Manjeet Singh Micro Venture Innovation Fund Support

8/13/2019 Manjeet Singh Micro Venture Innovation Fund Support

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PROJECT REPORT

ON

MICRO VENTURE INNOVATION FUND SUPPORT

TO LEMONGRASS OIL

Submitted to

A.E.S. Post Graduate Institute of Business Management

Towards partial fulfillment of Masters of Business Administration

ORGANIZATIONAL TRAINING-I

AT

NATIONAL INNOVATION FOUNDATION, AHMEDABAD

BY

MANJEETSINGH AILSINGHANI

MAY-JULY, 2006


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Preface

Wisdom and Education are two different words altogether.

Education is gaining of knowledge imparted to us by our teachers, books or by any other

means through which we can learn and imbibe their teachings. Wisdom, on the other

hand, is the application of these learning to the places where it actually needs to be

applied. College semesters provide us the Education Projects, the platform to test the

Wisdom part of it.

In any field of education, the projects given to the students play a

significant role in testing how much the students have been able to imbibe from the

learning, training given to them and how much have they been able to apply those

learning practically. Infact, the projects are equally important for the students since they

provide them with a practical exposure to the industry and help them in analyzing their

strengths, their weaknesses, where they are good and where they need to improve?

The fundamental purpose behind preparing project reports is, to put

into words, the work we have done during our summer internship period, our learning

and our experiences. This report is an attempt towards the same. It also helps in getting a

better understanding of applicability of various financial theories in the non-government

organization industry.

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Acknowledgement

Study of business management is all about gaining knowledge from

the corporate world. The experience one gets because of his exposure to the industry is

apparently richer than what one gets from usual class room studies. Being students of

Management, we are expected to gain knowledge from the corporates, to understand

how they manage and succeed in coming at top time and again amidst the intense

competition we are all aware with. It wont be emphatic to say that the same is the case

with non government organizations that work day in and day out to justify their

existence, putting in phenomenal amount of efforts to achieve their mission. We were

given this opportunity by one of the best and one of the most renowned Non-government

organization: National Innovation Foundation, more popularly known as N.I.F

I am obliged to National Innovation Foundation for providing me

with an opportunity to undergo my summer training in their esteem organization. I put

my sincere gratitude to the following persons, without whose support and encouragement

this report would have been incomplete.

Prof. Anil Gupta- Vice Chairperson, NIF. Ms. Maitreyi Kollegal- CIO, NIF, Mr. T. S.

Pramod- N.C. VARD, Mr. Mahesh Patel- GM, GIAN, Dr. Ravi Kumar- Fellow, VARD,

Ms. Rashmika Shah- Fellow, VARD, Mr. Lalmuanzuala Chinzah- Fellow, BD, Ms.

Ruchi Tripathi- Fellow, BD, Ms. Abha Ratnakar- Fellow, IT, Mr. Rajesh Patel- Fellow,

S&D and Ms. Ranjan Vachchani.

I am also thankful to Mr. Taral Pathak, Faculty A.E.S. Post Graduate

Institute of Business Management for his selfless guidance and support through the entire

training period.

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EXECUTIVE SUMMARY

Mr. Gurpreet Singh of Uttranchal is one of those rare farmers who is highly educated and

who has applied his educational skills, along with his 10 years of experience in the tea

industry, in developing a special variety of lemongrass-Hunar, a grass that is very high

in the citral content as compared to any of its counterparts and has a very good potential

market available to satisfy to.

The grass is anti-fungal, anti-viral and anti-dandruff, has a citral content as high as 82%

during summers and 79% during monsoon, oil-recovery of 1% during summers and 0.7%

during monsoon and it has a fresh lime note, a unique selling preposition that puts it

way ahead of its competitive varieties of lemongrass that mainly have a metallic note.

Hunar has a very good potential market, not only at domestic level but even at

international level, as the market of essential oils, the family of which lemongrass is an

important member, has just begun to emerge. It is estimated that globally there is a lag of

almost 8000 kg between the demand and supply of lemongrass with the supply not being

able to meet the demand. Even in the domestic market, it has the fragrance, toiletries and

the thai-restaurant industry to serve to.

Mr. Singh is very optimist about his Hunar and he has taken every precaution possible

to ensure that his product succeeds in maintaining the standards, the parameters that he

has achieved after putting in more than 5 years of toil. It wont be emphatic to say that

Hunar indeed reflects Mr. Singhs Hunar.

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TABLE OF CONTENTS

1.Introduction: About National Innovation Foundation2.Micro Venture V/S Venture Capital3.Micro Venture Innovation Fund Proposal For Lemongrass

Oil

i) Brief Descriptionii) Market Opportunity And Entry Strategyiii) Project And Funding Detailsiv) Funding And Repayment Planv) Project Monitoring And Monitoring Team

4.Documentation5.Conclusion

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6.Bibliography


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NATIONAL INNOVATION FOUNDATION

Genesis of NIF

The National Innovation Foundation (NIF) has evolved to meet a long felt need for

recognizing, respecting and rewarding innovations and outstanding traditional knowledge

at the grassroots. Honey Bee network had triggered a movement about fifteen years ago

to scout, spawn and sustain unaided creative and innovative urges in unorganized sector

of our society. Accordingly, the Department of Science and Technology, Government of

India, set up NIF three and a half years ago under the chairpersonship of Dr R.A.

Mashelkar, Secretary, DSIR and Director General, CSIR.

NIF provides an institutional platform for the knowledge-rich, economically poor people.

It is expected to help the unsung heroes/heroines of our society who have solved a

technological problem through their own genius without any outside help. It is committed

to making India innovative by documenting, adding value, protecting intellectual

property rights of the contemporary unaided technological innovations, as well as

outstanding examples of traditional knowledge on a commercial as well as non-

commercial basis. NIF also seeks to develop a new model of poverty alleviation and

employment generation by helping convert grassroots innovations into enterprises with or

without value addition through institutional science and technology.

