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Impact investor Lok Capital is in the market for its fourth fund. It plans to raise $150 million (₹1,080 crore) and hopes to achieve first close in six months.
The venture capital firm has also decided to suspend launching an impact debt fund.
According to Venky Natarajan, Co-Founder and Partner, Lok Capital, the VC firm is seeing good traction from investors for its fourth fund. Traditional investors in Lok’s funds have been international development financial institutions such as CDC, Proparco, FMO, responsAbility and TIAA. For the third fund, of $90 million, Lok had raised money from domestic investors, including HDFC, HDFC Life, Sundaram Finance and IDFC.
Focus sectors
Natarajan said almost 70 per cent of the third fund was committed and Lok would need to raise another fund to make fresh investments.
As in the previous funds, the company would concentrate on the financial inclusion, financial technology, healthcare and agriculture sectors for investing out of the fourth fund.
“In a way, because we deployed this money (from the third fund) much quicker than what we anticipated and we also raised slightly lower than what we originally thought we would, we don’t want to change the strategy too much,” Natarajan said about Lok’s investment strategy for the fourth fund.
It will look at greenfield ventures in the financial inclusion space, particularly ventures that lend to micro, small and medium businesses.
Nearly 70 per cent of the money from the third fund went into the financial inclusion and fintech spaces and the rest in the other three sectors.
Lok would look to invest in 12-13 companies out of the fourth fund, with the average cheque size being $7-8 million (₹50-57 crore).
Lok, he said, will look to build more non-banking financial services companies that lend to small businesses and to the affordable housing sector, increasing the geographical reach of these companies. In the agriculture space, the VC firm would look at the food space — in B2C branded foods — from the fourth fund.
Impact debt fund
Asked about the ₹325-crore ($50 million) proposed impact debt fund, Natarajan said Lok had decided to suspend it. The VC firm had even roped in a Standard Chartered Bank veteran to head Lok Impact Debt Fund.
He said Lok had some commitments from investors for the proposed debt fund, but that was not good enough for it to close the fund. The return expectations from some of the investors was much higher than what would have been possible.
Lok wanted only 50 per cent of the debt fund’s money going into financial services companies and the remaining into the other sectors it invests in. There were doubts whether companies in the other sectors would have been able to afford the kind of interest rates that the debt fund would charge.
And, if Lok allocated more than half the debt fund to the financial services sector, it felt it would not be much different from others in that space and there was nothing special it would bring to the table.
“We won't take it up now. But after the fourth fund is closed, when we are looking at options beyond that, then we may look at it,” Natarajan said.
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