For a school dropout who grew up doing odd jobs, H. Rajesh, 35, has done well for himself. Studio Essential, the unisex beauty salon that he and his cousin V. Dhayalan started in Chennai's upmarket Nungambakkam area in 2004, has grown steadily in reputation and size. From 300 sq ft, it has grown to a 2,500 sq ft salon, giving tough competition to its branded rivals in the neighbourhood.
The salon's success prompted Rajesh to plan a second outlet in the city in January this year, but funds proved elusive. "I did not have enough savings," he says, adding that banks were willing to give a loan only against securitised collateral, which would have been enough to meet only his working capital needs.
'The businesses that we focus on are competing with hundreds like themselves. They often survive on volumes, for which they need adequate capital'
Rajesh felt frustrated, till he stumbled upon VenturEast Micro-Equity Managers, which handles the Bharatiya Yuva Shakti Trust (BYST) Growth Fund. This is a micro-equity fund, which focuses on neighbourhood enterprises run by uneducated, but shrewd and business-savvy, individuals.
Thanks to the Rs 15 lakh equity infusion and mentoring by the fund, Rajesh managed to open his second outlet, a 1,500 sq ft salon, in the posh Anna Nagar neighbourhood, barely five months later. "The transition from a hairdresser to a businessman is not easy and I am still learning.
If VenturEast had not stepped in, my expansion plans would have been delayed by three years. It would have taken even longer to run the business professionally," he says.
Rajesh is not the only one who has set his growth ambitions rolling, courtesy the BYST Growth Fund. C. Raja, who runs a uniform manufacturing unit; S. Rajeshwari, who owns a printing press; M. Siva Kumar, who makes cast gold jewellery and R. Vaidyanathan, who manufactures water level controllers, have all benefited from this unique venture.
"These entrepreneurs are often from the lower middle class, with limited savings and little parental help. Their personal assets are secured with banks against working capital loans. They also take personal loans at high interest rates to make up for the deficit," says Sarath Naru, founder and managing partner of VenturEast, a venture capital fund.
Naru says his entry in microequity was influenced by Washington-based International Finance Corporation (IFC), which has been an investor in several VenturEast funds. The two joined hands with BYST, a non-profit organisation, which encouraged micro-entrepreneurs to create the first micro-equity fund, the BYST Growth Fund.
VenturEast Micro-Equity Managers-formed as a partnership between VenturEast and Aavishkaar Venture Management Services, a pioneer in micro-equity-was the investment adviser to the fund. It raised $2.5 million (Rs 11.25 crore) from IFC, the Small Industries Development Bank of India (SIDBI), and some high net worth individuals. Where does this fund fit in among the various financing models?
"Suppose a microfinance institution has $100 million (Rs 450 crore). It will disburse it among thousands of impoverished people, while a typical venture capitalist will, perhaps, invest the same amount in 20 enterprises. We will look at financing a few hundred people," explains Naru.