UpSkill Capital 'Lifting young adults out of poverty through educational lending'

May 7, 2013

2 1. Accumulated need to maintain current growth level Source: Reserve Bank of India Economic Statistics; globalpost.com – Indian economy faces labor shortage; Expert interviews

The problem: India's entry-level labor market faces unaddressed skill shortage

Resulting skill gap

450

Trained at current capacity

50

Skilled labor need

20221

500

India faces major skill gap for entry-level labor...

...government intervention proves insufficient...

Million workers (#)

"Already today, one of the key factors limiting our growth is finding – and retaining – qualified entry level employees" G.R. Venkatesh HR head future group

•  Employer demands not reflected by Industrial training institutes

•  Outdated curriculums and poor teaching quality lead to poor employment rates

"Most of our two-year courses do unfortunately not lead to skill related employment " Placement officer ITI in Delhi

...NGO vocational schools try to fill gap but lack funding

•  Growing, highly fragmented NGO vocational training infrastructure in place

•  High variance in quality of teaching and placement rates across concepts

•  Top schools' growth hindered by funding restrictions

"We could teach so many more students, if we didn't have to rely on donation funding" Dr. Meenakshi Nayar Founder of Etasha Society

•  Awarded a certificate in Customer Communications

•  Secured 6-month internship as a customer service officer

•  Left school at age of 10

•  Working in temporary jobs with unreliable income

•  Struggles to support his family

Lower middle class

Learned basic communication skills in

a 6-month training program which allowed him to seek employment in the growing service

sector Earns on average

$22 per month

Below poverty line Vocational Education

Mukesh, 24, Delhi

Earns a steady $144 per month salary

12 months

3

Path out of poverty: From $22 a month to lower middle class in 12 months

Source: UpSkill Capital Team

Success story of example student

4

Select best VET programs based on performance metrics

Provide tuition funding for students enrolling in these

programs at a low risk to the student

Collect on students earnings in first 6

months of employment

•  Willing to give up a share of increased salary

Students

Goal: Leave poverty – increase salary from $22 to $144/ month

•  Funding gap, cannot pay for tuition upfront

•  Willing to pay high salaries for skilled workers

Corporates

Goal: Fulfill growth trajectory access to qualified employees

Not willing to pay for education

•  Can prepare students successfully for well paying jobs

VET providers

Goal: Fulfill mission – educate as many students as possible

•  Funding gap, cannot claim tuition of student / corporates

Our solution: UpSkill Capital aims to be the ‘missing link’ between disadvantaged young Indians, VET providers and corporations

5

1

2

6 Bulk of

wage

7

Principal + Return 5

100%

3

Unskilled learner

Employer

4

•  Investors provide funding to UpSkill Capital

1

•  ...which funds VET provider

2

•  HR OpCo passes on the bulk of wage to student

6

•  HR OpCo passes on portion of wage to investor (through UpSkill Capital)

7

•  Employer pays HR OpCo 5

•  ...who trains students 3

•  ...who are then employed through HR OpCo after training

4

100% owned by UpSkill Capital

Operating model: UpSkill Capital funds training, places graduates with partner companies and collects a portion of salary

Source: UpSkill Capital Team

6

144

12

144

10%

11

15%

10

20% 25%

8

30%

9 4 3 2 1

-150

7

1441

35%

6 5

USD 150

100

50

0

-50

-100

-150

16

144

15

144

14

144

13

INTERNSHIP PHASE TRAINING PHASE

Installment kept by OpCo Salary paid to student Student loan (via VET)

Graduation

Months

FULL EMPLOYMENT

∑ = $ 194 $ 22 $ 19

+ +

∑ = $ 245 18% IRR (assuming 25% default rate)

Placement fee (paid by employer) Down payment (paid by student)

Sum of installments

Full salary payout to student

Fund mechanics: Tuition funding is recollected from salaries during 'internship phase'

1. Average post graduation salary at Etasha Society Source: UpSkill Capital financial model

Cash flows on per student basis

7

Risk assessment: Key risks along value chain anticipated in operating model

Placement internship Mobilization Training phase Full employment

Mitigation strategy

•  Programs with attractive prospective salaries and 'job guarantee' upon graduation

•  Select 'best' performing VET schools

•  Student pays deposit upon enrolment

•  Anticipation in financial model through conservative assumption of 25%1

1. 25% attrition upon completion of program covers worst case, because full cost have been incurred and no return has been generated (other than student deposit) 2. Includes the assessment of impact on business model as well as probability of risk case occurring

•  Student pays deposit upon enrolment

•  Anticipation through conservative assumption of 25%1 in financial model

Risk factor

Weak demand for program

Attrition during training phase

Unsuccessful job placement

Early drop-out during internship

Employers unsatisfied with

provided candidates

•  Close alignment of training programs with employers' skill need

•  Select 'best' performing VET schools

Impact2 High High Medium Medium

8

UpSkill Capital Rollout Phases

160

50 20 0.05

1.08m

282k 79k 400

54

17 7 0.05

Test concept with Etasha

Rollout to greater Delhi

Expansion to Gujarat

Fund II 2017 - 2019

Fund III 2020+

Pilot 2013

Fund I 2014 - 2016

India wide coverage

1 2 3 4

UpS

kill

Cap

ital R

ollo

ut P

lan

Fund size ($M)

