Small-Town Entrepreneurs Struggle for VC Funding

Wednesday, February 3, 2010

Bangalore: Gunjan Kumar’s business proposition is simple. The 28-year-old buys traditional art and craft products from artisans in villages and sells these in metro cities.

Kumar started Amethia Apparelz and Co. in Patna 18 months ago with Rs6 lakh. In its first year, the firm earned Rs33 lakh in revenue and expects to end fiscal year 2010 with Rs1.65 crore.

In another part of the country, Nafisa Radiatorwala’s start-up, Nature’s Glow, is clocking 10 times the revenue it made two years ago. The Vadodara-based firm in Gujarat exports herbal beauty and treatment products to the US, UK, and the United Arab Emirates, and hopes to end 2009-10 with revenue of Rs5 crore.

Kumar and Radiatorwala are among several profit-making entrepreneurs in India’s small cities and towns keen to attract venture capital (VC) investment as they look to expand.

Deal contribution from smaller cities and towns increased to about 15% in the previous year from below 5% earlier, according to estimates by four investorsMint spoke with, but not many start-ups from these regions have been able to raise capital from VC funds.

“Investors like glamorous business models,” Kumar says in crisp Hindi. “Ours is a very bottom-of-the-pyramid model but a highly profitable business. Our products are sold from four times to 10 times of their production cost.”

Traditional crafts made for Rs200 by an artisan in a village in Bihar or Uttar Pradesh could fetch as much as Rs1,500 in Bangalore or New Delhi, he says.

Kumar is looking for VC funding to open 10 ethnic-wear stores across the country in a year—he will open his first store in Patna this week and another in Bangalore in March. He also wants to export Madhubani paintings (traditional paintings from Bihar’s Mithila region) to the US and Europe.

Investors say reaching out to these firms poses several challenges.

Source: Live Mint (link opens in a new window)