We are not in the business of investments, but in the business of exits, says Sushma Kaushik of Aavishkaar Capital

Sushma Kaushik, Partner at Aavishkaar Capital, comes with over 14 years of experience in the investment industry. An alumnus of Indian School of Business (ISB), Hyderabad, and Harvard Business School, Sushma was recognised by the Indian Association of Alternative Investment Funds (IAAIF) as ‘40 Under 40’ Alternate Investment Professional in India. 

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She joined Aavishkaar Capital, a venture fund that promotes development in rural and semi-urban India, in 2010. At present, Sushma looks after fintech and microfinance at the venture capital firm.

Aavishkaar, which mostly provides micro-equity funding and operational and strategic support, is known for its impact investing thesis. Its portfolio boasts of companies including AgroStar, Chqbook, Soulfull, Milk Mantra, and PayWell, among others. 

In the latest episode of the 100x Entrepreneur Podcast, a series featuring founders, venture capitalists, and angel investors, Sushma spoke to Siddharth Ahluwalia on her experience of investing in high-growth socially responsible startups. 

Taking the VC route 

Sushma started her career as an entrepreneur, leading the team at Sanelac Consultants, one of Bengaluru’s oldest MEP consulting companies. 

She then worked in various fields such as early-stage investing, business incubation, and consulting across sectors. Sushma has also exited a large number of companies.

When Sushma joined Aavishkaar Capital, it was only a $30 million fund house. It has now grown to be a billion dollar VC fund, both in debt and equity assets. 

“It has been an extremely entrepreneurial, inorganic kind of growth journey for me...I have not had a dull moment,” recalls Sushma, who comes with over 18-years of experience. 

Investment thesis 

When Aavishkaar Capital started its journey, back in 2001, the VC industry was still in its nascent stage. The few that were there would focus on investing in tech companies, usually from cities like Mumbai and Bengaluru. Aavishkaar Capital, which realised the ability of rural entrepreneurs to scale and absorb capital, started focussing on identifying rural enterprises as an opportunity.                            

“We (Aavishkaar Capital) also identified a microfinance sector sunrise back in 2006. And so, with these two hypotheses, we started our fund investment journey,” Sushma says. 

Over the years, Aavishkaar Capital has come to be known as the impact investor. “However, our thesis keeps evolving. It started from rural enterprises and microfinance to sustainable businesses,” she adds. 

Currently, Aavishkaar manages six funds. It has about $450 million of assets under management, in terms of equity, across these six funds. It focuses on sectors including agriculture, agritech, financial inclusion, and essential services such as healthcare, education, and logistics. So far, Aavishkaar has made close to 69 investments and 32, full and partial exits. 

At the present, it is investing in its sixth fund - India Focus Fund, which is called as the Aavishkaar Bharat Fund, and is about $125 million to $130 million in size. 

While Aavishkaar Capital does focus on sustainable development goals, it stands at 3x Gross Multiple of Investment Capital (MOIC), in terms of returns. “We clock approximately 25 percent in terms of IRR as well. I don’t think returns can be compromised just because we are called impact investors,” Sushma says. 

While Aavishkaar does not concentrate on any one kind of business, it largely focuses on segments that caters to the underserved population such as women in rural India, small business owners, and financial infrastructure. 

The typical cheque size of Aavishkaar could be as low as a million-dollar, and can go up to $15 million, depending on the size of the company and the stage of investment.

“We have also invested in companies with just a business plan stage where we really liked the entrepreneur and we believed in their idea,” Sushma says. One such example is that of a small finance bank, Equitas, which approached Aavishkaar in its business plan stage. “They had a compelling story and a very strong track record,” she adds. 

Equitas is one of the first companies in Aavishkaar’s portfolio that went public.  

Speaking about the VC industry, Sushma says: 

“You’re here for the long haul. It’s not a sprint, it is a marathon. You need to stay here to actually reap the benefits of your investments. The commitment timelines are much longer than probably any other space. Youngsters do not lack talent or intelligence. Many of them are equal or better than their counterparts. So, if they’re beating themselves down on that, they are being unfair to themselves. Just find the right team and persevere, and things will work out well.”

The Chqbook thesis

In March this year, Aavishkaar Capital invested $5 million in Series A funding in Gurugram-based fintech startup Chqbook. 

“What interested us specifically was the fact that they had a very clear focus on the small business or Kirana shop segment. We knew that it is one area where credit is not easily available and most of them continue to be underserved,” Sushma says. 

Chqbook provides access to these small mom-and-pop stores with working capital loans, short-term credits, business loans, personal consumption loans, housing loans, and credit cards.

“This segment was under-penetrated. Chqbook partners with large banks and other financial institutions to provide products that this segment requires. So, it is a very unique platform transforming to become a neo bank soon,” she adds. 

On exits, M&A

Sushma says, Aavishkaar is not in the business of investments, but in the business of exits.

“Only if we are able to generate exits and returns for our investors, we will be able to successfully continue raising our funds and then continue investing,” she says. It has a string filter for exits, and spends significant time in addressing the exit thesis for companies that they invest in.

Speaking on mergers and acquisitions, Sushma says that Aavishkaar’s successful exits have usually come from trade sales, private equity or from larger funds who have bought its stakes. Not much of its exits were due to mergers and acquisitions. 

“Most large corporates have their own strategy teams and they are in a constant dilemma on building versus buying,” Sushma says.

Because Indian companies have talent and large team sizes, corporates feel they can easily build on their own, rather than buying. It is due to this, Sushma feels, mergers and acquisitions are not as vibrant in India as compared to other countries.