The Soros Economic Development Fund, Omidyar Network, and Google.org on Wednesday said they are working together to create a new $17 million small to medium enterprise investment company for India in Hyderabad 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, said a statement.
"With this investment, we will meet the huge demand to serve smaller businesses in India that have little access to finance," said SEDF vice president Neal DeLaurentis.
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, he added.
SEDF, Omidyar Network and Google.org plan to locate the Investment Advisor at the Indian School of Business 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 senior advisor.
Many small to medium Indian 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 private equity funders.
Most of the existing small to medium enterprise funds make investments in the $3-5 million range, leaving out a significant portion of this market.
The new investment company will target this "missing middle" with equity investments between $500,000 and $3.5 million, the statement said.
"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 Omidyar Network director of investments Jim Bunch.
A new generation of entrepreneurs and their families will benefit economically and socially, and as their enterprises grow, these benefits can be shared with employees and their families, as well as the community at large, he added.
Sonal Shah of Google.org said the goal of the new company is to increase the flow of capital to SMEs in India. "This is an important step in helping to attract commercial capital and reduce dependency on philanthropy or soft capital to fund this industry."
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.
The SEDF is a nonprofit private foundation and part of the network of charitable foundations created by investor and philanthropist George Soros.
Omidyar Network is a philanthropic investment firm committed to building opportunities for individuals and established by Pamela and Pierre Omidyar, the founder of eBay.
Google.org is the philanthropic arm of Google which uses the power of information and technology to help people improve their lives.