How Ashish Dhawan is building India’s first VC fund for non-profits

“I can still connect the dots but I know it (the ability) is starting to fade,” says Ashish Dhawan. The 43-year old Dhawan has been Indian private equity’s most influential and successful dealmaker for over a decade. Last year he stepped back from his private equity career to focus on philanthropy. These days he doesn’t read the business dailies that often and only occasionally tracks companies that are making noise on the bourses. His working hours are longer but they are spent looking for practical solutions to problems that ail the country’s education sector, chiefly those that affect the bottom half of the pyramid.

His new vehicle is Central Square Foundation (CSF), a non-profit investment firm that he founded early last year.

But philanthropy is too simple a term to define what Dhawan has embarked upon. CSF certainly operates within the realm of philanthropy. However, the approach is somewhat different, even unique. Much as he did with ChrysCapital, the private equity firm he founded in 1998, Dhawan, through CSF, is once again attempting to break new ground. He is laying the foundation for India’s first venture capital fund for non-profits.

What’s in the box?

At its core, CSF is about catalyzing an education reform movement in the country. “We need a couple of hundred dynamic reformers to have a reform movement. Today, there are maybe 10-20 such people,” says Dhawan. His plan is to seed a new generation of education reformers and non-profits.

There are two parts to the foundation’s strategy. The first, already in action, is to make seed stage capital available in the form of grants to startup non-profits. Dhawan has pooled his own resources along with some from a few friends as an initial committed corpus for such investments. There is no specific fund that has been set up for the purpose. Instead, capital will be drawn down from this committed corpus (the amount has not been disclosed) as and when required for a specific investment. The initial investment per startup is capped at Rs 2 crore. It may be raised to Rs 5 crore later. “We’re babes in the woods right now. So we would rather be small, make mistakes and not have them be very costly mistakes,” he explains.

This is not the first time though that a philanthropic investing model, aimed at startups, is being attempted in India. The Redwood City, California-based Omidyar Network, an initiative launched a few years ago by eBay founder Pierre Omidyar and his wife Pam, uses the grant model to invest in non-profits across sectors here. In addition, it also invests in for-profit startups. Then there’s New York headquartered Acumen Fund, a non-profit investment firm itself, which invests primarily in for-profits startups.

What differentiates CSF from those two entities are a couple of things. One, unlike Omidyar it does not follow the hybrid investing strategy of putting part of its money in non-profits and part in for-profit enterprises as equity capital. Neither, like Acumen, does it focus on for-profit companies. And unlike both, it aims to invest primarily at the seed stage – where the funding gap is most critical and where the risks are the highest. “There is very little risk capital available to get new non-profits off the ground,” says Dhawan.

The foundation already has a portfolio of four companies. There’s Mumbai-based 3.2.1 Schools, a network of affordable schools that aims to demonstrate that high-quality education in the English medium is possible at the current per child government spend levels. The first school started in June 2012 in partnership with Mumbai’s municipal corporation. Next is Mindspark Learning Centers, an initiative from Ahmedabad-based Educational Initiatives, where students learn to bridge the gap between mathematics and language using personalized tools and remedial instruction. Though Educational Initiatives started up in 2001, the first Mindspark centers were piloted in Delhi in July last year. The programme is delivered in Hindi and targets children between classes 1 and 7 at government schools.

The youngest in the portfolio is Mumbai-based India School Leadership Institute (ILSI), launched this January, which aims to train high-potential educators and create a new generation of school leaders focused on disadvantaged communities. ILSI is a partnership between CSF, the US-based KIPP Schools, Akanksha and Teach For India. Finally there’s Akanksha, also based in Mumbai and founded in 2007, which runs a network of 13 English medium schools that it is looking to expand to 35 in the next five years. In five years, Dhawan aims to have a portfolio of 20-25 non-profit startups in place.

The second piece in CSF’s strategy involves research and advocacy. This piece is still being built though a small beginning has been made. “At the end of the day, philanthropic capital is limited and you cannot scale beyond a certain point. You need to involve government and policy makers. Therefore, advocacy becomes a very important part of the equation,” says Dhawan.

Through most of 2012, the CSF team went out and met with existing organizations involved in education, got an understanding of the issues and started getting its own frameworks in place. The team has put together a couple of research documents, which it currently uses for internal purposes or to showcase to policy makers. This year it plans to release a 150-page primer on education technology, a key focus area for its investments, and how it can be leveraged in the Indian context. The report will be released in 4-5 tranches. Full-fledged publishing of research papers across multiple topics will start in 2014 and the advocacy activities will kick in soon after.

The big challenge: execution holds the key to success

Unique and interesting as CSF’s model is, education in India combined with the needs of citizens at the bottom-of-the-pyramid is a complex issue. Governments are still grappling to make good quality education, or education of any kind, accessible to all. Conventional venture capital investors who invest in for-profit companies that address the bottom-of-the-pyramid are yet to see success with many of their investments. Most existing non-profits in the space still struggle to show scalable results. The odds seem prohibitively high and it almost looks like Dhawan is setting himself up for failure.

“It is daunting because it is much more complex than anything else I have done in the past. There are so many stakeholders involved. It’s much harder to measure impact than it is in the corporate world,” he says. It is to address those kinds of complexities and uncertainties that CSF has been designed to function as an investing entity rather than as an operating foundation. Dhawan is realistic enough to know that his best chances at success lie in playing to his strengths.

As a dealmaker, few can match his acumen for spotting the right investment. Well-timed bets backed by research and active portfolio management have characterized ChrysCapital’s investing strategy for most of the past decade. Like any other private equity investor, they’ve got it wrong sometimes but have returned well above average profits to their investors more often than most others. Dhawan intends to put that experience to work at CSF.

To begin with, the foundation will look very closely at the people it backs in its portfolio organizations. While passion would be a given, it would lean towards people who are focused on results. Second, funds or grants would be deployed in tranches. So, even if a startup is sanctioned a Rs 2 crore grant, the money would be invested in instalments, based on specific milestones being met. The CSF team would actively monitor the portfolio organizations through specific metrics evolved for the purpose. For instance, it would track teacher and student attendance at schools, track cost-per-child and how that cost compares with the public system and so on. Such measures would allow the foundation to take corrective action early or if required, shut down a pilot and divert the money elsewhere within the portfolio.

Dhawan knows that execution is the key. He’s also no stranger to failure. When he started ChrysCapital (Chrysalis Capital then), the initial idea was to bring Silicon Valley style investing to India. The idea was ahead of its time and had to be abandoned. In some ways, with CSF, he is revisiting that early interest in startup investing. To some, a non-profit VC firm for non-profit startups probably seems as ahead of its times as Silicon Valley style investing here in 1998. But then Dhawan buried his initial plans and went on to rebuild ChrysCapital into a private equity powerhouse that has defined the rules of the game in this market ever since. Executing something similar in education will be tougher, but then, there is no better man than Ashish Dhawan to attempt it.

Also read: The full interview with Ashish Dhawan, founder, Central Square Foundation


  1. Saurabh Bavishi says:

    the article is right. dhawan is the only man who can do this, but he will have to be very cautious

  2. Nisha Xavier says:

    India needs a new kind of NGO and the right investors to support them. This is a move in the right direction. Perhaps it will encourage others to think differently also.

  3. deepak says:

    Is the interview coming up soon?

  4. Raghavendra B says:

    If Dhawan just taps into 1% of the CSR budgets of corporate houses, he will have enough money to make this a movement. Corporates though may see this as a good way to wash black money.

  5. An education reform movement, with a non profit approach. Finally somebody has started to think about the future of this country! Respect

Leave a Reply