New Delhi: Impact investor Lok Capital, currently raising its third fund of $80-100 million, is looking to make at least six investments in the year ending 31 March 2017 from the new fund.
“We have already made three investments from the first close that we recently marked. We are hoping to have 5-6 active portfolio companies from this fund by the end of this fiscal,” Vishal Mehta, co-founder and partner at Lok Capital, said in an interview.
The fund’s first investment was in Delhi-based affordable housing finance company Ummeed Housing Finance Pvt. Ltd. In October, Ummeed raised $3.5 million from Lok Capital and Duane Park. Lok Capital has also invested an undisclosed amount in its portfolio company Utkarsh Microfinance Pvt. Ltd in a follow-on round.
Mehta did not disclose details of the third investment made from the new fund.
Impact investment deals with funding for businesses, organizations and institutions that want to make a positive social or environmental change, while also assuring financial returns for investors.
The fund—Lok Capital III—raised $40.5 million (about Rs270 crore) in a first close in June. The close saw participation from investors such as British development finance institution CDC Group Plc, Dutch development bank FMO, French investor Proparco SA and TIAA Global Asset Management.
Founded in 2004 by Rajiv B. Lall, Vishal Mehta and Donald Peck, the firm focuses on sectors such as financial services, financial inclusion, healthcare and agriculture.
Talking about their experience of working with Lok Capital, a CDC spokesperson said, “I think there is a general divide between impact and commercial... and that has been going away steadily. People are seeing how impactful investing can be very commercial as well and I think that is one of the reasons why we are backing Lok from fund 1 to now fund 3. They have successfully demonstrated that you can do impact investing with very good commercial returns.
“They (Lok) are very consultative with their investors. From that perspective, we really like their approach of collaborative working with not just the promoters but with most of the LPs (limited partners), among the team themselves and working with the impact ecosystem as well,” she added.
The third fund will focus on growth-stage investments in financial services, healthcare and agriculture—with 70-75% of it going into financial services.
The firm has fully returned the $22 million it committed to from its first fund, with an internal rate of return of 15% in dollar terms. The second fund is currently tracking gross returns of 28% in dollar terms, while 75% of it has already been returned to investors.
When asked to explain the stellar returns, Lall said: “...balance in life is extremely important. So people who have invested in the impact space, they have that sense. It is not like maximizing your returns in every investment you make. It is about making enough and building something alongside.”
For the final close of its third fund, Lok Capital is looking to raise 15-20% of the total corpus from domestic investors, the first time the impact investor will tap domestic capital.
“We already have commitments. This is a positive shift for the sector that eventually we are now relying less on foreign (capital),”said Mehta.
Impact investment has been gaining traction in India. According to global consulting firm McKinsey & Co., the Indian impact investment space has seen $4.1 billion worth of cumulative investment in the past six years.