Evolution of Honey Bee Network

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Honey Bee network found it totally unfair and unethical that the only resource in which

poor people were rich, that is, their knowledge, is taken away from them without any

attribution, accountability or reciprocity. Honey Bee network also believes that if many

of these knowledge rich people are economically poor, it is not because their knowledge

is of lesser consequence or that they are incapable of generating creative and efficient

solutions (though, in some cases, this might well be the reason). Their conditions can also

be explained by various policy and institutional factors, apart from the lack of supporting

platforms for strengthening their problem-solving capabilities. The Honey Bee Network


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has been making efforts all these years to develop a platform of this kind and has

prepared a database of thousands of innovations and traditional knowledge, all with the

name and addresses of the knowledge providers.

NIF and Honey Bee Working in tandem

Today, NIF and the Honey Bee Network work in close cooperation on various issues. In

fact, the basic building block of NIF is the Honey Bee philosophy evolved over the last

15 years. The honey bee collects pollen from the flowers, in the process linking one

flower to another and thus enabling cross-pollination. Similarly, the Honey Bee Network

strengthens people to people learning and networks by pooling the solutions developed

by people across the world in different sectors and links. The network acknowledges the

innovators, knowledge producers and communicators so that they do not remain

anonymous. It also ensures that a fair share of benefits arising from commercial

exploitation of local knowledge and innovations reaches the innovators and knowledge

providers.

Benchmarks of progress

NIF (www.nifindia.org) began its first national campaign in March 2000 to scout

innovations and outstanding traditional knowledge and has completed three national

campaigns so far. It has achieved several major milestones in the last three years.

Beginning with about 1600 innovations and traditional knowledge examples in 2000-

2001, NIF scouted about 13,500 such creative examples during 2001-2002 and another

21,500 during 2002-2003. About 37,000 innovations and traditional knowledge examples

were, thus, scouted from over 350 districts of the country

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The challenge before us is to help incubate these technologies to generate commercial

and non-commercial opportunities for their diffusion to improve productivity, generate

employment, overcome poverty and conserve environment. The interest on the corpus

fund of Rs 20 crore, provided by the Department of Science and Technology, used for

running the Foundation, is hardly sufficient to meet the challenge, given the declining

interest rates and rising aspirations of the creative people of India.
http://www.nifindia.org/http://www.nifindia.org/


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Objectives of NIF

The main objectives are:

To help India become an innovative and creative society and a global leader in

sustainable technology by scouting, spawning and sustaining grassroots

innovations and outstanding traditional knowledge.

To ensure evolution and diffusion of green grassroots innovations in a selective,

time-bound and mission-oriented manner so as to meet the socio-economic and

environmental needs of our society

To provide institutional support in scouting, spawning, sustaining, and scaling

up grassroots green innovations and helping their transition to self-supporting

activities; seeking self-reliance through competitive advantage of innovation-

based enterprises; and/or application of people-generated sustainable technologies

at the grassroots level

To build linkages between excellence in formal scientific systems and informal

knowledge systems and create a knowledge network to link various stakeholders

through applications of information technologies and also otherwise To promote

wider social awareness and possible commercial and non-commercial applications

of the know-how generated as a result of the above and encourage its

incorporation in educational curriculum, developmental policies and programmes.

Organization of NIF

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NIF is governed by a Governing Council chaired by Dr R A Mashelkar, Secretary,

DSIR and DG, CSIR and comprising many eminent persons. NIF has a Research

Advisory Committee, with two sub committees, one including institutional scientists,

designers and technologists, and another including informal grassroots innovators and

traditional knowledge holders. Dr Pushpangadan, Director, National Botanical Research

Institute, Lucknow, chairs the research advisory committee.


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NIF has had to face several constraints in its functioning but it has relentlessly pursued its

goal, regardless of the many bottlenecks. In fact, during the first year, we had no staff.

For half of the second year, NIF had only two national coordinators. In the third year, we

got a Chief Innovation Officer and within six months of that, the organization roped in

other National Coordinators as well. However, the achievements could not have been

possible without the support from SRISTI (Society for Research and Initiatives for

Sustainable Technologies and Institutions) and other Honey Bee Network collaborators

such as SEVA and CCD, Tamil Nadu; PEDES, Kerala; PRITVI, Karnataka; SRISTI-

GIAN Kendra, Uttaranchal; Chayan, West Bengal; Ama Akha Pakha, Orissa; Makhir,

Himachal Pradesh, and individual farmer innovator collaborators like Shri Sunda Ram

etc.

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Organizational Framework

Green grassroots Innovators

Honey Bee Network

State/Regional Collaborators, Nodal Officers, Volunteers from Educational, R&D

Institutions, NGO, Students, Innovators Associations, GIAN

Scouting and

Documentation

Dissemination and

Information Technology

Value Addition and

Product Development

Incubator, Business

Development and Micro

Venture

IPRs Management

National Co-

coordinators

Advisery Committee of Science

and Technology experts

Advisery Committee of expert grassroots

innovators from informal sectors

Chief Innovation Officer

Executive Vice-Chairperson

Chairperson

Governing Council


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Building the Value chain around Grassroots Innovations:

A. Scouting and Documentation

Scouting and Documentation of the innovations is the first step towards the fulfillment of

the mission of NIF. Scouting involves extensive fieldwork, travel in rural and urban

areas, search for odd balls -- the experimenters and local community and knowledge

experts in the society. The process aims at:

To coordinate with various governmental and non-governmental agencies

to mount a national campaign to scout innovations with the help of

grassroots level functionaries of education, agriculture, rural development,

small scale industry, Panchayati Raj institutions, etc.

To screen, document and verify the claims about these innovations

through various networks of scientific and other institutional initiatives as

well as through Honey Bee collaborators, existing databases and field

visits.

To generate and experiment with material and non-material incentive

mechanisms for innovators and traditional knowledge holders.

To provide assistance in forging decentralized networks of

inventors/knowledge experts to strengthen the Honey Bee Network.

