Gone are the days when social work was perceived by many, as mindless charity. Today many bright minds work on ideas and innovations in various fields to make lives of the marginalized better – by attempting to make quality education and healthcare accessible to all, by providing sustainable livelihoods, to name a few. We are talking about those entrepreneurs who cater to the poorest of poor. These out of the box thinkers, in helping one of the most critical customer segments are aided in their journeys by support systems such as Villgro.
We have a two article series based on discussion between Dr. Reetu Mehta and Vignesh Narayan from Club SciWri (CSW) and Dr. Arun Venkatesan (AV), Chief Technlogy Officer, Villgro, Chennai. They discussed the role of incubators and venture capitalists committed to social development in India, with a special focus on Villgro’s medtech and healthcare programs. This first in the series article briefs our readers on the functioning of Villgro and the niche that it caters to.
CSW: Please brief our readers about Villgro- who does it work with and how does it work?
AV: Villgro is a 16 years old non-profit social enterprise incubator (not an accelerator) which works like a venture capital firm. One of its core missions is to work towards poverty elimination by creating for-profit enterprises with ideas that could help the poor, mostly in rural India. We look for sustainable impact in areas where even the poorest will be willing to pay – three such areas are agriculture, education and health. The organization not only invests in but also provides mentoring support to these enterprises and sits on their board to hold the companies accountable.
CSW: How does Villgro take care of its expenses?
AV: Operational expenses are largely covered by donations from foundations that believe in our abilities and cause. We are also being entrepreneurial ourselves by performing equity investments and are slowly contributing to Villgro’s sustainability.
CSW: What is the difference between Villgro and a venture capitalist?
AV: We give grants. Venture capitalists take primary interest in equity. While Villgro also takes equity in some cases, we follow a very mentor-intensive model. A lot of times enterprises approach us not only for the seed funding but also because of our high touch mentoring model. Our portfolio managers check on enterprises every week if not more often, have monthly reviews and assign time to guide each enterprise by providing a mentor and a senior technical advisor. Villgro does virtual business incubation- when the science and technology is already developed; we help the enterprise get to a product version, post-validation of that proof of concept. The product is examined from the point of the problem(s) it addresses, the solution it is providing and the strength of the problem-solution fit, its market, scope, consumer, price, etc. ‘Fail early and fail often’ is what people say in entrepreneurship. We push the enterprises at least at the thought level to figure out which concepts are failing and move on to the next.
CSW: Tell us more about the process of selecting the enterprises that Villgro wants to incubate. Who checks with the numbers that the entrepreneurs come up with and how is it done?
AV: When there is an application made to us we have an internal process. We have an internal investment committee and an external investment committee comprising some of our board members, to eliminate all kinds of biases in the decision making process. When an entrepreneur first comes to us, we do a preliminary screen to assess if some of the following check boxes are crossed. The checkboxes include:
- The contribution made by the organization must have a direct social impact primarily to the rural Indian poor who are at the base of the pyramid. For instance, Reliance Jio creates thousands of jobs, which indirectly impacts the rural society. However an enterprise providing content development on science education in tier 2 cities or developing very low cost machines for small, marginalized farmers who have 1 acre of land is more likely to cause direct social impact.
- Sustainability and scalability – Sometimes they are separate and sometimes they are inter-linked.
- Technology innovation –We mostly hear from startups developing products for agriculture or medtech due to Villgro’s product bias. Rarely have we supported startups providing services alone. We are funded by Lemelson Foundation to fund inventions that directly impact society.
We classify graduation or exit as “when the company is able to raise subsequent rounds of funding on their own and stand on their own feet”.
Once all the three criteria are satisfied, we generally get a feedback from the sector leads, portfolio managers, and the investment committee. The sector leads take the decision if we should engage in detailed diligence for ensuring a bias free decision. The process of due diligence takes about 4 to 6 weeks and is a very iterative process. We talk to subject experts such as clinicians working in medical technology, practicing teachers, content developers, agricultural entrepreneurs, ecosystem stakeholders, distributors, businessmen and scientists from research institutes to get the facts and numbers verified. We do detailed analyses so that it validates as well as exposes gaps in the entrepreneurs’ armor. The due diligence is done iteratively till a solid case is built. If it cannot be built it gets rejected. Iteration happens every week or every two weeks. When a critical amount of evaluation is done for a case, it is pre-tested in an internal committee (IC) meeting, which is held every week. In this meeting, we discuss the new things that we have learned about the enterprise and decide if we should dig deeper into issues such as – size of the problem, potential customers, market size, cost of the product, regulations around the product and so on.
