Recently, we interacted with Mr. Vinayak Kamath, Co founder, Hearth Ventures – the only fund investing at an early stage into new-age entrepreneurs with start-ups in the creative, cultural and circular economy.
Here are the interview highlights:
1. Please give us a brief overview of Hearth Ventures.
Hearth Ventures is India’s pioneer venture fund dedicated to the vibrant intersections of 3 Cs (Creative, Cultural, and Circular) economy. Our mission is to champion forward-thinking entrepreneurs who leverage India’s rich artisanal diversity to make a global impact. By reinvigorating rural off-farm livelihoods and championing regenerative consumption, we aspire to drive positive change on a global scale.
Hearth Ventures invests in Creative, Cultural and Circular economy start-ups at the Series Seed to Series A stages and actively mentors them. After extensively researching the sector, Hearth has invested proprietary capital, via sponsor and Co-founder – Vipul Jain, of approx. US $4mn in 5 start-ups, 2 in the US and 3 in India to establish Proof of Concept. This PoC portfolio, comprising 3 brands, a marketplace and a Fashion Tech (SAAS and AI) startup, is estimated to be valued at an unrealised US$6 Mn (1.5x) in this short tenure of 20 months. While our PoC comprises scalable for-profit enterprises, they deeply impact off-farm rural livelihoods and the environment, reducing urban migration and addressing sustainability goals that include gender equality, work & economic growth, responsible consumption & production.
Our Hearth Ventures Fund 1 has received the SEBI’s registration for a Category I AIF Venture Fund and has a robust deal pipeline. The fund will invest at Pre-series A to Series A stages in start-ups for the 3C sector with promising founders, reasonable evidence of product-market fit as well as established businesses with potential for growth. We are also raising INR 250 Cr to invest into 20 startups in the 3C sector and following on in 8 to 10 of those. The best performers from amongst the PoC portfolio will also be transferred to the Fund. We believe that with thrifty use of capital, good unit economics and steady growth, we can build value for all stakeholders and return to investors a gross IRR of 25%+.
2. What do you think about value investing in early-stage startups in your sector of focus?
My journey in investing commenced with Halcyon, an early proponent of value investing in India’s burgeoning private markets. The emphasis was on identifying exceptional businesses and acquiring them below their intrinsic value—a strategy that proved pivotal in navigating the frothy valuations of the India growth story.
The 3C sector, focusing on creative, cultural, and regenerative/circular economy businesses, offers opportunities to apply the principles of value investing. We see several opportunities that have positive or near positive unit economics, they can scale up with a frugal application of capital, with a carefully curated customer base it is possible to have network effects and a larger lifetime value of the customer. And revenue growth rates of 25 – 30 % are enough to deliver a vibrant profitable enterprise.
We have focused on investing in startups where there is a product market fit, an experience of securing and fulfilling a large number of orders and at a valuation that makes sense from a long term perspective.
3. Are you an impact fund or a venture fund?
As we seek additional investors, we also face questions about the viability of the early-stage VC model and whether we qualify as a traditional VC or an Impact Fund. The response is a unique proposition: Early Stage Value investing in a sector with high social impact. This approach entails meticulous diligence, careful capital allocation, and a focus on mentoring and operational initiatives—a departure from the conventional VC model.
Addressing concerns about being categorized as an Impact Fund, Hearth Ventures asserts that impact is inherent in every investment, emphasizing sustainable practices and social responsibility. The ultimate outcome envisioned is a discerning investment vehicle, offering above-median returns with a lower risk profile, while simultaneously contributing to positive societal and environmental outcomes. In essence, it embodies the fusion of financial acumen and social responsibility in the realm of early-stage value investing.
4. Could you provide an example of a portfolio company’s growth and success where Hearth Ventures made a major contribution?
Our sector-specific fund invests in enterprises that can shape India’s future – Creative, Cultural Crafts & Circular economy. We are committed to create a dynamic ecosystem of growth capital, attracting the best entrepreneurial talent, ideas and innovation. We support gifted new age entrepreneurs who can transform the status quo in this untapped sector. Some of the Start-ups that we have invested in include Jaipur Rugs, Relove, Kadam Haat, Shobitam Inc and Design Trade Service, Inc.
Kadam Haat is a great example where capital and active management can transform a traditional business. Kadam is a well-regarded NGO that is involved for over 15 years in training of artisans clusters for woven products made from natural fibres and grasses. As a means of providing livelihoods to these artisans, the founders set up a marketing arm that sold largely through exhibitions and B2B sales. We invested in the marketing arm, helped them create a business plan and seeded a venture partner to work with them to help create a digital first strategy with contemporary products. The company has grown more than sevenfold in the eighteen months of our investment with nearly 70% of their revenues coming from their own website. In addition to being a brand that did good for their artisans, Kadam Haat is now being recognised as a brand with contemporary products which continues to add economic value to the artisans who produce these products.
5. In what way do Hearth Ventures Encourage Entrepreneurship in the Cultural, Creative, and Circular Economy?
We work with partners at earlier stages on a few initiatives. For example we worked with Hand for Handmade foundation to run three bootcamps, one on business planning, one on marketing and one on finance. Entrepreneurs from the sector participated in these bootcamps and learnt some of the formal processes to build their passion into businesses.
Secondly, since we invest at a stage where the startup has a basic product-market fit, when we do encounter promising entrepreneurs with a decent idea or an early business model, we refer them to some of the sector focused angel networks and incubators. We also pro bono advise a few entrepreneurs and help them tweak their business plans,
Finally, we aim to launch a national level business plan competition next year to identify hidden gems and also to engage the entire ecosystem and alert them to the possibilities that our sector offers.
6. What is the business model that Hearth Ventures invests in and how is it helping new age entrepreneurs?
At Hearth Ventures we invest in Pre-series A/Series A 3C sector start-ups after rigorous due diligence. We support founders to build robust business models with judicious capital allocation for profitable growth and scale. We invest into and actively help build start-ups at an early stage. We have longer holding cycles than most early stage funds, but with a clear focus on exit and value creation for all stakeholders. We work across different types of businesses – producers, sellers and enablers. Entrepreneurs will require not only capital but also value addition to facilitate business growth in areas such as strategic business planning, channel development, branding, performance marketing and technology adoption. We provide relevant and sector specific expertise in these areas to support our portfolio companies.
Beyond investment, we actively engage with portfolio companies in strategic planning, conduct regular MIS reviews, oversee governance and risk management, facilitate capability building in areas such as personnel, technology, marketing, and operations support. Additionally, we guide future funding initiatives and assist in exit planning.
6. What growth and expansion ambitions does Hearth Ventures have for the future?
We expect to close our fund next year and over the next three years make 20 more investments. I have already mentioned about the business plan competition. We will also engage with later stage funds who are interested in purposeful investments into robust scalable businesses.