To obtain Prior Informed Consent (PIC) of the providers of knowledge.

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To share the innovations permitted by the knowledge providers to be put

in public domain through Honey Bee newsletter and other media to enrich

the repertoire of the local communities and informal knowledge experts

and to support Shodh Yatras in different parts of the country.


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B. Value Addition and Research & Development

Most of the innovators and/or traditional knowledge experts need optimization in design

and/or product formulation through blending with modern science and technology inputs.

Market prospects for many innovations will be very low without proper value addition.Besides, creating technology networks can make phenomenal efficiency gains. Research

and Development is a key focus of NIF. It provides a platform for the synergy between

formal and informal science and technology, institutions and knowledge system. The

tasks involved include:

To coordinate with public and private sector R & D and educational

institutions, peoples organisations and rural and urban innovators

themselves to add value to local innovations.

To develop product development plans and help the grassroots innovators

mobilise funds from TePP and other such programs within and outside the

country.

To build product development teams on contractual basis to get the

products and/or services developed through licensees ensuring appropriate

benefit sharing arrangements.

To set up and help coordinate GIANs in different regions along with othernational coordinators.

To obtain help of eminent scientists and technological experts from

various fields as a part of the Research Advisory Committees, or otherwise

which will guide the activities of NIF.

R & D linkages

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NIF has established linkages with several premier research and technical institutions atthe national level for promotion and dissemination of the potential technologies. NIF has

been working closely with various institutions like IIT Mumbai, IIT Delhi and IIT

Kanpur to involve students and faculty to work for innovations having commercial

potential.


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C. Business Development & Micro Venture

Value chain for green grassroots innovation will require financial support at different

stages of product cycle. Support is required for improving the attributes of the innovative

product/prototype through R&D linkages. This initial market assessment has to be

followed by micro venture and innovation fund support for converting innovations into

products, and products into enterprises. The various activities needed for the purpose are:

To coordinate with various entrepreneur/industry associations, management

institutions and incubators to mobilise mentoring and management support for

grassroots innovators and TK holder.

To involve private and public sector industrial and financial institutions and

associations in linking innovations with investment and enterprise at individual or

group level.

To help promote various innovations and outstanding TK through market and

non-market channels.

To encourage various industry associations and other developmental bodies to set

up mechanisms for licensing innovations for business development and equitable

benefit sharing with the innovators and TK holder.

To help raise resources for pursuing various activities and developing innovation

value chain.

To support the operations of the National Micro Innovations Fund through public

and private participation and mobilize the incubation fund and venture capital for

innovators and TK holders.

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To develop business plans, market research plans, reports and training material aswell self-learning material for GIANS and others involved in promoting

innovation based entrepreneurship.


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Micro Venture Innovation Fund (MVIF)

In his budget speech in 2002, the Finance Minister had announced his decision to

establish a Micro Venture Innovation Fund. A national level MVIF of Rs 40 millions has

been instituted for ten years with the help of SIDBI. The National Innovation Foundation

announced the launch of MVIF on the eve of Gandhi Jayanti. It is obvious that it is a case

of a support, too little, too late and will hardly make a small dent on the problem.

However, it is hoped that the experience of incubation in the last so many years and as

well as through this fund in coming years will convince the policy makers about the need

for supporting small innovators in a major way.

Objectives of the MVIF:

The broad purpose behind MVIF was to bridge the glaring gap in completing the Golden

Triangle of Creativityby bringing inInvestments to Innovations in order to create viable

micro Enterprises at grassroots. However, specific objectives of MVIF are spelt as

below;

Provide a means of finance for innovation and traditional knowledge-based

micro-ventures, which are generally not given any priority by other Venture

Capital Funds and Financial Institutions (FIs).

Provide a means of finance for managing the technology development life cycle

that includes Prototype Development, Technical Validations & Benchmarking,

Field Trials, Market Research, and Certification by Regulatory Authorities,

Protection of Intellectual Property, Promotions and Dissemination.

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Offer innovative and flexible Financing Options for the seed capital and working

capital requirements. These could be tailor-made to the needs of grassroots

entrepreneurs and enable them in minimizing the financial risk associated with

their ventures.


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Should have novelty either in Form, Function or Feature or all of the above, but

may or may not be a patentable item;

Having high social impact would be advantageous

Special preference would be given to technologies originating from and/or for

women, handicapped, other marginalized sections of our society

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Special preference would also be given to NIF awarded innovations.


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The Incubation Process:

The NIF and GIANs carry out following process of incubation with the potential

intervention of MVIF as given in the following illustration

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Summary of Investments

Table 1

Head Number Amount (Rs.)

Rs. 5, 80, 129 (Disbursed)Number project sanctionedand funds disbursed

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Rs. 12,29,896 (Sanctioned)

07 (NIF) Rs. 4,39,462 (Proposed)Number of projects under

process 08 (GIAN) Rs. 13,27,500 (Estimated)

Number of Projects to be

taken in next six months

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Letters written to innovators

for MVIF investment

39 Disbursed: 13

Sanctioned: 04

Under Process: 02Next Six Months: 08

Hold: 10

Closed 02

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able to make impact in the social milieu by propagating the opportunity based

entrepreneurship model. India as a society has been seen a huge base of need based

entrepreneurship due to its social structure. However creation of Micro venture imitative

has egged on the society to think in term of entrepreneurship where opportunity and

innovations is seen as the bedrock for growth.

Micro Funds have also facilitated better potential for wealth creation at the base of the

pyramid to create a better flow of money is the system thus enriching the nations

economy.

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Proposal for MVIF Funding

LEMON GRASS HUNAR

(Developed for Mr. Gurpreetsingh)

Submitted by:

Business Development, N.I.F.

