Give the analysis of the following case study in reference to venture capital.
OPERATION AND FINANCIAL INFORMATION Servals has been struggling to break even in the initial years following Aavishkaar's investment. However, since 2003 there has been significant growth in both sales and profitability. In fact, there has been an improvement in cost control contributing to the strong profit potential. Currently high brass prices have made conventional bumers more expensive, therefore opening more avenues for Servals to market their product. Larger dealers are now actively seeking to buy larger proportion of these burners than previously. In recent months, Servals has created pipelines for 20,000 bumers per month. Servals is looking into expanding their network to other countries such as South Africa, Sri Lanka and Ghana. An initial order has been received from South Africa. In addition to export potential, vast areas of India's market remains untapped; Servals will use partnerships with organizations such as Rural Innovations Network to move into the northem states of India. "Since Aavishkaar's In order to meet the need of current product demand, Servals will need to augment production capacity. This investment our sales have has been a challenge in the past, but Servals has more than doubled and recently created a new rural production unit that could profit is breaking-even; their be expanded as well as scaled in other locations. Servals will focus on sustaining and capitalizing on constant interactions have current demand by scaling up to produce 50,000 been helpful."- Based on burners per month. One of the major challenges is in Investee Company interview managing a labour workforce in the 3 production units to avoid disruption in work schedule. Furthermore, Servals needs to continue to retain focus of superior quality rather than price neutrality, which had been an issue previously. BENEFICIARIES Rural farmers and low-income households in rural and urban Staff feels good areas are the main direct beneficiaries of Serval's products. working with their The products sold by Servals are created to help people in these areas, but Servals additionally attempts to employ low own community on income day laborers living both in rural and urban areas, giving products that benefit them access to stable jobs, better working conditions, and reliable and consistent work. After conducting in person all. interviews with 30 employees at Servals production units, it was found that all considered this new job as being a secure, positive working environment, with more flexible employers allowing time for sick leave or for parent/teacher meetings. Additionally, they felt good working with their own community Employee Demographics: on products that benefit all. Gender Breakdown 55% Male / 45% Female Average Age 32 years old Education Status 75% dropped out before 10th Standard (Grade) Prior Employment Status 30% never worked previously; 70% were semi skilled day labourers Prior Income US$327 per year Current Income US$545 per year (67% increase from prior job) Household Income 65% have only one source of household income 23Servals has worked The direct social impact potential is great in several areas. The products produced by Servals directly improve the lives with over 30 non profit of its beneficiaries by design. The kerosene burner community based decreases fuel consumption, resulting in less money spent on replacement burners. It is also safer in that when it topples organizations in selling over, it will not explode, like many other burners in the market and marketing their currently. Furthermore, it does not emit smoke or fumes that products which are harmful for the user's health. provided rural based The rain gun also is beneficial by design. It is designed to women with income decrease the amount of water needed for farmers by 'pointing' the water in the area that is needed rather than generation. - Based on saturating the entire area. When plants are given appropriate Investee Company levels of water, the farmer's yield will increase as well. interview In addition to the product's benefits, Serval's aims to impact their beneficiary base by creating employment opportunities as well. Servals has worked with over 30 non profit community based organizations (CBO) in selling and marketing their products which provided rural based women with income generation opportunities. Specifically, Servals worked with women self help groups (SHGs) formed by these non profit CBOs providing marketing/sales training and wholesale products. The women were then provided products to re-sell to the community. Most recently, Servals created a partnership with a rural non profit organization that has focused the last 10 years of its work "The village has with the Dalit (untouchables) community. Through the been transformed organizations work, the village has been transformed by by upgrading roads, upgrading roads, enabling community members' access to electricity, sewage services and proper housing. It is in this enabling community community that Servals recently set-up a small scale rural members' access to production unit which is providing full time jobs for 20 men and electricity, sewage women who previously were not working at all or inconsistently. By starting this production unit in collaboration services and proper with the NGO, Servals has improved employment housing." - Based opportunities, created consistent employment to 80% and the on Production Unit feeling of empowerment within the women has greatly increased. interview AAVISHKAAR'S ROLE Serval's was Aavishkaar's first investment. The initial investment was provided to strengthen its assembling, marketing and distribution channels and to promote their Inputs products. Mid-way through their investment horizon, Aavishkaar made an additional investment. As part of this Money investment, Aavishkaar took a 49% stake in the company 24 24following the due diligence period, leaving the promoters with the remaining 51%. In addition to providing much needed funding, Aavishkaar's business development relationship with Servals has been quite intensive and hands on Aavishkaar has held regular meetings with the CEO, Inputs conducted joint reviews of their performance with all Time stakeholders (investment committee), visits to production sites and fine-tuning of strategies are regularly done. Also, Aavishkaar has contributed to the strong sales growth by introducing Servals to their network of NGOs. Based on various interviews the following outcomes were identified: Learn: Financial planning Networking, business development and Outcomes negotiating partnerships initial Cost control and operational efficiency Behaviours/Actions: Increased sales growth and profitability Created financial and operational reports from newly implemented reporting systems Outcomes Decreased risk profile with 49% Aavishkaar intermediate ownership Improved credibility with other entities Ultimate benefits: Partnerships with NGOs have contributed to village infrastructure such as roads, sewage etc Waged employment opportunities for women and Outcomes semi-skilled labour Household savings by the production of kerosene Long term burners CONCLUSION Applying Aavishkaar's logic model to the outcomes drawn from interviews, surveys and focus groups suggests that investing in Servals has had a positive social impact on their employees, the communities where the production units are located, the women SHGs who re-sell the products and the customers who purchase their products. 25 25CASE STUDY I: Servals Automation Private Lid SE Over 80% of Servals employees are unskilled or semi-skilled; 45% of employees are women, most of whom had never worked previously - Based on Investee Company Staff Interviews OVERVIEW OF BUSINESS Servals Automation Private Limited (SAPL) is a rural technology company based in Chennai. Servals sells two products, an efficient kerosene burner and a rain gun. The kerosene burner reduces kerosene consumption by 30% and is safer and healthier than current bumers on the market. The rain gun is a micro-irrigation device that provides for enormous savings in water and also improves yield for farmers. Both innovations were created by rural innovators and specifically tailored to the needs of the rural community. () Rain gun (200+ sold): The Rain gun, also called an overhead sprinkler, is a micro-irrigation device that produces an artificial rain by spraying water around a 90 feet radius (with full 360 rotational capacity). The size of the drops and the quantity of water released are such that the rain gun provides optimum irrigation to large crops while conserving water normally wasted in traditional flood irrigation systems. () Kerosene stove burners (250,000+ sold): At present, customers save an estimated aggregate of US$ 500,000 over the course of each year of use of these burners. Likewise, the government's fuel import burden will also be reduced by the same amount (assuming kerosene expenses of Rupees 100 per household per month, reduced by 20% conservatively). 22 22
