This impact investor is set to place its biggest bet yet. And it’s purely commercial.

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Subscribe to enjoy similar stories. Venture capital firm Aavishkaar Capital plans to increasingly back more startups that provide livelihood to people in tier 2 and 3 cities and towns as it looks to raise its seventh and largest ever fund with a corpus size of about ₹1,500 crore next year. The startups Aavishkaar wants to back are typically those that hire skilled workers in small cities and towns while selling their products in the big cities.

This generates a double bottom line, creating social impact by providing steady employment opportunities in underserved areas while also ensuring profits. “In such investments, the gross margin is higher, so it becomes an attractive proposition from a purely commercial point. Our thought process is to connect through an impact and make the impact profitable at the same time," Aavishkaar Group’s founder Vineet Rai told Mint in an interview.

“India’s rural economy has changed dramatically so we also must shift our investing philosophy. We call it systematic impact as it directly influences what is happening on the ground," he added. Rai’s belief in India’s rural economy is validated by recent data that show a revival in rural consumption as a main factor in India’s private consumption outpacing the country’s economic growth.

Aavishkaar Capital has raised about ₹4,000 crore across six India-focused funds over 17 years. Its sixth fund, which was raised about 2.5 years ago, was ₹1,200 crore in size. So far, the impact investment firm has fully returned money made from its first three funds to its investors, and partially from its subsequent funds.