DICCI SME Fund

The DICCI SME Fund will invest in enterprises owned by Dalit (Scheduled Caste) and Adivasi (Scheduled Tribe) entrepreneurs across India. The Scheduled Castes (SCs) and the Scheduled Tribes (STs) are two groupings of historically disadvantaged people that are given express recognition in the Constitution of India. The Dalit Indian Chamber of Commerce & Industry (DICCI) was established on 14th April 2005 to instill the spirit of entrepreneurship among Dalit youth to develop business leadership, thus empowering them to walk in step with the world. The business association now includes 1,350 members. The fund wants to pull 25,000 Indians out of poverty through direct and indirect employment from 20-25 Small and Growing Businesses (SGBs) owned by SC/ST entrepreneurs.

The fund has a first mover advantage while investing in SGBs registered with Small Scale Industries or National Small Industries Corporation certificate as per MSME Act, 2006. These companies have been offered procurement worth INR200bn directly by Government of India.

The fund targets a pre-tax IRR of at least 25% p.a. (not guaranteed) as most of the deals will be propitiatory deals at reasonable valuation. The Fund will invest in growth companies over 3 years & exits will be planned after the 5th year onwards.

Financial description

The DICCI SME Fund seeks to generate superior IRR by:
- Focus on professional companies -- growing annually at nominal GDP growth rate (indicatively 15+%) in sizeable sectors with reasonable profitability
- Operational procedures in place -- companies with Standard Operating Procedures and professional decision making and in competition light sector (limited number of organized players); preferably in an asset light sector
- Proprietary deal flow -- the DICCI has an extensive list of 1,350 members, Varhad has direct contact with at least 100 enterprises (members)
- Portfolio Companies -- Revenues about INR5m onwards, nearing break-even/ profitable, in the year of investment
- Individual Portfolio Investment ticket size -- INR150-500m with the total number of investee companies coming to approximately 20-25
- Maximizing fund IRR -- Exit through strategic, secondary (GP to GP) as well as listing route
Affirmative action policies in addition to the procurement laws noted above may offer dedicated market access of INR10-30bn over the next 5-10 years. Already, some of the Tata Group companies have started discussion with DICCI on this initiative. Indirect market access from open market sources can be much higher once a DICCI member company secures a client like Tata Company or ONGC (a Maharatna company). The manager expects total market access of INR400bn by 2015, comparable to track record of the National Minority Supplier Development Council (NMSDC) in the US context.