February 2008
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Soros, Google plan $17 million fund to finance SMEs

George Soros’, Soros Economic Development Fund (SEDF), Omidyar Network, and Google.org today announced that they were working together to create a $17 million (around Rs 68 crore) Small to Medium Enterprise (SME) investment company for India to create job opportunities and spur greater economic participation for a larger segment of the population.
This joint investment company is expected to provide capital to small and medium businesses in underserved markets. Most of the existing SME funds make investments in the $3-$5 million range, leaving out a significant portion of this market.
The investment company will target this “missing middle” with equity investments between $500,000 and $3.5 million. Many small to medium businesses lack formal funding options because of a market gap between the microloans offered by microfinance institutions and the larger investments of commercial banks and PE funders, said the press release from Google India.
“With this investment, we will meet the huge demand to serve smaller businesses in India that have little access to finance. Long ignored by commercial capital markets, small and medium businesses are an attractive investment opportunity as well as an engine for economic growth for India,” said Neal DeLaurentis, vice-president of Soros Economic Development Fund.”
The three companies plan to locate the investment advisor at the Indian School of Business (ISB) in Hyderabad to leverage the school’s SME expertise. Dr Reuben Abraham, currently the ISB’s Director of the Base of Pyramid Lab and a board member of SEDF, is expected to be the senior advisor.
“We have seen what microloans can do at the individual level and are excited about bringing that same opportunity to small and medium businesses,” said Jim Bunch, Director of Investments at Omidyar Network.
“While SMEs in rich countries represent half of the GDP, they account for a much lower portion in developing economies such as India, partly because SMEs don’t have access to the same type of financing. Our goal is to increase the flow of capital to SMEs in India,” said Sonal Shah of Google.org.
The investment company will hire an experienced investment advisor and two experienced senior investment analysts based in India to recommend and build the pipeline of portfolio investments.

Source: Business Standard

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