 "Vishal Mehta")
Impact fund Lok Capital, which has raised $87 million through two funds and invested in 15 social enterprises, is looking to raise a third fund. The size has not been finalised, but it's unlikely to be bigger than its second fund, where it raised $65 million from development financial institutions (DFIs).
"The fund economics works well if you keep growing your size but the deal pipeline on the ground is not growing at a faster pace,'' said Vishal Mehta, co-founder and managing partner. ''There is still room for early-stage funding and, therefore, our fund will also not be a large one."
A small fund feels Mehta, helps Lok Capital retain focus on smaller deals.
Backed by Rajiv Lall of IDFC, it has had five exits and one write-off from the nine investments it had made from its Fund-I, which had raised $22 million in 2006. This looks impressive in a market where most venture capital (VC) and private equity firms, including impact funds, are struggling to make exits.
According to an Intellecap report of April 2014, in the past 14 years, the sector has had only 15 exits out of the 220 companies invested.
Lok Fund-I has made complete exits from micro finance institutions (MFIs) Spandana, Satin, Janalakshmi and Arohan, and a partial exit from RuralShores, a rural outsourcing firm. It had to write off investment in MFI Basix due to the MFI crisis in Andhra Pradesh. As deal-making picks up, more exits are likely this year.
Lok Capital Fund-I is likely to generate an internal rate of return (IRR) of 10 per cent in dollar terms. This makes it not only a good performing impact fund but one of the better-performing ones for global investors across VC funds. While VC firms target 25 per cent-plus IRR, few have delivered such returns in India.
Lok Capital has been investing in social enterprises for eight years. When it started, Lok focused exclusively on micro finance and seeded many of today's most respected institutions. MFIs have made a big social impact in India, reaching about 20 million low-income customers.
While Lok Capital continues to support micro finance, it is targeting broader financial and social inclusion by diversifying into new areas such as healthcare, education, employment, water, sanitation agriculture and energy.
Lok works closely with investee firms. It also offers fellowship to people keen to work in its investee companies; today it has 18 fellows working in these firms.
According to an industry estimate, impact investing companies in India have raised nearly a billion dollars in the past five years, including money raised from other VC or private equity funds. Other impact funds, which exclusively focus on financial inclusion include Aavishkaar, Omidyar Network, Michael & Susan Dell Foundation, Elevar Equity, Acumen and Caspian Advisors.
Lok Capital Fund-II has invested in nine businesses: Drishti, a low-cost eyecare start-up located outside Bangalore; Suryoday, an MFI headquartered in Mumbai; MAS Financial Services, an Ahmedabad-based lender with 300,000 retail clients; Everest Edusys, which is changing the way students learn basic science concepts through active teaching aids, teacher training and advanced data analytics.
