Successfully reported this slideshow.
In 2009, Lok Capital I LLC invested in RuralShores Business Services Private Limited, a rural
Business Process Outsourcing...
1
LOK INVESTMENT IN
RURALSHORES
FROM MICROFINANCE TO BROADER INCLUSION
With the first fund of US$ 22 mn raised in 2004, Lo...
2
Sujatha and they collaborated to set up a proof of
concept RuralShores center in Puttaparthi. They
then approached C. N....
3
PIONEERING A BUSINESS MODEL WITH INHERENT SOCIAL
IMPACT
RuralShores was among the handful of companies across the world ...
4
SINGLE CENTRE TO PAN INDIA OPERATIONS IN FIVE YEARS
With 3 centres, when Lok first invested, RuralShores has now grown t...
5
blended learning model and by leveraging a world class
partner ecosystem for trainers and training content that is
effic...
6
RuralShores, in the company’s Series B round, from its second fund (Lok Capital II LLC) – staying true
to its commitment...
7
RURALSHORES RAISES FURTHER
FUNDING AND PROVIDES LOK AN
EXIT
In mid 2013, RuralShores started the fundraise process for
i...
Upcoming SlideShare
Loading in …5
×

Lok Capital Investment in RuralShores: Case Study

855 views

Published on

In 2009, Lok Capital I LLC invested in RuralShores Business Services Private Limited, a rural Business Process Outsourcing (BPO) company. This was Lok’s first investment outside of microfinance. The Company has since grown to become the industry leader in the rural BPO space, created substantial impact employing over 2,500 rural youth, and provided Lok a highly profitable exit

