Source :http://economictimes.indiatimes.com/news/emerging-businesses/entrepreneurship/how-prasad-dahapute-and-his-team-of-five-iim-grads-are-raising-rs-500-cr-for-dalit-businesses/articleshow/26597611.cms
When he learnt about the Dicci fund, Dahapute contacted Kamble. Dicci was looking for a professional who could raise money while understanding the fund's philosophy. Although not a Dalit, Dahapute was a great believer in 'impact investing'— funding enterprises that, besides creating wealth, have social change as a fundamental objective.
"Dahapute is talented, and his connections in the financial sector is something Dicci was looking for," says Kamble, who is on the fund's investment committee. "His straightforward approach to fund-raising, which is required of a banker, is one of his admirable qualities."
Birth Pangs
In this case, fund raising began at home, and it needed much more than the Rs 25,000 Dahapute had started Varhad with. His mother, Usha Dahapute, is one the three large seed investors, with Rs 40 lakh; another is Swaminathan S Anklesaria Aiyar, consulting editor, The Economic Times. "My mother believes in the welfare of Dalits," he says. "Besides I gave her a commitment that with the returns, I will set up a separate VC fund that will invest in enterprises run by women. That struck a chord."
But raising more, from outside, has not been easy. That's not such a bad thing, feels Jayant Sinha, partner, Omidyar Network India Advisors, a philanthropic investment firm. "I think this (fund) is a terrific idea," he says. "However, my advice to them would be to start small, start with raising Rs 100 crore. If you raise too much, you are also under pressure to deploy it quickly and that's when you start making mistakes."
Sidbi is the sole big contributor from the public sector, deriving its comfort from a government policy announced in 2012, which mandates every central ministry, department and PSUs to make 20% of their purchases, in value terms, from MSMEs; further, 20% of this should be procured from companies owned by entrepreneurs belonging to scheduled castes and scheduled tribes. "We invested in the fund because the mandatory public procurement policy of the government alone gives these companies access to Rs 42,000 crore worth of contracts," says Sushil Munot, the former chairman of Sidbi who sanctioned its Rs 5 crore investment.
After chasing government entities to invest, with a fair degree of futility, Varhad now plans to turn its attention to companies from the private sector and high net worth individuals. But even Dahapute admits his team is handicapped. "India is a country of connections," he says. "We lack those connections."
Varhad has struggled to touch base with some of the companies and individuals who had extended verbal support to the Dalit fund at the time of its launch. Dahapute believes this can be fixed. "When we approach the right people, through the right connections, we should be able to raise money from the private sector."
Growth Challenges
Robert Webster, former CEO of Grassroots Business Fund, which mentors small enterprises, says the challenge for Dahapute and DICCI is similar to that faced by any other start-up. "Any potential investor will look at several key aspects: what is the theme of the fund, how will it give returns to investors," says Webster, who is also on the Varhad board. "The other aspect is what type of deal flow, or pipeline, the fund has in place. Once the fund is closed, will it able to deploy capital pretty rapidly?"
Dahapute believes the fund will not have a problem finding deals. "In Dicci alone, I can see more than 300 companies with a turnover of Rs 5 crore to Rs 15 crore," he says. It is, he adds, already talking to four entrepreneurs and nearly closed a deal between a philanthropic fund and a Satara-based company but it fell through as the promoter refused to give a personal guarantee.
Dahapute wants the VC fund to finance 1,000 Dalit-promoted enterprises, which, in turn, help 1 million poor to come out of poverty through direct or indirect employment. "I would advise them to deploy the capital in businesses that are scalable and profitable," says Sinha of Omidyar. "They should stay focused on a particular geography because once your businesses are spread all over the country, managing them operationally becomes difficult." As an example of the kind of ventures he wants to fund, Dahapute cites a client company, DAS Offshore Engineering, which does fabrication work on offshore platforms for energy and infrastructure companies.
Run by Ashok Khade, a Dalit, it's not only profitable, but also employs about 4,500 people. "Khade doesn't just bring the poor out of poverty," says Dahapute. "By paying them a monthly salary of Rs 18,000, he brings his employees into the middle-class bracket."
At first glance, Dahapute comes across as an abrasive, authoritarian manager who has no qualms in asking his IIM colleagues to serve refreshments to visitors. Behind that approach, he says, is the objective of inculcating his firm's values to its employees—respecting all types of services and work. "We work with SGBs, and one has become an expert in basic utility services, another in agriculture," he says. "So, we want those working with us to understand those businesses."
For now, everything comes back to funding. And those in Varhad, Dahapute' quoting his mother says, have to be "sophisticated beggars". He is clinging on, especially to two relatively new policy changes: the government procurement policy (explained above) and the law passed earlier this year that mandates companies above a certain size to spend 2% of their net profit on corporate social responsibility (CSR) activities.
