How an obscure windmill in Rajasthan is helping an angel investor fund startups

3 Nov, 2016

As the large wind turbine—the overarching presence in the sleepy village of Bhopalgarh in interior Rajasthan—rotates, it powers not just the electricity grid in the desert state but also several startups in India's top cities. The cash from the power generated by this windmill has helped Artha India Ventures, led by former Bombay Stock Exchange director Ashok Kumar Damani's family, fund 15 startups in the past year.

The windmill that is installed at Bhopalgarh, 30 kilometres away from Jodhpur with a capacity of 1.25MW, fetches about Rs 90 lakh a year. And it has gone into co-investments in many a startup. Train PNR predictor ConfirmTKT, discovery platform for hobbies and activities FindUrClass, driver behaviour analytics firm Vahananalytics, Hindi social networking site ShabdaNagari, artificial intelligence software startup vPhrase Analytics, backpacker hostel chain Roadhouse Hostels, peer-to-peer lending platform LenDenClub, ERP providers for e-commerce sellers Don't Scratch Your Head, intercity cab service Oneway.cab are among those windmill-powered startups.

"There is no outside money and we are not taking money from our family businesses. We are now making angel investments purely from the cash generating out of the windmill," insisted Anirudh Damani, a director at Artha India Ventures and scion of Mumbai-based K Damani Group which has businesses such as stock broking, real estate, energy and hotels.

The business group's proprietary investment arm Artha India Ventures has a portfolio of 45 seed investments that include Oyo Rooms and NowFloats. Artha had a multi bagger exit from Oyo Rooms. "On one side we were investing in renewable energy assets and on the other side we were investing in startups. Money was going out through two different ways. We thought how we could combine both and found that this worked better," said Damani who calls himself a "renewable VC."

How does this work? Artha purchased from Suzlon a windmill which was already operational for around Rs 6 crore. The maintenance and operation contracts are already in place. Thanks to the power purchasing agreement with the Rajasthan state government, Artha gets 15% IRR or approximately Rs 90 lakh per annum for the next 25 years. The principal is paid back in 7-8 years and for the rest of the period it guarantees free cash flow. At the end of 25th year, the windmill is sold for its scrap value and by that time it will have funded more than a hundred startups.

"I look at angel investment as a portfolio play," said Damani. "So, we need to find an operating asset that can generate that much cash; an asset that gives you operating cash flow for over a period of time so that you can continue to make investments," he said.

So far the model that they employed has worked well inspiring Artha to scale up the renewable VC play. "We want to buy 5-6 windmills in the next 12-18 months with 6-7MW total capacity. For the next two years it should be good for us. By that time some of our startups will give us exits that will help us buy more windmills. That way, this will be self-sustaining," thinks Damani.

Artha has been a fairly prolific and is part of Indian Angel Network and Venture Catalyst, investing in the range of Rs 5 lakh to Rs 20 lakh in a startup. Besides Oyo, it has exited from Bookmycab and is in the process of exiting from two more companies. He fully knows there will be a fair amount of failures. "We have already seen 5-6 shutdowns. I am expecting some 20 will shut down," he said about the current portfolio.

It still offers Artha around 75% IRR in the past four years on a cumulative investment of around Rs 13 crore, according to Damani.

With wind turbines running in the background, he foresees funding at least a 100 startups. Of the four-dozen companies it funded, only one has cleantech connect but Econsense, a portfolio company, provides solutions, tools, miniatures and models for renewable energy engineering education and training.

Every angel investor will have a cash generating business or in some cases income from fixed assets. However, windmill as a cash cow for startup investing is perhaps a fresh experiment. "Interest rates are going to fall. Other family funds can emulate this model," says Damani.