July 9, 2006

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Table of Contents

1. Brief Description

1.1

Background to the Innovation1.2 Main Features of Hunar

1.3 Technical Details

2. Market Opportunity And Entry Strategy

2.1 The Market

2.2 Pricing

2.3 Entry Strategy

2.4 Promotion

3. Project And Funding Details

3.1 Product Cost

3.2 Project Cost

3.3 Working Capital Requirement

3.4 Scenario Development

3.5 Break Even Analysis

3.6 IRR Calculation

4. Funding And Repayment Plan

4.1 Funding Details

4.2 Repayment Plan

5. Risk Associated With The Project

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6.

Project Monitoring And Monitoring Team


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Innovation Reference No. 41UT12A2665

Title of the Innovation High Yield Lemon Grass HUNAR

Innovator Mr. Gurpreet SinghAddress (Contact Details) C/O Shakti Oil Corporation

Nainital Road, Rudrapur

U.S.Nagar, Uttranchal. 263 153

Phone: +91-5944-244575

Mobile: 09412091575

E-mail: [email protected]

Brief Description

Background to the Innovation

Mr. Gurpreet Singh of Uttranchal, after a lot of endeavor has been successful in

developing Hunar, a specific type of lemon grass that is rich in citral content and which

provides a fresh-lime note, a note that is in high demand in the market as compared to its

contemporary metallic note.

As the current competing genres of lemon grass do not stand the parameters set by

Hunar, the innovator is quite confident that his product is more remunerative to the

cultivators than any other.

Mr. Singh has been involved with the farming business for more than a decade now. He

has worked for more than 10 years in the Tea industry itself. And it was only his quest foralternative agriculture and diversification that led to the development of hunar. It must

also be noted that it has been a conscientious and a combined effort for at least 3-4 years

now, by Mr. Singh and other government institutions that has resulted into hunar- a

product that suits the best example of scientific farming.

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mailto:[email protected]:[email protected]


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Main Features of the Product:

High Citral Contents High Yields

Disease Resistant Pest Resistant

Premium Quality Oil which is Anti-Fungal, Anti-Viral and Anti-Dandruff

Technical Details:

Recovery of oil is higher than any other variety known i.e. 0.7% recovery during

rainy season and about 1% during summers.

Citral levels during monsoon are 79% whereas during summers, the citral levels

are almost 82%. This has been duly verified by GC method and these levels are

very high as compared to contemporary genres of lemon grass.

Yield per acre is also very high-350 quintals of herb per acre per annum have

been recorded at a spacing of 1 ft X 1 ft.

Note is fresh lime, which is very desirable, as against the metallic note of mostof the varieties of oil available in the market.

Oil has found to be Anti-fungal, Anti-Viral and Anti-Dandruff.

Market Opportunity and Entry Strategy

The Market

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The market for lemongrass as well as for the lemongrass oil is phenomenal. In

the fresh form, lemongrass is a thick green stalk, which can be eaten as a vegetable. Its

main use is as a flavoring. However it has become more popular in developed countries

in line with the growth in popularity of oriental, especially Thai, food in which it is used

frequently. It is imported into these countries, for both the restaurant trade and for use by

ordinary households cooking oriental food.1


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Besides, the Lemongrass oil that is extracted by steam distillation

from the lemongrass is used extensively in fragrance, flavour and pharmaceutical

industries. It forms the starting material for manufacturing of various fine chemicals, as

well as Vitamin A, via the Beta-ionone mechanism. The oil is widely used in

Aromatherapy and as Herbal Tea, this apart from the use of grass itself in Thai

cuisines.

Demand is generated from home market as well as export market. The source of

demand is from end use industries, which are primarily personal care products, food

products, pharmaceuticals. The demand for essential oil by fragrance industry is 60%,

flavor industry 20% and pharmaceutical industry 20%.

There is good demand from USA, UK, France, Germany and also far eastern countries

like Japan, Singapore and Hongkong. The estimated demand for essential oils for the year

1996- 97 was 14,900 tonnes. The growth rates normally were of 9% and 25% for

domestic and export market respectively. The demand supply gap is about 8000 tonnes.2

Pricing

The innovator has taken a conservative approach and he wishes to charge Rs.

350/- per kg of lemongrass oil. It must be noted that the innovator in the past has alreadysold 180 kg. Lemongrass oil at a price of Rs. 365/- per kg and he has provided a bill for

reference of the same. Besides, the prices per kg of lemongrass oil in international market

are quoted as high as Rs. 400/- to Rs. 500/- whereas the other producers quote Rs. 380/-

per kg.

The innovator has knowingly adopted a conservative approach while pricing his

product because in either of the cases, if he sells his product at a higher price, it would be

in the best interest of both him as well as N.I.F.

Entry Strategy

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The innovator has tied up with an exporter for exporting the lemongrass oil

overseas. Besides he has also recently tied up with Mr. Lal, an MBA from IIM-A for sale


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of his Dried Herb on commission basis. He shall be guiding Mr. Singh with the

technology required. This should provide a good platform to the innovator to make an

entry into not only the lemongrass oil market but also the dried herb market.

Promotion

In the initial stages, the onus of promotion would lie more on the exporters and

the domestic dealers who have tied up with the innovator. The word of mouth

marketing, as well as the feedback by the end-users will play a pivotal role in the

promotion of the product within the given industry.

Besides, in order to cater to and to create awareness amongst the potential market,

the product will have to be advertised effectively through respective industrial journals.

For e.g. If the product has a potential in the pharmaceutical industry that doesnt have an

idea about the existence of our product, then it must be advertised in the essential oils

journal that appears every month in that particular industry. Similarly, the same must also

be done for the fragrance industry, the restaurant and fooding industry and any other

industry wherever it has a potential to be sold.

The product is saleable only to very specific industries. Hence, direct marketing

through Internet, through various websites that deal with the promotion of essential oils is

also one of the options available to the innovator. Infact, the innovator has already started

promoting his product on http://www.tradekey.com.

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http://www.tradekey.com/http://www.tradekey.com/


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Project and Funding Details

Product Costing

The cost of production per kg lemongrass oil is Rs 150/- as shown in the Bill of Material

as given below:

UNIT COST FOR PRODUCTION OF PER

KG LEMONGRASS OIL

Sr.

