SMV Wheels — Asset Ownership for Rickshaw Drivers in India

The following case study demonstrates how grant capital can be used to help prepare an impact-first investment to become investment ready.

Naveen-KrishnaNaveen Krishna’s uncle was a rickshaw driver for a while and used to share his experience about this community when Naveen was growing up. This was the underlying impetus for Naveen to create a business to empower rickshaw drivers and street vendors to own their own rickshaws and carts in order to improve their own lives. Today, his company, SMV Wheels, provides both modern and traditional cycle rickshaws and carts in combination with vocational and marketing support to lower caste men in India, enabling them to gain security, stability, and economic mobility.

A rocky start leads to a powerful network of support. Previously, Naveen was part of a nonprofit organization that used a grantbased model to serve this constituency of rickshaw drivers. As an employee, he was selected to attend Dasra Social Impact (DSI), an India-based program helping scale promising nonprofits and social businesses to positively impact thousands of lives. To do this, DSI selects social entrepreneurs to join peer cohorts to learn from each other and industry experts. As part of the DSI program, Naveen won the Village Capital program’s competition—a program that uses the power of peer support to build social enterprises and awards investment capital to a peer-selected enterprise. When he returned to work, his boss informed him that the nonprofit had different plans for the investment capital than Naveen believed were prudent. When Naveen questioned him, he was fired.

Luckily, one of the investors he had met through this process, Toniic member Bob Pattillo, saw potential in Naveen’s idea and gave him a small personal loan of $2,000. Using that capital, Naveen went back through the DSI program in order to develop a new for-profit business targeting the same market, and he won the competition again. Following that experience, he applied for many awards for social entrepreneurs in India and internationally, through organizations like Sankalp and UnLtd India, and won more grant seed capital for his fledging enterprise.

To further develop his business plan, UnLtd India and DSI worked with Naveen. Again, Naveen used his network to solicit their review and comments on the evolving business plan and financial model.

Navigating the road of investors. Unfortunately, despite his initial success, the bumpiest part of the road was still ahead. After winning the Village Capital competition, he received an aggressive equity term sheet from some Indian angel investors in March of 2011. Leveraging the network he was able to build while at DSI, he received pro-bono advice from a former JP Morgan and hedge fund manager and several other impact investors (many of whom were from the Toniic network) who advised him not to take the terms of the deal. Then, in parallel, two groups within Toniic approached Naveen with two very different investment proposals. Once again, Naveen tapped into his DSI network. Aligning the impact intent of both investor groups, Naveen, with the help of one of the Toniic investors, Lisa Kleissner, was able to bring the two groups together, right size the capital raise and execute terms that were appropriate for the size and stage of the enterprise.

Smoothing out the issues. There were several issues that Lisa focused on. She felt Naveen had a strong business model, very good networking skills and the respect of his beneficiaries, but what he lacked were adequate COO and CFO skills. In her opinion, he was not asking for enough money to build the capacity the business needed to succeed. So the capital raise that Lisa assembled included a detailed capacity building plan and a layered capital approach for providing the needed skill building and financial support. To get a detailed scope of what was needed on the capacity building side, DSI brought in a team for a three-day session to work with Naveen. The result was a revised business plan and financial model calling for 30% more capital to allow for three years to achieve breakeven volume. Second, there were some outstanding debt issues, mostly accumulated unpaid employee wages from the start-up year that had not been fully covered by the awards from competitions, that Lisa felt needed to be cleaned up in order to make SMV more attractive to potential investors. Because Lisa has access to grant and investment capital, her foundation, the KL Felicitas Foundation, provided a $30,000 grant to SMV. $10,000 of the grant was used to pay a business plan consultant and the balance was used to offset the accumulated debt. “This grant was a stopgap measure,” Lisa said. “You could say that I leveraged our $30,000 grant with a $300,000 investment to help support a business, that if successful, has the opportunity to change the lives of millions of rickshaw drivers.”

Getting ready for investment. Lisa started work on the SMV Wheels term sheet in June of 2011 and worked over five months to attract additional capital. During those five months, feedback from the prospective investors was channeled back to Naveen and the business plan and financial model were further strengthened. Naveen put the grant funding to good use; however, this was not enough capital to enable him to satisfy the growing orders for rickshaws. Lisa reflected that the whole process took much longer than expected. Travel schedules were delayed, internet access was uncertain, and it was difficult to get people on the phone around the world. But that wasn’t all; on a deal level, there were real challenges in investing in India. “You can’t do what would have been the preferred investment choice for a business in this stage—a social debt round,” Lisa explained, “As a foreign investor, it has to be a mandatory convertible debenture.”

A collaboration on mandatory convertible debt. Finally, all of the preparatory and strategy work paid off. In December 2011, SMV Wheels closed on $300,000 of capital; $75,000 of it was a PRI from Lisa’s foundation, alongside money from the UnLtd India Foundation, First Light Ventures, A-Spark, and the Peery Foundation, a donor advised fund from the Silicon Valley Community Foundation. Lisa, as the key syndication lead, coordinated an agreement with UnLtd India to provide ongoing technical support. She said her role included acting as a onestop shop for the investors, coordinating the Indian regulatory requirements through her network of professionals in India, synthesizing the different needs of the investors, pushing back on term sheet requirements that were not aligned and finally, setting and holding to a deadline for completing the investment. “Trust is an essential part of the syndication dynamic,” she said.
She and some of the other investors continue to work closely with the company, and Naveen said he’s very pleased with the monthly advice he gets, especially since he has no formal board of directors. His advice to other entrepreneurs is to navigate the “give and get” with investors; first, be consistent, as people want to invest in people who will do what they say, and second, don’t be afraid to keep asking for what you need.

For additional information visit SMV Wheels Blog, SMV Wheels Video for Unreasonable Institute, BloombergUTV Down to Earth E 2: SMV Wheels and World Bank award in development market place.