Avg capital deployed per year ($M)

# graduates (cumulative)

Scaling up: $20 million fund from 2014

Source: Team Interviews with Indian VET Providers; ‚Education Sector in India: A snapshot‘- KPMG April 2011

9

2014 Now Q1 2013 Q4 2012 Q3 2012 Q2 2012

I3C Competition

VET School Appetite

Crowd-source Fundraising

Government Policy

Pilot

Past and Present: We have learned much in the past year and are excited by what the future holds for vocational education in India

Government policy focused

on skills training

Raised $25k for pilot program

through crowd-source

fundraising efforts

Hired local resource to run pilot in Banaras

Banaras Delhi

Fund

Appendix

10

Market Sizing: Soft-skill VET market to grow to 4.5bn by 2022

annual 2013 annual 2022 # Service sector-

focused VET providers

~150 schools ~1,500 schools

# enrolments per school

1,000-3,000 students

~10,000 - 20,000 students

(based on best practice)

# student enrolments ~150k students ~30m students

Tuition cost per student US$150 US$150

Market Size $22.5 – 67.5m $2.3 – 4.5bn

~1% of the current Indian VET market

+40%

12

Fund Duration

•  2.5 years (revolving)

•  Option to earn annual yield

Target Return

•  18-22% IRR (pre-Mgmt fees)

•  Hurdle rate of 10%

Target Deal Size •  > $500k per VET (post pilot)

Fee Structure

•  3% pa management fee

•  20% carry without catch-up

Fund terms Investment comparison

Investor benefit: Good financial return at medium term investment horizon

1. Fajnzylber, Lederman and Loayza. “Inequality and violent crime*”. Journal of Law and Economics, vol. XLV (April 2002) Source: UpSkill Capital Financial Model

10

8

6

4

2

0

Expected Return p.a. 100% 0%

Microfinance loans India Payday loans

India PE Funds

India AAA Rated Bonds

50%

Investment duration (Years)

UpSkill Capital

On top of the financial return India's communities will benefit largely from increased wages1

Sensitivity analysis: Default rate and expected graduate student incomes will drive returns for investors

Investor IRR Sensitivity Analysis1

Monthly Worker Earnings

Loan

Def

ault

Rat

e

$120 $130 $140 $150 $160

5% 34% 52% 70% 89% 108%

10% 24% 40% 56% 74% 92%

15% 13% 28% 43% 59% 76%

20% 3% 17% 31% 45% 60%

25% (6%) 6% 19% 32% 45%

30% (15%) (5%) 7% 19% 31%

1. Based on Fund 1 calculations Source: UpSkill Capital financial model

Outlook Fund I Structure: Private Equity entity and HR Operating Company compose UpSkill Capital

UpSkill Capital

Limited Partners General

Partners

Board of Directors •  Dr. Meenakshi Nayar, IIM Ahd’78 •  Prof. David Chen, Equilibrium Capital •  Mark Johnson, retired CEO PwC Australia

Management Team •  Apaar Kasliwal •  Ian McBride

HR Operating Company Co. Ltd.

Board of Directors (in addition to UpSkill’s board)

•  Adarshanand Sudhakar, General Manager, TeamLease

UpSkill Capital – Key Physicals

Company Type Private Equity Fund

Location of Incorporation

New Delhi & Singapore (only feeder fund)

Denomination Indian Rupees (INR) & US Dollars (USD)

Fund Term 3 year term with revolving option

Registered under Indian Company Act 1956

Wholly owned subsidiary

HR Operating Company Co. Ltd.

Company Type Private Limited Corporation

Location New Delhi

Operations advisory •  Tobias Schimmer •  Meike Scheffer •  Kathleen Schindler

Marketing advisory •  Lisa Mohr •  Yohan Senaratne

15

Lisa Mohr •  5 years Finance

and Asset Management in real estate sector

•  MBA Kellogg

Meike Scheffer •  4 years consulting

experience in Care and Industrial goods (BCG)

•  MBA Kellogg

Tobias Schimmer •  5 years consulting

experience in Automotive Industry (BCG)

•  MBA Kellogg

Apaar Kasliwal •  Private Equity and

Private Banking in India

•  MBA Kellogg Yohan Senaratne •  5 years Retail

Banking and Consulting (ANZ Bank)

•  MBA Kellogg

The founders: Connected by a desire for impact

Kathleen Schindler •  Product Manager at

DataXu •  6 years consulting

experience (PwC) •  MBA Kellogg

•  "Traditional MBA careers"

•  "Common values and believes"

•  "A desire for impact"

•  "A Kellogg MBA as an incubator"

Weekly global call to push

progress

Amsterdam 2 pm Stuttgart 2 pm

India 5:30 pm Boston 8 am Houston 7 am

Melbourne 10 pm