Lok Capital, the Rockefeller Foundation-backed social venture capital firm, has emerged from a tough 2011 with a realigned investment game plan. From being focused only on the microfinance sector, the Gurgaon-based firm now has a broader mandate to invest in healthcare, education, employment services and other financial services businesses. The recast follows its declining fortunes in the domestic microfinance sector where growth has come to a virtual halt due to a series of regulatory issues over the last 18 months. Lok Capital’s maiden fund has $18 million out of its corpus of $22 million invested in microfinance companies.
“We’re still on track to return the capital from Fund I. With some luck, a modest return is definitely on the cards,” said Vishal Mehta, co-founder and partner at Lok Capital. The microfinance portfolio includes companies such as Bhartiya Samrudhi Finance, also known as Basix, Spandana Sphoorty Financial and Ujjivan. “We’ve already exited three out of the nine companies,” says Mehta. The social venture capital firm’s Fund I is now fully invested.
New investments will be made from the firm’s recently launched $65 million second fund, dubbed Lok Fund II. The fund formally completed raising capital in December last year and has already made an investment — $3 million in Bangalore RuralShores, a BPO firm that employs rural citizens. A second deal, says Metha, is in the offing. “The overall focus will remain on social inclusion and bottom-of-the-pyramid, though we will now cover new sectors,” added Mehta. Lok Capital was launched in late 2000 with a grant from Rockefeller Foundation. Apart from Mehta, its founders include IDFC managing director and CEO Rajiv Lall and former Actis (South Asia) chief Donald Peck. Since its launch, the firm has attracted other institutional investors such as International Finance Corporation and KFW.
Mehta and his team started raising the second fund nearly two years ago, amidst the growing crisis in the microfinance sector. While the fate of the microfinance portfolio still hangs in the balance, the broader focus may now help ease investor concerns on returns. Investment ticket sizes from the new fund will be larger – between $2 million to $8 million per deal. One key advantage of larger deal sizes is that it will enable Lok Capital to pick up larger stakes in investee companies.
