Micro-Franchise For Venture Investment

For those of you who have read my discussion with Prof. Raj Reddy at Carnegie Mellon, you are familiar with our debate over MicroFinance, MicroEquity and MicroFranchise. We continued drilling down on this topic last weekend, following Sequoia’s investment in Micro-Finance company, SKS. I also wrote a piece referring back to some ideas from 2 years back.

Raj’s key objection to the Micro-Finance (synonymous with Micro-Lending) model is that most villagers do not have any concept of “Business”. They don’t know how to apply for a loan, or how to convince a bank to approve one. And they don’t have the language skills or the vocabulary to explore.

On top of that, the 23% interest rate, he thinks, is too high. And, while a $5 loan may suffice to buy a cow, it certainly doesn’t allow a village entrepreneur to buy a taxi, to operate a transportation service to the next major town. That would require more like $10,000.

These are valid observations. While Micro-Lending is good for a certain segment of the poverty pyramid, it fails to cater to the layer that’s a notch above. So let’s explore an alternative model: Micro-Franchise, financed by Micro-Equity / Micro-Venture Capital.

Let’s say, a group of MBA friends from IIM Kolkata get together, and decide that they would like to start a Floriculture Franchise. They will provide the idea, the business knowledge, the Venture Capital to a franchisee to get launched, the management guidance, the marketing and the sales channel into the urban flower markets. They will grow on roses, carnations, gladiolies, sun flowers, lilies, …

They go to Sumir Chadha at Sequoia, who will provide the capital. [Sumir: I have high hopes of you, my friend!]

And armed with that, we’ll see a 2-tiered venture capital model develop: (1) Sequoia finances our IIM guys’ Flower Franchise (2) The Flower Franchise finances the rural micro-entrepreneur franchisees.

The same Micro-Franchise model can be applied on taxi services, packaged food, village movie theater, village restaurants, retail chains, clothing stores, … your imagination is the limit!

Makes sense? Ready to go for it?