No.

Particulars Cost (Rs./kg)

1. Cost of Harvesting 70

2. Cost of Distillation 50

3 Cost of manure 204 Irrigation and other miscellaneous costs (per day) 10

Total Cost per kg lemongrass oil 150

Profit Margin 200

Cost to Exporter/Customer 350

The lemongrass requires only one time sowing of seedsand the yield is available

for at least 5 years, which is the estimated economic life of thegrass. Hence,

the innovator has not included the cost of planting and cost of preparing the landfor plantation which as per the details provided by him comes to Rs. 72000/- per

acre @ cost of Rs. 0.72/- per slip for 1,00,000 slips per acre.

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Per acre per annum cultivation results into 312.5 quintals of lemongrasss

production that further produces 250 kg of lemongrass oil. So, effectively the cost

of plantation for per kg per annum of lemongrass oil comes out to be

= 72000/250 kg

= Rs. 288/- per kg.

= 288/5 years

= 57.6 Rs. 60/- per kg per annum (Rounded of)


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The innovator has not included this cost in the unit cost of production because he

considers this cost to be capital cost in nature, the benefit of which would be

available over the period of next 5 years, the economic life of the lemongrass.

Project Cost

The total project cost is as given below:

Cost Head Amount (In Rs)

Farm Machinery (Tractor, MPV, Trailer etc.) 1050000

Staff Quarter 250000

Lab Equipment [GC, Centrifuge compulsory for exports] 1000000

Distillation Facility 1000000Drying Shed 500000

Office Building 200000

Wood Shed 500000

TOTAL PROJECT COST 4500000

Working Capital Margin

The total working capital requirement is Rs. 1500000/- and since it can be rotated

twice a year, the actual requirement of working capital is Rs. 750000/-. The innovator has

so far received no advance payments towards any order. He has received Rs. 200000/-

from one of his buyers, which he considers as an unsecured loan and plans to pay this

amount back during the 1styear of commercialization itself.

Hence, adopting a conservative approach, he estimates the working capital

requirement at Rs. 1500000/- per annum for the next 5 years of operation. This can be

rotated twice a year hence the actual working capital requirement arrives at Rs. 750000/-.

Besides, he seeks for a financial support of Rs. 500000/- from N.I.F that will be utilised

entirely towards meeting the working capital lag.

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Therefore, other than the first year, which takes into consideration the cost of

plantation-a cost assumed to be capital in nature- the working capital requirement per

annum throughout the economic life of the lemongrass is Rs. 1500000/-.

Scenarios

The prices of Indian lemongrass oil have been more or less stable within the range

of Rs. 350/- to Rs. 500/- for most part of last 5 years. On the other hand, the prices of its

competing Chinese Litsea Cubeba and synthetic citrals have varied significantly. Hence,

it becomes important to develop certain scenarios so as to analyze the possible financial

situations the product may face with no surety.

These scenarios have been developed taking into consideration the variations in

production of lemongrass per acre per annum by atmost 10% either ways as mentioned

by the innovator. Similarly, the variations in prices have also been taken based on price

trends available and prices at which the product is being sold by the innovator to existing

buyers. The documented copies of these orders at different rates at which he has sold to

the buyers are available.

These scenarios are as follows:

POSSIBLE SCENARIOS UNDER DIFFERENT ASSUMPTIVE VARIABLES

PRICEVARIABLE

COSTPROFIT PRICE

VARIABLECOST

PROFIT PRICEVARIABLE

COSTPROFIT

TOTAL SALES300

(PER KG)150

(PER KG)350

(PER KG)150

(PER KG)

400(PER KG)

150(PER KG)

225*40=9000 2700000 1350000 1350000 3150000 1350000 1800000 3600000 1350000 2250000

250*40=10000 3000000 1500000 1500000 3500000 1500000 2000000 4000000 1500000 2500000

275*40=11000 3300000 1650000 1650000 3850000 1650000 2200000 4400000 1650000 2750000

Most conservative scenario Most Likely Scenario

Most optimistic scenario

The conservative scenario is based upon the assumption that production in a

particular year per acre per annum is lesser by 10% as suggested by the innovator.

Similarly, the price too is taken to be the bare minimum that we expect the product to be

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sold at. It must be noted that since starting the commercial production, the innovator has

sold his lemongrass at a rate as low as Rs. 335/- per kg. This again ensures that the

approach adopted is a very conservative one.

The most likely approach is based on the financial details provided by the

innovator. It is estimated that the average per acre per annum production of lemongrass

during its entire economic life will be 250 kg. And the innovator wishes to sell this

production at an average price of Rs. 350/- per kg. The innovator has claimed that he has

taken up all the necessary steps to ensure that the average per acre per annum production

doesnt vary significantly. Hence, this has been taken up as the most likely scenario.

If a client is not very much interested in the citral content, then this would enable

the innovator to make more crops for a given year. And considering the way the market

for lemongrass oil and essential oils is growing, we have taken up the most optimistic

scenario based on the assumption wherein the yield is the highest and the rates charged

are also comparatively high than the average rates he is willing to charge.

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BREAK-EVEN POINT

The break-even point is the point where a firm neither incurs a profit nor a loss.

The firms position at this point is that of zero-zero. This is a very important position for

any organization because the early it achieves its break-even, the easier it becomes for it

to earn good profits. It is beyond this break-even point that any organization actually

starts making profits because this break-even point resembles the position where each

unit (in our case per kg) contributes sufficiently towards recovering its fixed costs fully.

Hence, the break-even point under different scenarios has been calculated and shownhere.

The breakeven point calculations are as follows.

Thus, as can be seen from the table above, if the innovator sells his produce at:

Rs. 300/- per kg. The firm will achieve its break-even point at sales of 30000 kg

of lemongrass oil. Considering that the innovator succeeds in achieving the

average annual production of 10000 kg per annum, the firm would be able to

achieve its breakeven point by the end of the 3rd

year.

