developmental challenges in critical areas: healthcare, food, nutrition, agriculture, education, energy, water, financial inclusion, livelihoods.• Globally and in India such challenges are addressed in two ways – Philanthropy and government grants / subsidies.• However, these are inadequate, inefficient & when the fund flow stops, the good work stops ! • Corporates following global best practices commit 1% of PBT to CSR – this means a company with $1 bn revenues commits $1mn ! • These funds are routed through NGOs, managed by people who are committed and passionate but not efficient users of capital & have little experience of building scaleable / sustainable enterprises • Government handouts are generally inefficient & hard to manage.• These needs can be more holistically addressed by an inclusive innovation ecosystem which harnesses the dynamism of enterprise to solve the problems of the Bottom of the Pyramid through the creation of scaleable, sustainable enterprises.
  3. 3. Driving Inclusive Innovation• The Venture Capital construct has done precisely this and attracted the best brains in the world to solve the problems of the affluent• The need of the hour is to use the same venture capital approach and bring in the best brains in the world to solve the problems of the poor, recognising that the Bottom of the Pyramid (BOP) represents an investment opportunity for both economic and social returns.• This is the context for the National Innovation Council’s initiative on the India Inclusive Innovation Fund• Conceived as a PPP where government helps seed and kick start and private sector brings finance, expertise and scale to plug the gap of risk capital for the BoP
  4. 4. India Inclusive Innovation Fund: Vision Innovative enterprises can fulfil unmet social needs by profitably, scalably, and competitively engaging citizens at the bottom of the economic pyramid: through the creation of goods, services, employment, livelihoods, income and wealth.Successfully achieving this vision will unlock & unleash a class of capital other than philanthropy & governmentgrants for solving the problems of the poor and create a model for countries around the world to emulate
  5. 5. Fund Objectives• Drive inclusive growth by igniting innovative entrepreneurship that addresses Bottom of the Pyramid needs• Mobilise capacity to identify and scale innovative solutions that will address problems of the disadvantaged• Create an ecosystem of innovative solutions, business models and approaches that reach beyond IPs/Patents• Balance social and financial returns, simultaneously achieving social good and economic sustainability• Employment / livelihoods creation at the bottom of the pyramid will be a key bias for the fund’s investments• Mentoring / skills development / education, which will be a key element in enabling entrepreneurs at this end of the spectrum to succeed, will be achieved by creating a mentoring network, and special skilling / education programs• Help create a pool of innovators / entrepreneurs focused on BOP by partnering / supporting incubators / entrepreneurship cells, etc.
  6. 6. Fund Characteristics• Structured as an autonomous, Rs. 5,000 crores fund• Government seeded (20% in phases), privately invested (80%)• Ministry of Finance has announced commitment of Rs. 100 crore as seed money to kick start the Fund• Invest directly, in BOP enterprises; and indirectly through other BOP- focused funds, (subject to applicable law)• Invest across the venture development cycle: early-stage to scale-up.• Professionally managed by the best talent; and operate strictly as per the defined charter• Operate as a for profit entity; give “targeted” social and economic returns to investors• Source pipeline via a challenge model (inviting solutions to specific issues), and the field-source and broadcast model (creating an open platform to identify, engage, and scale existing innovations)
  7. 7. The Fund Model Venture B
  8. 8. Proposed Fund Structure
  9. 9. Distribution of EBT Investment and Distribution of Carried Interest Distribution of Returns from the Fund Carried Interest to to the EBT plus management reserves for team future funds. Team 1 Team 2 Team 3 Team 4 Fund EconomicsPayment of Trusteeship Feesand reimbursement of Investment Managerexpenses Payment of Management Fees Fund Distribution of returns from Distribution of returns from Portfolio Companies to the Portfolio Companies to the Fund Fund Portfolio Portfolio Portfolio Company 1 Company 2 Company 3
  10. 10. Fund Details• Minimum Target Size: Rs. Five Hundred Crores• Maximum Size: Rs. Five Thousand Crores• Initial Closing: On achieving Minimum Target Size• Final Closing: 18 months after Initial Closing• Fund Life: 10 years, extendable by upto 3 years• IRR: Fund will target Gross Investment Internal Rate of Return of 10 per cent per annum before taxation and management charges
  11. 11. Why the Fund will succeed• The right resources and competences – World class telecom infrastructure, world class entrepreneurs, access to world’s best technologies, world’s largest young talent pool & strong government focus – Entrepreneurial bug has bitten India – success of IT/Pharma has created role models / icons, IIT / IIM grads choosing entrepreneurship over MNCs, Entrepreneurship / Innovation Cells at leading universities, etc• The right talent – Capable of doing more with less for more – Innovative approach to problem solving: beyond jugaad, focusing beyond IP: developing new business models, approaches, GTM – Awareness and understanding of BOP context – they come from tier 2 / 3 towns & rural areas too• The right market – World’s largest market for products / solutions for the poor – Market explodes for the right offering at the right “Indian” price point
  12. 12. Fund Pipeline: RepresentativeExamples• Narayana Hrudalaya• Arvind Eyecare• Jaipur Foot• The Acumen Fund• Aavishkaar• Selco: rural electricity• Mobile led financial inclusiveness – EKO, Mcheck,• Rural ATMs - solar power, no AC, biometric authentication (e.g. by Vortex Engineering)• Rs 3000 fridge, battery run, sold by village girls (e.g. by Godrej)• Rs. 700 Water purifier using paddy husk ash matrix (e.g. byTata Chemicals)
  13. 13. EndNational Innovation Council