Maintaining consistent performance is a crucial indicator for evaluating a business. Hence, entrepreneurs aiming for long-term sustainability and seeking meaningful capital for scaling up should prioritise consistency above all else.
Speaking at the VCCircle Limited Partners Summit 2024 in Mumbai, Aviom Housing Finance Founder and Managing Director Kajal Ilmi shared her perspectives on various aspects of building an impact-oriented enterprise.
Ilmi, who created Aviom Housing Finance and has raised equity capital from Gojo & Company, C4D Asia Fund, Sabre Partners, and Nuveen, besides a whole host of offshore lenders and domestic banks, touched upon the role of development financial institutions and how Limited Partners (LPs), who are the real investors behind the private equity and venture capital ecosystem, shape up investee companies.
DFI Quotient
As part of a fireside chat with Srini Nagarajan, Managing Director and Head of Asia, British International Investment (BII), formerly CDC, she noted how development finance institutions (DFIs) are critical in a market like India.
“DFIs set the agenda of the social problems that are going to be solved. If there are more DFIs today focusing on climate, a lot more entrepreneurs are trying to find solutions to the common issues of climate and they know the DFIs will back them directly or indirectly (via other funds). So, DFIs have a responsible role to play as they define the direction of the movement of funds,” she said.
On the flip side, she observed that nobody can hide behind the fact that they are a social impact company.
Profitability and sustainability need to go hand in hand, she said.
“Consistency in performance is very important and I would rather go in for average profit consistently rather than high profit erratically. When you have consistent profits, you can build consistent processes and policies around it. Policies, processes, and governance are going to be issues that will be the hallmark of companies that will be there for decades,” she added.
Changing Contours
Ilmi, who has also attracted several international LPs as direct investors into her firm as lenders, also touched upon the changing contours of investor commitments. She spoke about the investor imperatives and the need for a communication directly with LPs while sharing the stage in a panel with Neha Grover, South Asia Lead, Private Equity Funds, IFC, Sampath Reddy, CIO, Bajaj Allianz Life Insurance, and Akhil Awasthi, Managing Partner, Tata Capital Growth Fund.
She stressed on the importance of internal rate of return (IRR) and said, “Any well-run company is a service to society, any well-run company where you do what you say and you say what you do, creates good impact.”
Ilmi said that LPs decide the course of the business for entrepreneurs. “Today if climate is a buzzword a lot of people are trying to find sustainable businesses that can create returns in climate. Earlier tech was there and then AI became a spiel.”
As a result, a lot of entrepreneurs go astray trying to conform with the buzzwords but they realise in the long run that you cannot fake it and one needs to own what you do really well.
“There has to be more clear and transparent dialogues so that entrepreneurs are not forced to colour their business based on the flavour of the day. We (Aviom) do housing, micro mortgage and we have helped more than one lakh customers but we are very honest about the fact that we have not been able to crack the rooftop solar energy (financing) area currently,” Ilmi said.
Net-net, there needs to be greater communication between LPs and downstream investee companies.
“Sustainability and consistency over a longer period of time, helps a company build a reputation in the market,” quipped Ilmi.
She also shared her perspective based on her conversations with LPs that most of them, whether they are investing directly or indirectly through third party funds or other PE-VC funds, that they are more bullish on India compared with other emerging markets like countries in Southeast Asia.
“LPs who also invest in Southeast Asia are happier with Indian regulators and their checks and balances compared to a lot of other countries. All LPs are also answerable somewhere. Entire conversation needs to sync up with profitability, answerability and then followed by social impact,” she signed off.
No VCCircle/TechCircle journalist was involved in the production of this content.
