We'll close our third fund of $100 mn by Sept: Lok Capital Managing Partner

In a Q&A, Venky Natrajan shares why his firm is now relying on Indian LPs as well, for raising funds

Lok Capital, which means People Capital, is in the process of raising its third fund of $100 million for investments in financial services, healthcare and agriculture. Founded in 2014 with a vision to foster inclusive growth, the company backs entrepreneurs who cater to the large underserved segments through investments in these sectors. It has of late invested in Chennai-based Dr Mohan's Diabetes Specialities Centre from its third fund. In an interaction with Gireesh Babu, Lok Capital Managing Parnter Venky Natarajan elaborates on the company's fund raising plans and changes in the funding scenario in India. Edited Excerpts:

Could you share with us the status of Lok Capital's third fund?
We are still mobilising for the third fund, and the target size $100 million. We have already committed $25 million out of this and our expectation is to completely raise the $100 million by September, this year. We are investing in financial services, healthcare and agriculture. We started investing from this fund only in June last year and still have another three to four years to invest from this fund.

Our first fund of $22 million was purely microfinance focused, and we were doing $2-3 million ticket sizes. We have fully exited and liquidated this fund. Fund-II was of $65 million, which we have fully invested and have even exited half the companies.

Are you raising funds from Indian LPs? What are the advantages?
In Fund-I and Fund-II we did not have any Indian institutional LPs. It was all overseas money, but in Fund-III, approximately 25-30 per cent of the corpus will be from Indian institutional LPs. Raising funds from Indian LPs helps expand the pool of LPs available and for Indian investors, we don't have to take any exchange rate risk. That is a huge advantage. Besides, they also understand the Indian market very well and can also help us in terms of networking, putting in the right people for building businesses, hiring and such like, because these are financial institutions who understand our line of investing extremely well. The Indian financial institutions include banks, insurance companies and non banks.

Do you see more investments coming from Indian LPs into the sector?
It is a recent trend. There have been changes in regulations during the past two years for the alternative investment funds (AIF). Until November 2015, AIFs were allowed to take foreign funds only based on approval from the regulatory authorities. That month, this rule was relaxed. Secondly, in May 2016, the India-Mauritius treaty got amended. In the last budget they also brought in a lot of clarity about taxation of AIF. If you add up all these three, it makes it more suitable for setting up and managing funds from India. Anyway these Indian institutions cannot invest in Mauritius. With institutions set up in India, you are able to tap into that money.

How has the investment scenario been for you last year and what are the expectations this year?
We generally look at companies that have some clear business model and revenue traction, though not necessarily profitable. These are not start-ups in that sense. Towards the beginning of last year, the valuations and entry prices in certain sectors were reasonably attractive. Towards the second half of the year, again valuations moved slightly to the higher side. This year people are slightly cautious about paying such prices. The pricing equilibrium will always help us deploy more capital. We have our track record from the first two funds, and our team has stayed together for the past over 12 years. That is what the LPs look at and as long as your investment strategy is not something outlier, I think there is money available in the market.

Do you have any new segments in focus? What would the impact of GST be?
We used to look at education and renewable energy spaces, but now very clearly we narrowed our focus to look at only financial services, healthcare and agriculture. Within these spaces, we are still learning what could be the potential impact of GST.