  • Be the first to comment

  • Be the first to like this

Lok Capital Investment in RuralShores: Case Study

  1. 1. In 2009, Lok Capital I LLC invested in RuralShores Business Services Private Limited, a rural Business Process Outsourcing (BPO) company. This was Lok’s first investment outside of microfinance. The Company has since grown to become the industry leader in the rural BPO space, created substantial impact employing over 2,500 rural youth, and provided Lok a highly profitable exit LOK INVESTMENT IN RURALSHORES FROM MICROFINANCE TO BROADER INCLUSION
  2. 2. 1 LOK INVESTMENT IN RURALSHORES FROM MICROFINANCE TO BROADER INCLUSION With the first fund of US$ 22 mn raised in 2004, Lok was focused on investing in microfinance companies. The experience of working closely with the low income segment gave deep insights into social development and the need for interventions beyond microcredit. Thus, in 2009, Lok was in the process of ideating a transition from being a microfinance investor to an impact investor serving various sectors. It is then that they came across the RuralShores investment opportunity. RURALSHORES – GENESIS RuralShores was established in May 2008 by Mr. Murali Vullaganti. The idea for creating a rural Business Process Outsourcing (BPO) business was seeded in Murali while he was the Managing Director of Xansa India, a British outsourcing and technology company. Around 2003, Xansa wanted to significantly scale its business from 500 to 5,000 employees and went searching for talent in smaller Indian cities and villages. While such talent was available and many of them joined urban outsourcers such as Xansa, their salaries were not enough to live in larger cities like Bengaluru and hence attrition rates were high. This made Murali think "rather than bringing people to the jobs, why can't we bring jobs to the people?" Murali was quick to realize the potential for creating a chain of rural BPOs that would bring jobs to the villages. He was joined by V. V. Ranganathan, his audit partner at Xansa, who shared similar social agenda. Meanwhile Sujatha Raju, MD, MMC Infotech, was running a BPO centre in Puttaparthi, Andhra Pradesh in an effort to bring employment to the village’s youth. Murali approached OVERVIEW Started in late 2004, Lok Capital is an impact investor with two funds under management – Lok Capital I LLC (US$ 22 mn) and Lok Capital II LLC (US$ 65 mn). Lok invests in social enterprises across sectors such as financial inclusion, healthcare, education, employability solutions, livelihoods, etc. RuralShores was founded in May 2008 with the objective of assimilating rural India into a knowledge economy by providing job opportunities to the rural youth of the country. They are a rural Business process outsourcing (BPO) company with 18 delivery centers across various Indian States employing over 2,500 rural youth. Lok was an early investor in RuralShores and has supported the growth of the company through follow on investments, and provided operational and strategic support. RuralShores is present across 18 centres and employs over 2,500 youth They recently raised capital from a large domestic BPO firm. This round saw a highly profitable exit for Lok I RuralShores Value Proposition
  3. 3. 2 Sujatha and they collaborated to set up a proof of concept RuralShores center in Puttaparthi. They then approached C. N. Ram, then CIO at HDFC, to outsource HDFC projects to RuralShores. The center soon grew to over a hundred seats. This group of individuals, along with G. Srinivasan, former Vice President of Wipro Finance, and Sudhakar Ram, Chairman and MD at Mastek, together formed the promoter group and invested seed money to kick start the operations. The promoter group, led by C. N. Ram, then approached Mr. Deepak Parekh, Chairman, HDFC who provided them with seed funding through HDFC. Mr. Parekh also provides personal support to RuralShores, donning the roles of Chief Mentor and Principal Advisor. In addition, the company also roped in Deepak Satwalekar, Director, Infosys, and Vivek Gour, CMD, Air Works and ex-CFO Genpact, as advisory committee members. LOK IDENTIFIES THE OPPORTUNITY In mid 2009, RuralShores promoters approached Lok for an investment. Incidentally, at the same time, Lok was working on its strategy for diversifying outside the microfinance sector. Lok’s investments until then were only in microfinance companies across India and majority of impact investments in India were also towards microfinance, while the need for institutional investments in other sectors were largely unmet. Lok team realized that RuralShores brought the right elements to become the anchor investment for its portfolio outside of microfinance and expressed their interest to explore the opportunity. The team met with the promoters, visited RuralShores centres, and was unanimously convinced about the business model’s effectiveness in generating rural employment and the promoter’s intent to serve the rural markets and capability to execute successfully. Lok Capital I LLC invested in the RuralShores and made its entry into the broader inclusion space. Lok further invested in the company, in late 2011, from its second fund (Lok Capital II LLC). Venky Natarajan, Managing Partner, Lok, sits on the board of RuralShores. Rajiv Lall, Founder, Lok Capital and Executive Chairman, IDFC “The employees here are often the first to have a professional career in their family. This is particularly true for their women employees who would not normally have been allowed to work locally or move to a big city. Local employment generating businesses like RuralShores are highly impactful” From left to right: G. Srinivasan, Sujatha Rao, Murali Vullaganti, and C. N. Ram at the 2012 Edison Awards