Rs. 350/- per kg. The firm will achieve its breakeven point at sales of 22500 kg of

lemongrass oil. This is precisely what the innovator has quoted in the financial

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BEP UNDER DIFFERENT SCENARIOS

SELLING PRICE (PER KG) 300 350 400

VARIABLE COST (PER KG) 150 150 150

CONTRIBUTION PER KG 150 200 250

TOTAL FIXED COSTS 4500000 4500000 4500000

BEP (IN KG) = TOTAL FIXED COSTS/CONTRIBUTION PER KG 30000 22500 18000


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statements provided by him. He has suggested therein that a latent period of 2

years will be the time period by which the firm would be able to achieve its break-

even point. Accordingly, as per the calculations made, it would take the firm 2

years 3 months on an average basis to achieve its break-even point.

Rs. 400/- per kg. The firm will achieve its break-even point at sales of 18000 kg

of lemongrass oil. Accordingly, even if the firm is able to achieve its expected

average annual production for the first 2 years, it would achieve its break-even

point within this time period. This is perhaps the most desirable situation for any

firm.

IRR CALCULATION FOR THE PROPOSED PROJECT

The internal rate of return (IRR) is the discount rate that equates the Net Present

Value i.e. Present value of cash outflow Less: Present value of cash inflow to Zero. The

IRR is one of the most reliable indicators of whether a given project must be accepted or

not.

The decision rule for IRR is as follows:

Accept the project if the IRR is greater than the cost of capital

Reject the project if the IRR is less than the cost of capital

IRR CALCULATION FOR THEPROJECT

-4500000

1176037

1420137

1464237

1508337

1552437

IRR = 16.7209%

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Considering the cost of capital at 10%, the effective rate that the innovator is paying to

the banks towards the loans taken by him, the IRR of the project is greater than the cost

of capital by 6%. Hence, apparently the project prima facie is very much acceptable.


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Funding and Repayment Plan

Funding Details

From the point of view of funding, the total project can be broken down into two phases

Phase 1

The innovator has already started with the commercial production and sales of Hunar

since last 6 months. He has very clearly stated in his financial documents provided by

him as well as on the telephonic conversations that he doesnt take any advance payments

from his customers towards any orders received. The payment is only received on

approval of the product sold by Mr. Gurpreet to the customer. Besides, his total working

capital requirement for a given year is Rs. 15,00,000/- that will be achieved by rotating

Rs. 7,50,000/- two times during a given year. He has agreed to fund 1/3rd

of this

requirement on his own. Whereas for the balance working capital requirement i.e. Rs.

5,00,000/- he seeks support of funds from N.I.F. However, considering the risks

associated with the project, it is proposed that N.I.F initially provides a support of Rs.

2,50,000/- to the innovator. The expected return on the support so provided is atleast 20%

on the investment made. Therefore, it is proposed that M.V.I.F. in its phase-1 provides a

support of Rs. 2,50,000/- to the innovator.

Phase - 2

Phase-2 is expected to be the stage where the business of the innovator grows as per the

projections made by the innovator himself. Obviously, this will be the stage where with

the increase in the number of orders received, the innovator will require more working

capital than usual. Hence, it is proposed that an additional support of Rs. 2,50,000 shall

be provided by M.V.I.F to the innovator. It must be noted that this additional support

shall be provided only if the innovator successfully repays the amount sanctioned earlier

to him along with the returns expected on the completion of his first years operation.

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There are two possible outcomes of this scenario:

If the innovator successfully repays the support provided along with the returns

expected, then the total support provided to him by M.V.I.F. will be effectively

Rs. 2,50,000/- provided earlier

+ Rs. 50,000/- returns expected @ 20% p.a.

+ Rs. 2,50,000 additional support.

This will make M.V.I.F.s share in the working capital @ 2/3rd

of the total

requirement and the innovators share will be 1/3rd

, which is precisely what the innovator

wants.

If the innovator fails to return the funding so provided along with the expected

returns on the completion of his businesss 1styear operation, then this will give a clear

view of the innovators profitability claims and M.V.I.F, after having recovered the

principal along with the returns whatever available, shall move out of the project without

further considerations.

In this way, the funding of the project in two phases shall help M.V.I.F in hedging

the risks associated with the project. Besides, this method of funding shall also help in

funding the need of Rs. 5,00,000 sought for from M.V.I.F through Rs. 2,50,000/-.

Funding Details Summary

Phase Amount Approval Status

Phase 1 Rs. 2.5 lakhs Final

Phase 2 Additional Rs. 2.5 lakhs Based on performance

evaluation

Total Rs. 5 lakhs

Repayment Plan

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Apparently, the cash inflow and the liquidity available to the innovator at the end of the

accounting period are of much importance while deciding upon his repayment ability.

Hence, the innovator when called for furnished the following information. It must be

noted that the liquidity shown by the innovator, even after payment of all the variable


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expenses and the installments of two loans that he has taken, is more than 25% of his

total cost of the project.

The financial details as furnished by the innovator are as follows:

PARTICULARS YEAR

2006-07 2007-08 2008-09 2009-10 2010-11

Total Sales (@ Rs.350/- Per Kg.) 3500000 3500000 3500000 3500000 3500000

Less: Total Variable Cost (@ Rs.

150/- per kg)

1500000 1500000 1500000 1500000 1500000

Gross Profit 2000000 2000000 2000000 2000000 2000000

Less: Interest paid on Term loan

UCO Bank

67987 53287 38587 23887 9187

Less: Interest paid on Term loan

Nainital bank

135976 106576 77176 47776 18376

Total Interest Cost 203963 159863 115763 71663 27563

Profit After Interest Before Tax 1796037 1840137 1884237 1928337 1972437

Less: Principal Repayment to

UCO Bank

140000 140000 140000 140000 140000

Less: Principal Repayment to

Nainital Bank

280000 280000 280000 280000 280000

Total Principal Cost 420000 420000 420000 420000 420000

Profit Before Tax 1376037 1420137 1464237 1508337 1552437

Less: Unsecured Loan 200000 Nil Nil Nil Nil

Profit Before Tax 1176037 1420137 1464237 1508337 1552437

Less: Tax Nil Nil Nil Nil Nil

Total Cash Inflow Available ForDisbursement*

1176037 1420137 1464237 1508337 1552437

* Cash available for repayment

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Hence, as can be seen from the table, the projected cash inflows are phenomenal. The

innovator has shown his willingness to compromise on the citral content of the crop and

instead have a higher yield for his crops. He believes that the prices earned on higher

yield would make up for the losses due to lower citral content. And the above table has

been prepared taking into consideration the same.