Investments in companies promoted by Dalit entrepreneurs qualify under the new CSR law. While it's a lever, Dahapute wants companies to change the way they see CSR: not as charity, but as a social venture they can sustain with investments. "Indian promoters always had a soft corner for society. Some build community centres, some temples. No large company will say it is against social inclusion," he says. "We just need to channel this spending." The fate of his big endeavour rests on that happening.
Prasad Dahapute and his team of five IIM graduates took on the onerous challenge of raising India's first venture capital fund dedicated to Dalit businesses, all of Rs 500 crore. Even as they struggle to draw big-ticket investors, having received commitments of just Rs 42 crore, Dahapute is hanging on. ET captures his trials and tribulations.
From a small flat in Navi Mumbai, 35-year-old Prasad Dahapute and his team of five IIM graduates are plotting big. They are trying to do something never done before: seed India's first venture-capital fund to invest in businesses promoted by entrepreneurs belonging to the Dalit community, which makes up 15% of India's population but has been historically marginalised. They are aiming big: their target for the fund is Rs 500 crore, over 10 years.
Except, five months into the effort to raise Rs 200 crore in the first round, they have managed commitments of just Rs 42 crore. Even some of that is only a verbal intent and, therefore, iffy. "It is a difficult journey, and we have our limitations, says Dahapute, founder of Varhad Capital, a threeyear-old financial advisory firm that was given this mandate. "It is going to be a very patient deal to raise Rs 500 crore for Dalit entrepreneurs."
This call for patience is a contrast to the call for action at the time of the fund's launch in June. At that gathering, finance minister P Chidambaram urged public sector banks and insurers to invest.
However, barring a Rs 5 crore contribution by Sidbi (Small Industries Development Bank of India), that set has disappointed. So have corporates. For all their passion and belief in this fund, Dahapute and team, who are not as well networked in private investing circles, are struggling to break in and be heard.
Meanwhile, though there is no closing date for the first round, Dahapute is feeling the pinch. The money that has come in so far has largely been used, or earmarked, to hire people to manage the fund. It's not just Dahapute's reputation that is on the line. Also on the line is the very idea of such a fund and its importance for a community that is extremely disadvantaged— 60% of Dalits still depend on wage labour for subsistence.
An Idea is Born
The fund was the brainchild of the Dalit Chamber of Commerce (Dicci), a grouping of Dalit entrepreneurs whose tag line implores Dalits to go from being job seekers to becoming job givers. In December 2011, while announcing the intent to set up such a fund, chairman Milind Kamble said that business houses like the Tata Group, Thermax, Godrej, and Forbes Marshall were keen to help.
Dahapute read the news of the DICCI SME Fund with some interest as, at some level, it tied into the philosophy of Varhad. A finance professional, he was working as an investment banker with Standard Chartered Bank. A conversation over a failed small deal between Dahapute and two other finance professionals led them to the realisation that the investment banking community was geared to service large companies only. In 2011, Varhad was set up as a financial advisory firm aimed at servicing micro, small and medium enterprises (MSMEs).
From a small flat in Navi Mumbai, 35-year-old Prasad Dahapute and his team of five IIM graduates are plotting big. They are trying to do something never done before: seed India's first venture-capital fund to invest in businesses promoted by entrepreneurs belonging to the Dalit community, which makes up 15% of India's population but has been historically marginalised. They are aiming big: their target for the fund is Rs 500 crore, over 10 years.
Except, five months into the effort to raise Rs 200 crore in the first round, they have managed commitments of just Rs 42 crore. Even some of that is only a verbal intent and, therefore, iffy. "It is a difficult journey, and we have our limitations, says Dahapute, founder of Varhad Capital, a threeyear-old financial advisory firm that was given this mandate. "It is going to be a very patient deal to raise Rs 500 crore for Dalit entrepreneurs."
This call for patience is a contrast to the call for action at the time of the fund's launch in June. At that gathering, finance minister P Chidambaram urged public sector banks and insurers to invest.
However, barring a Rs 5 crore contribution by Sidbi (Small Industries Development Bank of India), that set has disappointed. So have corporates. For all their passion and belief in this fund, Dahapute and team, who are not as well networked in private investing circles, are struggling to break in and be heard.
Meanwhile, though there is no closing date for the first round, Dahapute is feeling the pinch. The money that has come in so far has largely been used, or earmarked, to hire people to manage the fund. It's not just Dahapute's reputation that is on the line. Also on the line is the very idea of such a fund and its importance for a community that is extremely disadvantaged— 60% of Dalits still depend on wage labour for subsistence.