  4. 4. 3 PIONEERING A BUSINESS MODEL WITH INHERENT SOCIAL IMPACT RuralShores was among the handful of companies across the world to first enter the rural BPO space. The sector then went on to become a significant space in the impact investment world, with Rockefeller Foundation, among others, realizing the potential scale of impact and committing to further the growth in the sector. “Impact Sourcing (IS)” became the industry term for the sector, a term coined by Monitor Inclusive Markets and defined as “any BPO activities that provide formal employment or supplementary income to individuals in low income areas (urban and rural) with limited alternative employment opportunities)”1 RuralShores business model has social impact intrinsically woven into it, given the geography of operations and the nature of jobs provided – improving skill sets of the rural youth, providing local employment thus curbing migration, and providing steady income. RuralShores also works closely with the village population through community health and education programs in partnership with other organizations, building strong ties with the local community. In line with the impact envisioned, a recent study undertaken by RuralShores showed that over 75% of the employees would have migrated to cities in search for jobs but for RuralShores’s presence in their villages. Working for RuralShores has also significantly improved the social standing of their employees, especially the women, who constitute over 45% of the workforce. The study also found encouraging data across other key impact metrics that showed their impact in improving the rural economy:  Annual household income of employees increased by 100% after joining RuralShores and the nature of income changed from unpredictable farm income to steady and secure income  Average increase in family savings after joining RuralShores was over 20%  All employees have bank accounts and are covered by medical insurance  ~60% of employees have purchased mobile phone and consumer durables after joining RuralShores The study further showed that the employees spend two thirds of their income in the village thus fueling the village economy. 1 Job Creation Through Building the Field of Impact Sourcing - MIM Anjitha, Associate, Bhiloda, Gujarat “I am working at RuralShores, Bhiloda for the last 2 years. We are seven members in my family, I am the eldest among my brother & sister. Our family income was very less. My father is a labourer. But he always encouraged me to study despite me being a female and girls in our village do not study beyond Standard 8 or 9. In these conditions I completed my M A in Arts. After that, I went to Ahmedabad for a job and stayed there for 1 month. But I found it very difficult to manage and mold myself in the culture of big cities. Then I heard about RuralShores opening a center in Bhiloda that required manpower with typing knowledge on computers. I joined here as a process trainee and now I am a process associate. I learned so much after joining RuralShores. I am supporting my family and encouraging my siblings to study”
  5. 5. 4 SINGLE CENTRE TO PAN INDIA OPERATIONS IN FIVE YEARS With 3 centres, when Lok first invested, RuralShores has now grown to over 18 centres and employed over 2500 rural youth. Rural Shores started as a business providing remote processing of non-critical business transactions such as data entry, simple book keeping, expenses handling, document digitization and archival, etc., that required a lean infrastructure with reliable network connectivity and enthusiastic rural youth who could be trained. Currently they have diversified into higher margin BPO/ KPO services in customer care, payroll management. They also delved into Business Enablement Services by providing field level support in rural area, covering processes like marketing and sourcing, in a drive to become the leader in rural market solutions for corporates. The initial days were also marked with several sub contracted projects, from other large BPOs, as they were yet to establish their reputation. They have now etched a significant place for it in the market and works directly with a host of large clients across sectors such as telecom, banking, insurance, etc. and has also partnered with PSU banks to work on field support for financial inclusion (account opening and documentation). Rural Shores today serves over two dozen clients including HDFC, Infosys, Wipro Technologies, Genpact, Vodafore, Airtel, Uninor, etc. In addition, RuralShores also works with Government on census projects by providing field support in rural areas. They have thus significantly scaled up their revenues to become the largest standalone player2 in the rural BPO space. However the scale up in revenues has come with its own set of challenges. In the initial growth phase bulk of the revenues had come from low end processes with a much lower margin and longer ramp up period. In government business, they also faced delays in receiving payments – putting stress on the working capital. These challenges, though not unique to RuralShores, have stretched the path to profitability. However they have fine- tuned their approach to effectively overcome these challenges. RuralShores is now focused on consolidating its revenues – weeding out non profitable processes, focusing on higher profitability and tenure in newer contracts, and sharper criteria for government contracts. Some challenges have also been opportunities in disguise. In the RuralShores ecosystem, training forms the cornerstone in ensuring delivery consistent value to customers. However during the training (~4 – 6 months), the employees are not billable – creating a revenue vs cost mismatch. RuralShores thus identified the need for a separate training center in the rural areas. They have now set up RuralShores Academy (RSA) to deliver specialized fresher and refresher training programs through a 2 Not a subsidiary or associate of larger BPOs/ corporates 0.0 1.3 3.6 18.6 31.5 FY 09 FY 10 FY 11 FY 12 FY 13 Revenues (Rs. cr)
