The science of raising funds in growth markets

Retailer magazine caught up with Aditya Kinoria to understand the company's proprietary incubation process, the selection of portfolio projects, and making projects 'Investment Ready'.
Aditya Kinoria, Co-Founder, Red Ribbon Advisory Services

Promoting scalable projects that are incubated by investing its own capital, Red Ribbon is organising and growing the angel investment ecosystem in India, with a focus on non-tech projects.

Red Ribbon exports established products, services and technology from the UK and other western economies, by taking best practices to markets where there exists great opportunities. The company has created a diversified portfolio of projects that allow our clients to invest in the burgeoning real estate, construction, hotels and renewable energy sectors in India. Re Ribbon is currently incubating projects with a total equity investment of Rs.4,000 crores.

Retailer magazine caught up with Aditya Kinoria, Co-founder of Red Ribbon Advisory Services to understand the company’s proprietary incubation process, the selection of portfolio projects, and making projects ‘Investment Ready’.

What’s the business model of Red Ribbon and what all projects has it invested in currently?
Red Ribbon is a UK based impact investment company, and it is established with the ideology of bringing in the best of technology of the most developed economies to emerging markets like India. India being the first destination, we have found out some big opportunities.

One of them is a budget hotel concept (Eco Hotels); second is modular construction (Modulex); and the third is in the ‘Energy’ space called Armaec. These are the three businesses we are looking forward to incubate in India. Red Ribbon has developed Eco Hotels, the world’s first carbon neutral hotel brand. With a plan to create 10,000 rooms in ten years, Eco Hotels aims to become the single largest organised budget hotel brand in India.

Modulex will be the first full fit-out steel modular buildings company in India, offering flexible and tailored modular buildings. Armaec Energy Group Plc is a developer of wind farms and rooftop solar power.

What is the core of your business philosophy and were there any challenges you faced along the way when you started Red Ribbon in India?
Whatever businesses we are getting into they are on the lines of ‘Make in India’, like getting the best of technologies from developed economies to the emerging ones, or creating employment and skilled labour, and then the creation of GDP. All these parameters that we work on are in line with our Prime Minister’s vision to see India on a global map. As for challenges, getting regulatory approvals in India would be one of the biggest, followed by lesser tax incentives for investors and the overall market sentiment, which affects investors’ thinking than his gut and instinct. I’ll give you an example. It took us 22 months to acquire a piece of land for our modular factory. The scenario is progressing, but it was really challenging about two years ago.

What do you think is plaguing the start-up scene in the country?
It’s going great guns at the moment. But the basic problem would be access to capital. You can get the brains from IIMs and IITs, but it is difficult for a start-up to get the money in its early stages. With PM Modi’s initiatives, there’s hope and awareness among the masses and I look forward to it.

What is your role in providing capital to the start-ups?
We pick some better brick-and-mortar concepts, and introduce them to the investors after helping them with early stage investments to set up their businesses.  We take the early stage pain off them, including various approvals, and set up firms by getting rid of basic hurdles for them. Then we bring in strategic investors as angel investors and help them acquire funding to run their models thereafter.

How do you make money?
There is a profit margin from the funds that our incubated firms acquire. We can also call it revenue sharing. Although the percentage will depend on the kind of business, the sharing is strictly in accordance to the market standards. We have received more than 80 investments, ranging from 5-15 lakhs, from angel investors in India. We have also received interest from big marquee investors as well, which is from the strategic investor side.

How does the team work and how many employees do you have at the moment?
To be specific, Red Ribbon is working on an ‘IFA’ network. Staff wise we are very lean, say about ten employees right now, but our IFAs are present strategically with over 200 empanelled. We will expand the network geographically to cover all parts of the country.

How do you respond to the rise in investments coming in from global networks?
We are looking at NRI markets as well, especially in UK, US, Canada and Dubai, as a lot of investment is coming from them after PM Modi has opened them to invest here. So although our projects would be implemented and executed on the Indian soil, the funding will come from various parts of the world.

Would you also incubate and help set firms interested to open up in the dot com space?
That would be tricky for us as of right now. Out of ten start-ups, only one would be making money.  The dot com space has a gestation period of 10-15 years and the success ratio is 90:10, with only 10 per cent of the start-ups being successful.  And according to our research, investors today are more interested in the brick-and-mortar space. The larger investors are sceptical too. In the brick-and-mortar space, at least there would be assets to fall back on if the business fails, which is not possible in the online space.

What are your future expansion plans?
We are looking to make a big distribution base in India through which we want to establish ourselves as a brand every person can rely on. So, if a project is being advised by Red Ribbon then the investor should be comfortable enough to invest in that project. That’s our vision.

Aditya Kinoria