Besides, as calculated above, the firm even under an average scenario is likely to achieve

its break-even sales within a period of 2 years and 3 months, which is well within the

expected period of 2 years proposed by M.V.I.F. Even then, taking a conservative

approach towards granting the support, it was suggested that the innovator should be

given Rs. 2.5 lakhs as financial support towards the working capital requirement and the

additional amount should be disbursed provided the innovator returns the initial lendingalongwith the expected returns by the first years of its operation.

Accordingly, the following table proposes the schedule towards recovery of the

investment made:

May 2007 Rs. 3 lakhs Rs. 2.5 lakhs plus the profits @ 20% of

our initial investment

September 2008Rs. 6.6 lakhs Rs. 3 lakhs plus additional Rs. 2.5 lakhs

(Provided the investment made in 1 is

received back in full along with the returns

expected) plus the profits thereon @ 20%.

On achieving BEP sales

Total Rs. 9.6

lakhs

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Risks Associated with the Project

Risks Mitigation Strategy

There is a possibility that the production

may not be as per projection due to lesser

rainfall or any other environmental factor

The crop is anti-fungal, anti-viral and anti-

dandruff. Besides, Mr. Singh has dug up 4

tube-wells to meet with risk of lesser

rainfall. Besides, he has also set up 2

distillation units for extracting oil from

lemon grass which mitigates the risk of low

production due to any contingencies like

distillation units going on strike etc.

Price-Sensitivity?? It must be noted that lemongrass oil is an

essential oil and the international market

for essential oil has just begun to grow.

Even the trends since last 10 years show

that the prices of Indian lemongrass level

are more stable than the prices of its

competitors like Chinese litsea cubeba and

other synthetic citrals.

3, 4

Are there any products that are likely to

provide competition to Hunar in terms

of citral levels?

At present, none of the class of lemongrass

oil has citral content as high as that of

Hunar i.e. 82% citral content. Besides,

Hunar has a fresh lime note, which is

highly desirable as compared to metallic

note of various varieties that are available

in the market. Only Chinese Litsea Cubeba

is somewhat near to Hunar with respect to

citral content,4but then Litsea Cubeba is

synthetic oil whereas Hunar is natural.

So, even on this front Hunar is safe.

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Project Monitoring and Monitoring Team

It is proposed that given the high investment proposed in the project and the nature of the

project, a project monitoring team comprising of GIAN, NIF (BD) and a mentor be

formed which would review the status with the innovator on a regular basis. The mentor

could either be an individual from industry having experience of Essential oils marketing

or some faculty from the Agricultural Department, IIM-A.

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Documentation Verification Part Of The Project

Documents form the basic minimum requirement to validate the authentication of any

project. Whether its a technical aspect, financial or any other aspect, it must be

supported by a document. And when it is related to venture funding of a risky project,

what we do here at N.I.F. the documentation verification becomes all the more important.

And this was exactly what I was supposed to do. At this point, I must also mention about

the Research Advisory Committee Meet, which met at IIM-A. This meeting involved

experts from various fields who had come over to decide finally the projects, the products

that were to be awarded at the biennial award function held by N.I.F. Obviously, being an

expert the first thing they asked for a valid project was its authentic documents.

There are basically 6 documents that N.I.F. asks for. They are:

1. Project Proposal

2. Recommendation

3. Sanction letter

4. Utilization of the fund thus granted

5. Activity Status

6. Completion Certificate.

Depending on the situation, the documents are asked for. i.e. if the product is in the

prototype development stage, then only the documents till activity status are asked for.

And if the project or the prototype has been developed fully then, in such cases a

completion certificate is issued to the innovator by N.I.F. provided he provides all the

relevant documents that must be reproduced by him before the institute to avail the

certificate.

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So, this itself became a micro project for me as I was supposed to go through the original

documents of 70 odd projects to verify whatever documents were available or otherwise


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for a given project. In writing this may take me 4 lines to explain the work done by me,

but practically it was a work that took me almost 2 weeks to compile the final report. It

was a hectic process going through various files, getting the relevant documents Xeroxed

and verifying and cross verifying what so ever documents are missing, preparing a list of

the same, meeting various staff members in respective departments to check if they have

some idea about the missing documents? In short, it was easier said than done

experience especially for me.

It must also be mentioned that N.I.F. being an N.G.O. at times had to go beyond what had

been stated in their memorandum. i.e. in order to help the grassroots innovator achieve

the fruits of their labor, of their technological innovation and to help them in getting some

recognition the institute also at times prepared certain basic documents on behalf of the

innovator to ensure that there was no blockades for them in getting an award for their

efforts.

This mainly included the preparation of the proposal and the recommendation for a

given project. The idea of doing this was pretty simple.

1. To help the innovator in getting recognition due to him, which otherwise could

not have been possible because of some document being missing due to careless

back-office work.

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2. To standardize the way a proposal was submitted henceforth to the institute as

well as the way in which it was recommended for sanctioning by the concerned

authority.


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A proformaof the two documents has been attached here for reference.

N I F

Proposal for Project FundingRef: VARD/FS/06-

Date: thMarch 2006

From: VARD To: CIO

This has reference to the project proposal entitled --------------, submitted by -------------.

