Small town entrepreneurs lack support from VCs

Bangalore: Amethia Apparelz, founded by Gunjan Kumar has made the profit of 27 lakh in a year, similarly Nafisa Radiatorwala's start-up, Nature's Glow, is clocking 10 times the revenue it made two years ago, but both these companies are not getting any support from VCs.

Kumar's business process is very simple. He old buys traditional art and craft products from artisans in villages and sells these in metro cities. Kumar started his business in Patna two years ago with the investment of 6 lakh. In the first year, he generated 33 lakh in revenue and expects to end fiscal year 2010 with Rs1.65 crore. Similarly, Nafisa started her company in the small town of Gujarat, Vadodara. Nafisa exports herbal beauty and treatment products to the U.S, UK, and the United Arab Emirates, and hopes to end 2009-10 with revenue of 5 crore.

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Both these companies are among most profit-making businesses in India's small cities, but are unable to attract venture capital (VC) investment as they look to expand. While talking to Mint Kumar said, "Investors like glamorous business models. 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." Kumar is trying to raise fund through VCs to open 10 ethnic-wear stores across the country in a year. He has planned open his first store in Patna this week and another in Bangalore in March. He has also planned to export Madhubani paintings to the U.S. and Europe.

Venture Capitalists have different perspective of not providing funds to these small town based companies. Kanwaljit Singh, Managing Director, Helion Venture Partners said, "How does one discover what is happening there? Also, due diligence becomes a difficulty while dealing with these firms. Secondly, post-investment ability to work closely with them is not easy."