An Idea is Born
The fund was the brainchild of the Dalit Chamber of Commerce (Dicci), a grouping of Dalit entrepreneurs whose tag line implores Dalits to go from being job seekers to becoming job givers. In December 2011, while announcing the intent to set up such a fund, chairman Milind Kamble said that business houses like the Tata Group, Thermax, Godrej, and Forbes Marshall were keen to help.
Dahapute read the news of the DICCI SME Fund with some interest as, at some level, it tied into the philosophy of Varhad. A finance professional, he was working as an investment banker with Standard Chartered Bank. A conversation over a failed small deal between Dahapute and two other finance professionals led them to the realisation that the investment banking community was geared to service large companies only. In 2011, Varhad was set up as a financial advisory firm aimed at servicing micro, small and medium enterprises (MSMEs).
"Dahapute is talented, and his connections in the financial sector is something Dicci was looking for," says Kamble, who is on the fund's investment committee. "His straightforward approach to fund-raising, which is required of a banker, is one of his admirable qualities."
Birth Pangs
In this case, fund raising began at home, and it needed much more than the Rs 25,000 Dahapute had started Varhad with. His mother, Usha Dahapute, is one the three large seed investors, with Rs 40 lakh; another is Swaminathan S Anklesaria Aiyar, consulting editor, The Economic Times. "My mother believes in the welfare of Dalits," he says. "Besides I gave her a commitment that with the returns, I will set up a separate VC fund that will invest in enterprises run by women. That struck a chord."
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Sidbi is the sole big contributor from the public sector, deriving its comfort from a government policy announced in 2012, which mandates every central ministry, department and PSUs to make 20% of their purchases, in value terms, from MSMEs; further, 20% of this should be procured from companies owned by entrepreneurs belonging to scheduled castes and scheduled tribes. "We invested in the fund because the mandatory public procurement policy of the government alone gives these companies access to Rs 42,000 crore worth of contracts," says Sushil Munot, the former chairman of Sidbi who sanctioned its Rs 5 crore investment.
After chasing government entities to invest, with a fair degree of futility, Varhad now plans to turn its attention to companies from the private sector and high net worth individuals. But even Dahapute admits his team is handicapped. "India is a country of connections," he says. "We lack those connections."
Varhad has struggled to touch base with some of the companies and individuals who had extended verbal support to the Dalit fund at the time of its launch. Dahapute believes this can be fixed. "When we approach the right people, through the right connections, we should be able to raise money from the private sector."
Growth Challenges
Robert Webster, former CEO of Grassroots Business Fund, which mentors small enterprises, says the challenge for Dahapute and DICCI is similar to that faced by any other start-up. "Any potential investor will look at several key aspects: what is the theme of the fund, how will it give returns to investors," says Webster, who is also on the Varhad board. "The other aspect is what type of deal flow, or pipeline, the fund has in place. Once the fund is closed, will it able to deploy capital pretty rapidly?"
Dahapute believes the fund will not have a problem finding deals. "In Dicci alone, I can see more than 300 companies with a turnover of Rs 5 crore to Rs 15 crore," he says. It is, he adds, already talking to four entrepreneurs and nearly closed a deal between a philanthropic fund and a Satara-based company but it fell through as the promoter refused to give a personal guarantee.
Run by Ashok Khade, a Dalit, it's not only profitable, but also employs about 4,500 people. "Khade doesn't just bring the poor out of poverty," says Dahapute. "By paying them a monthly salary of Rs 18,000, he brings his employees into the middle-class bracket."
At first glance, Dahapute comes across as an abrasive, authoritarian manager who has no qualms in asking his IIM colleagues to serve refreshments to visitors. Behind that approach, he says, is the objective of inculcating his firm's values to its employees—respecting all types of services and work. "We work with SGBs, and one has become an expert in basic utility services, another in agriculture," he says. "So, we want those working with us to understand those businesses."
For now, everything comes back to funding. And those in Varhad, Dahapute' quoting his mother says, have to be "sophisticated beggars". He is clinging on, especially to two relatively new policy changes: the government procurement policy (explained above) and the law passed earlier this year that mandates companies above a certain size to spend 2% of their net profit on corporate social responsibility (CSR) activities.
Investments in companies promoted by Dalit entrepreneurs qualify under the new CSR law. While it's a lever, Dahapute wants companies to change the way they see CSR: not as charity, but as a social venture they can sustain with investments. "Indian promoters always had a soft corner for society. Some build community centres, some temples. No large company will say it is against social inclusion," he says. "We just need to channel this spending." The fate of his big endeavour rests on that happening.
