Rebel Foods-backer Lightbox returns a third of its second fund to investors

Rebel Foods, which operates Faasos, Oven Story and Behrouz Biryani, raised $210 million last December through the sale of secondary shares and primary capital to investors led by Temasek Holdings, Singapore’s state investment company. Lightbox has invested over $26 million in Rebel Foods over multiple rounds.

“We've returned 30% of the capital so far and it'll likely take another three to four years to realise the balanced returns we aim for," Sandeep Murthy, founder and managing director of Lightbox India, told Mint. “Today, the companies are straightforward—Rebel, Furlenco, Droom and Bombay Shirt Company—all with well-understood business models."

 

According to Murthy, Lightbox’s second fund is expected to deliver a total return of 5x within three to four years. However, the DPI (distributions to paid-in capital ratio) will differ as returns are calculated after deductions such as management fees. 

DPI reflects the cumulative distributions made by a private equity fund to its limited partners, relative to their invested capital.

The total returns from the second fund include the contribution from Lightbox’s exit from Embibe. Lightbox achieved a threefold return with a 35% internal rate of return (IRR) when Reliance Industries Ltd acquired its stake in Embibe in 2017.

Measuring returns

IRR, a financial metric used to estimate the return on an investment, along with DPI can help to measure a fund’s performance over time and relative to other funds. Shapath Parikh, co-founder of White Whale Ventures, which is raising a secondary fund, told Mint that DPI is becoming the benchmark for a fund's performance.

“As the ecosystem matures, DPI supersedes IRR and MOIC (multiple on invested capital) as the ultimate measure of a fund’s performance as it represents realised returns versus assumed or paper returns," he said, adding that investors are increasingly focused on the return of capital through exits before committing to future funding.

Over the past year, limited partners in venture capital firms have become more cautious in investing further, following the erosion of capital due to the collapse of highly valued startups with losses and governance issues.

 

Lightbox, which started in India in 2014 by acquiring six companies from the India portfolios of Kleiner Perkins and Sherpalo Ventures, has raised $450 million across three funds over the past decade. Lightbox sold its first fund back with an eightfold return, Murthy said.

Currently, Lightbox is deploying its third fund, with investments in Nua, Zeno Health, CityFlo, Amaha, Waycool, and Truecaller, and plans to make one more investment this year.

Lightbox is also exploring a continuation fund of at least $100 million to support its maturing portfolio companies. Murthy said the firm is raising commitments for the new fund, with no concrete timeline. The fund will continue to back early-stage consumer businesses in retail, healthcare, financial services, staples, energy and utilities, entertainment and travel.

All eyes on profit

Murthy told Mint in 2023 that 10 of Lightbox’s 14 portfolio companies in India are expected to achieve profitability soon. Today, furniture rental startup Furlenco, digital lending fintech platform Rupeek, and direct-to-consumer female wellness brand Nua have reached profitability, he said.

Nua reduced cash burn by over 50% by optimising costs such as logistics and ad spend, the company said. Murthy expects Rebel Foods, Droom, and Waycool to follow within six months.

However, all has not been gold for Lightbox. Portfolio company Dunzo is swamped with liabilities of as much as $70 million and still has 30-40 full-time employees. Co-founder and CEO Kabeer Biswas left Dunzo earlier this month after trying for about a year to find a resolution for the company through a sale or by raising fresh funds.

Murthy recently told Mint that Lightbox would love to find an outcome that helps Dunzo settle "whatever dues it has, helps the company manage its employees that are there in some way, and allows everybody to move forward."

White Whale’s Parikh noted that achieving an initial public offering, the holy grail for startups providing investor exits, requires companies to demonstrate profitability or, at minimum, a clear path to it.

"While fundamentals are improving, many portfolio companies are still not at that stage, leading to delayed exits for investors in late-stage companies," he explained.

Murthy previously scaled Cleartrip, a global online travel agency, as its CEO. In 2008, during the global financial crisis, he and his team turned the company around, going from burning $12 million annually to making a $2 million profit in just a year.

“We were so happy. Freedom," he recalls.

However, following this success, US-based travel and expense management firm Concur invested $26 million, which, as a profitable company, Cleartrip did not need.

"It ended up putting $26 million in the business, and once you get that kind of money, you must do something with it. That was the death of the business, quite honestly," Murthy said.

This also drives Murthy's focus on making his portfolio companies, and in turn, Lightbox’s investments, profitable.

“The past two years have provided a much-needed reset, and what I’ve been really happy about is that we haven’t gone back into an upswing because there have been no distractions," said Murthy.

He attributed this shift to the reduced availability of capital, which has forced entrepreneurs to course-correct without external pressures.

“It’s a unique time where no one is knocking on the door," he noted.

However, Murthy said the cycle may soon reverse. As businesses achieve profitability, they are attracting significant investor interest, with some willing to inject large amounts of capital into select companies.

“Now that these businesses are profitable, everyone is suddenly interested in them. Investors not only want to fund them but are offering substantial amounts of money," he added.