National Innovation Council

The India Inclusive Innovation Fund

January 2012

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.

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

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 & government grants for solving the problems of the poor and create a model for

countries around the world to emulate

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.

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)

The Fund Model

Venture B

Proposed Fund Structure

Fund Economics

Investment and Distribution of Returns

Distribution of returns from Portfolio Companies to the Fund

Distribution of returns from Portfolio Companies to the Fund

Distribution of Carried Interest from the Fund to the EBT plus reserves for future funds.

Distribution of Carried Interest to management team

Payment of Management Fees

Payment of Trusteeship Fees and reimbursement of expenses

Fund

Investment Manager

Portfolio Company 1

Portfolio Company 2

Portfolio Company 3

Trustee

EBT

Team 1 Team 2 Team 3 Team 4

Investors

Investors

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

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

Fund Pipeline: Representative Examples

• 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)

National Innovation Council

End