Lok Capital, an impact investing venture capital fund, has said it will close the first round of fund-raising for its $80-million third fund by January 2016. In this round, it hopes to raise $40-45 million. It eyes 10-15 per cent from local limited partners (LPs), compared with nil in its past two funds.
Impact investing means 'profit with a purpose'. Such investments can provide financial returns, as well as positive social outcomes.
According to Vishal Mehta, co-founder and partner of Lok Capital, the third fund will be different from the other two, which were focused on the microfinance sector. The third fund would give a major thrust to small and medium enterprises, small finance banks, agriculture, health and others, he added.
Mehta said Lok Capital could not raise money from local LPs for the past two funds as investors did not understand the concept of impact investments in India. "Our successful exits have not only boosted the confidence of LPs (mainly government institutions, International Finance Corporation and others) from outside India, but have also increased domestic LPs' interest."
Lok Capital's Fund-I ($22 million, deployed fully by 2010) focused on the financial inclusion segment and has invested in a number of leading microfinance institutions (MFIs) - Janalakshmi (exited); Asirvad Microfinance (exited); Spandana (exited); Arohan (exited); Bhartiya Samruddhi Finance (wrote off); Satin Creditcare (exited); Suryoday; Ujjivan Financial Services (exited); and RuralShores (exited).
Lok Capital has made seven exits from the first fund, returning 100 per cent on the fund's invested capital and generating an average return of three times in cash across these exits. This means a net internal rate of return of 15-20 per cent. The exit from RuralShores, Lok's first exit from a non-MFI investment, returned six times the initial investment.
Lok Capital's Fund-II was focused on financial inclusion and broader inclusion, including sectors such as education, healthcare, employability solutions and livelihood generation. The fund raised $65 million in January 2012. It invested in Vistaar, which caters to the under-served market of small and micro enterprises; and IFMR Rural Channels, which offers savings schemes, insurance and wealth-management services apart from loans.