It is recommended to sanction the amount proposed in three phases. Expenditure

breakup for the project execution is

S.No. Description of Activity Amount (Rs)

1.0 Part Salary compensation to the Research Assistant

2.0Chemicals/kits/filters/disposables

3.0 Primary Chick Embryo Cell Culture from National Cell Culture

Institute

Total Project Cost

Rupees Fifty Thousand only

Mode of Payment:

1) 50 % advancepayment after approval of project by NIF Rs. ----2) 25% advance during the course of project after midterm evaluationRs. ----3) 25% final paymenton submission of trial report Rs. -------

Remarks:

.

NC - VARD

41

National Innovation Foundation-AHMEDABAD


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Documentation word itself seems to be related with work usually done by people of

lower cadre. So being a management trainee, initially it was a bit uncomfortable to accept

that I was given the work of documentation. But as my senior Mr. Devdatt had once said

in a meeting Management, M.B.A intoxicates our mind and it was now that I realized

how true he was.

Thus, overall it was a very important and phenomenal learning experience for me. And

the importance of it was not understood till the time the R.A.C. meeting was held.

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N I F

Recommendation for Project FundingRef: VARD/FS/06-Date: 21st Sept. 2002

From: VARD To: CIO

This has reference to the project proposal entitled Micro Windmill, submitted by Jibananda Khuntiya

National Coordinator, VARD

The submitted proposal is reviewed and examined thoroughly for its methodology and work plan. A field

visit was made to verify the claim reported by the innovator Mr. N V Satyanarayana

In view of this, the project is recommended and the total amount Rs. Five Thousand only (Rs. 5000/-) maybe sanctioned.

Debshish Ray Choudhari

CEO GIAN N

Remarks:

Jibananda Khuntiya

NC - VARD


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CONCLUSION

Being a management trainee, and a student willing to take up finance as his major

during specialization, venture capital and venture capitalist have always fascinated me

and somewhere down the line I see myself in some venture organizations within next 5

years time. And at times, when I am a bit worried by the very idea of how I would handle

the corporate work pressure, which takes out every possible energy out of you, I, at that

point of time, think of joining some non-government organization, serve the community

and earn some good money along with the mental satisfaction. This has still some time

left to turn, either into a beautifully realty or a nightmare.

Before this happens, I had to undergo my summer internship for 2 months in any

of the corporates or non-government organization so as to get some industry exposure.

And I am really thankful to god as I ended up joining National Innovation Foundation.

National Innovation Foundation more popularly known as NIF is an NGO that scouts

for and promotes the grassroot level innovations. The idea is to identify the grassroot

level people who have made an attempt to contribute to the society through some

technological innovations of theirs and felicitate them for the same. This doesnt end here

as, if the technological innovation so made has a potential to be commercialized then the

NGO also works towards making the innovator capable of making commercial

production of the same and if this is not possible, then allow for technology transfer of

that product and thereby enable the innovator in getting a due reward for his efforts by

the way of royalties.

And this is exactly where the role of Micro Venture comes into picture.

Obviously, Micro Venture is very different from the typical Venture capital. But then it

helped me in getting a foray into what I could expect from a venture capital firm when Iwould join it.

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My preparation of the micro venture innovation fund proposal literally tested all

of my financial fundamentals and the word of applause by my immediate heads- Mr.

Chinzah and Ms. Ruchi Tripathi, for my proposal gave me a feeling that is hard to define.


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Besides, the last 2 months of my training will stay in my memory for a very long time as

NIF gave me a very good idea of how an NGO works. The perception that the work

pressure in NGOs is low and you can take things for granted was put right within the first

two weeks of my summer training and one thing was pretty clear, you need to work and

work sincerely if you want your salary, stipend or even for that sake, your summer

training certificate with no adverse remarks against your name. The most peculiar and

noticeable experience of my summer training that has had some impact on me is that,

most of the staff members of NIF are people with great degrees written against their

names, right from doctors to engineers. Yet the co-operation they provided and more

importantly their humbleness has been a great and a true learning for me.

NIF is a big name among the entrepreneurs association through out the country

and even overseas. A lot of inquiries for their various products pour in daily on their

websites and to their offices. The work undertaken by NIF is very important in its own

sense and for me it is their true contribution towards making India a super-power by

2020. As said above, I have been lucky to have my summer training at NIF and I believe

that they must continue with the great work they are doing currently.

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BIBLIOGRAPHY

1. Uses of lemongrass in various industries:

http://www.foodnet.cgiar.org/market/Tropcomm/chap1_4.htm

2. Demand supply gap:http://www.nrdcindia.com/pages/essntial.htm

3. Rates per kg for lemongrass:http://agmarknet.nic.in/agmgrachg.htm

4. Prices and competitive comparison with Litsea Cubeba:

http://sadl.uleth.ca/nz/collect/faodocs/import/www.fao.org/docrep/v5350e/V5350e09.htm

5. PRASANNA CHANDRA (2005) FINANCIAL MANAGEMENT-

Theory & Practice, 5th

Edition - BREAK-EVEN ANALYSIS AND

IRR CALCULATION,
http://www.foodnet.cgiar.org/market/Tropcomm/chap1_4.htmhttp://www.nrdcindia.com/pages/essntial.htmhttp://agmarknet.nic.in/agmgrachg.htmhttp://sadl.uleth.ca/nz/collect/faodocs/import/www.fao.org/docrep/v5350e/V5350e09.htmhttp://sadl.uleth.ca/nz/collect/faodocs/import/www.fao.org/docrep/v5350e/V5350e09.htmhttp://sadl.uleth.ca/nz/collect/faodocs/import/www.fao.org/docrep/v5350e/V5350e09.htmhttp://sadl.uleth.ca/nz/collect/faodocs/import/www.fao.org/docrep/v5350e/V5350e09.htmhttp://agmarknet.nic.in/agmgrachg.htmhttp://www.nrdcindia.com/pages/essntial.htmhttp://www.foodnet.cgiar.org/market/Tropcomm/chap1_4.htm

Manjeet Singh Micro Venture Innovation Fund Support

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