Companies

Lok Capital raises $40.5 min first close of third fund

N. Ramakrishnan Chennai | Updated on January 20, 2018

Venky Natarajan, Managing Partner, Lok Capital

Changes strategy to invest in venturesin growth stage

Lok Capital, an impact investment venture capital fund, has announced the first close of $40.5 million (about ₹270 crore) of its third fund. It has raised the money from existing investors — CDC Group plc of the UK, FMO of the Netherlands, and Proparco of France — and a new investor TIAA Global Asset Management, a leading teachers’ pension fund in the US. The target is to raise $100 million in the third fund.

Along with the fund raise, Lok has also changed its investment strategy and will hereafter invest in growth-stage ventures, against the early-stage ventures it put money in from the previous two funds.

Narrowed focus

It will also focus only on three sectors — financial services, healthcare and agriculture — and not invest through the third fund in education and renewable energy. In the second fund, Lok had invested in two ventures in the education space and had planned to invest in the renewable energy space, but did not put in money into any venture.

Venky Natarajan, Managing Partner, Lok Capital, told BusinessLine that the decision to invest in growth-stage rather than early-stage was because Lok felt the returns were not appropriate to the kind of risks it took while investing in early-stage ventures.

In the first two funds, it was most often the first institutional investor. With the third fund, it will come in at the Series B or Series C stage, which means the companies would have already raised funds from outside investors. Lok’s exit options would include a public listing of the companies, at least in the financial services space, or a strategic or leveraged buy-out.

Lok, Natarajan said, would settle for a significant minority stake in the ventures, in the 20-30 per cent range and the average cheques it would write would be $5-6 million.

The firm had raised $22 million in the first fund, which it invested in 10 ventures, mainly in the micro-finance sector. It has more or less exited all its investments. The investors in the first fund got about 16 per cent net-return in rupee terms. From the second fund, which was $64 million, Lok diversified into financial inclusion — micro-finance, small business finance, housing finance, education, healthcare, a rural BPO.

It has returned one-third of the capital out of the second fund to the investors. The second fund too has been fully invested, in a total of 16 ventures. Lok has had five exits from the second fund, including Equitas, Ujjivan, Hippocampus and IFMR Rural Channels.

Four of Lok’s portfolio companies — Equitas Holdings, Suryoday Micro Finance, Ujjivan Financial Services and Utkarsh Micro Finance — have got small finance bank licences from the RBI. Equitas and Ujjivan have also gone in for a pubic listing of their shares.

Commercial viability

On why Lok has decided to not invest in the renewable energy sector, he said the business model was built around subsidies and accelerated depreciation and policy changes impacted the fundamental business thesis.

“We have been looking at them, but we have not been able to get confidence on the commercial viability.” This was the case in the education space too; whether it was a product or a service, payments did not come through easily, he said.

Published on June 16, 2016

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