We also identify where subsequent funding will be available from and how it can be leveraged. We build a solid relationship with the entrepreneur especially via portfolio managers. A lot of feedback is also given during the diligence itself, which benefits the entrepreneur.
CSW: Why do you restrict the product to only the rural setup?
AV: That is where the toughest problem lies. If that is sorted, it can thrive in a private market very easily.
Healthcare related products catering to rural market that we look at, must:
- Improve the quality of healthcare
- Increase access to healthcare
- Reduce cost of quality healthcare
There is an enormous need for these in the rural context. The three themes, which we have in healthcare, are Maternal and Newborn Child Health (MNCH), Communicable diseases and Non-communicable diseases (either therapeutic or diagnostic solutions). This is also in alignment with the millennium goals or now called sustainable development goals.
Some ideas may not satisfy all of our requirements of direct impact or sustainability or innovation, but we listen. We want to make sure that no novel model is missed out.
CSW: How long is the incubation period?
AV: Since this is not a physical incubation there is no ‘get out’ date. It is company and sector dependent. Life sciences/ medtech enterprises have long incubation periods of around 3 to 5 years. Ideally 2 years is sufficient but this is difficult in the medtech sector.
CSW: How do entrepreneurs support themselves during this mentorship period?
AV: A seed capital of 20-60 lakhs is given to them. Then we prepare them to raise other funds. A lot of funding in life sciences is also available from DBT, BIRAC and DST. Typically, if an enterprise passes through the detailed diligence in Villgro they are well considered elsewhere too.
AV: Villgro takes on very early enterprises. Today’s average profile is a tech savvy person with a technology or engineering background who has a technology solution and is trying to launch a product. Some of them are pre-proof of concept. So business-wise, a lot of learning is required. We identify the gaps and when they exit Villgro they usually have a product, which may still be pre-revenue. Although Villgro has been around for 16 years, how enterprises fare post Villgro is still experimental.
One of the enterprises mentored by Villgro, Biosense, started off with two physicians who wanted to make a difference in tackling anemia in women. They developed a low cost solution providing other parallel diagnostic tests. They have glucometers and a noninvasive anemia-screening device. What is amazing here is that for sustainability a lot of companies go through public-private pivot. All get started with the government but they move to private sector for sustainability where margins are better. In public sector the numbers are large but the turnaround times are huge. Government is a tough customer but it is a great customer. Long-term sustainability can be achieved if you can crack the market. So, a lot of the companies pivot very easily towards private sector for immediate returns. We have a mandate for them saying that they cannot completely move towards private. Biosense has kept its primary focus on penetrating government channels to deploy devices at appropriate levels and quality and they have been in business for quite some time.
We realized there is a funding gap between enterprises coming out of Villgro and a mainstream investor picking them up, so Villgro principals launched a for-profit SEBI registered fund for social impact called Menterra. Menterra also focuses on sustainability, scalability and, tech based innovations. The fund has a size of 50 crores and provides a funding between 2 to 4 crores. Menterra was launched exclusively to bridge this funding gap.
CSW: So does Villgro now have two verticals; one for not-for-profit social enterprises, and the other for profit?
AV: Actually these two are separate organizations launched by the same core group of people that share a common mission and beliefs. Both are partner organizations and each believes in the others’ due diligence and mandates.
CSW: Can somebody who has been incubated at Villgro look forward for a funding from Menterra?
AV: It is not taken for granted. Both have the mandates of serving rural India but each has its own investment committee (IC). Some of the members might be shared on both ICs, but each organization has an independent voting process to avoid any conflicts of interest.
CSW: Apart from Villgro what are the other incubators in India, which provide such mentorship?
AV: Each one is unique in their approach, mandate and the sectors that they focus on.
For life sciences – there is CIIE, Ahmedabad that is sort of our competitor (But well, we work with social enterprises, it is not called competition, however geographical locations do matter). BIRAC has Bionest program. There are 20 Bionest incubators. Different incubators focus on different kinds of enterprises. Some focus on more mature enterprises whereas others focus on nonprofits, like Aavishkar. There is Venture Centre – an off shoot of NCL in Pune with a lot of focus on polymer chemistry, C-CAMP in Bangalore, KIT in Bhubaneshwar, FITT at IITD, IKP (ICICI Knowledge Park) at Hyderabad, to name a few.
Stay tuned for part-2 in this series that will discuss the career trajectory of Dr. Arun Venkateshan from academic research to working with a social enterprise incubator.
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