  6. 6. 5 blended learning model and by leveraging a world class partner ecosystem for trainers and training content that is efficient and scalable. This move has helped create a ready pool of billable employees available to be recruited in RuralShores centres. RSA, though formed to primarily train employees for RuralShores, will train rural youth for other corporate jobs. LOK FORGES A TRUE PARTNERSHIP WITH THE COMPANY Lok has provided continuous support to RuralShores in terms of both strategic and operational guidance. Venky has been involved in most of the senior management hiring and the Lok team has been instrumental in identifying potential candidates for various roles. Lok has also helped RuralShores in identifying new business opportunities by finding relevant synergies in its portfolio companies – RuralShores is currently working with Janalakshmi and Vistaar (Lok investees) across various business processes from data management to customer support. Lok Foundation, the charitable trust at the heart of the Lok Capital Group (funded by grants and investment profits from Lok Capital; a unique model in the impact space), has funded a project at RuralShores to create a workflow platform - “Seedling” - that enabled them to win and service large data entry projects and outsourcing contracts such as membership enrolment for a large social/ political youth organization, telecom customer application form data capture, digitization of academic records for Brazilian universities, etc. The platform has the ability to handle large volumes of data. For the period from April to October of 2012, Seedling had a throughput of more than seven million transactions with revenues amounting to Rs. 16.6 million. The Seedling applications generated jobs for rural youth worth approximately 2,300 person months in FY 13. The team at Lok has also been actively involved with the company on their fundraising processes:  Lok team kick started the Series C fundraising process by mapping out the landscape of potential funders and helping the company focus on relevant investor groups  Facilitated conversations with Development Financial Institutions and other venture funds  Created M&A opportunities: initiating a conversation with another rural BPO on a potential merger opportunity Lok continues to be a sounding board for discussing RuralShores’ strategic initiatives and also works on ground for operational consulting around systems and processes. In 2011, Lok invested further in Murali Vullaganti, CEO, RuralShores “As a rural enterprise we not only have a significant cost arbitrage for servicing outsourced contracts, our centres also form a medium to conduct other rural enablement services making RuralShores a one stop shop for any business enablement service in rural India Lok team has worked closely with the Company since the Series A funding and continues to provide strategic and operational inputs.”
  7. 7. 6 RuralShores, in the company’s Series B round, from its second fund (Lok Capital II LLC) – staying true to its commitment and support for the company. LOK’S JOURNEY AS AN IMPACT INVESTOR Starting its journey of exploring the social enterprise space, outside of microfinance, with RuralShores, Lok raised its second fund of US$ 65 mn in 2010 and invested in sectors such as healthcare and education, and actively exploring opportunities in agriculture, energy, etc. RuralShores investment helped Lok in realizing that employment generation/ income enhancement is probably the most sustainable way of intervening in the low income segment and has the potential to create substantial, tangible economic and social impact. The model is replicable in various sectors such as agriculture, crafts, etc. opening up endless opportunities to create impact. With this focus, Lok Capital is actively investing in companies that are focused on providing education, employment, and market linkages to the rural producers/ employees and protecting them from income shocks due to lack of access to basic services in healthcare, energy, water and santitation, etc. Lok’s current portfolio outside of microfinance includes investments across SME lending, retail lending, healthcare, education, etc. These investments were in companies such as Drishti, that provides affordable eye care in rural Karnataka, and Everest Edusys, a science content provider that works towards providing active learning methodologies in science education in public and private schools. These investments have further strengthened Lok’s presence in the impact space and also established proof of sustainability of commercial establishments in the social space. Lok also believes in the importance of providing operational support to its portfolio companies. In Lok Capital II LLC, the team has worked on targetted operational projects in over 60% of the portfolio companies – helping them in areas such as marketing, new product/ business strategy, cost optimization, etc. Lok has strengthened its engagement with portfolio companies by  getting functional experts in the portfolio management team to help companies in areas such as marketing, process optimization, etc.,  placing experienced professionals as fellows, and  getting an experienced panel of industry experts in Lok’s advisory board – to provide guidance to the investment team and also the portfolio promoters Venky Natarajan, Managing Partner, Lok Capital “RuralShores is an inherently impact driven business given the business model and the promoter intent. The investment in RuralShores has proven Lok’s ability to venture into newer sectors, invest and grow early stage companies, and help raise further funding for the Company and secure its exit prospects, while focusing on the social impact agenda of the company and Lok’s LPs. A successful employment generation model such as RuralShore’s is replicable and sustainable across sectors – opening up opportunities to create rural employment opportunities/ market linkages and mitigating risks associated with migration.”
  8. 8. 7 RURALSHORES RAISES FURTHER FUNDING AND PROVIDES LOK AN EXIT In mid 2013, RuralShores started the fundraise process for its third round of institutional funding. Given the growth story and scale that RuralShores established, the roadshow saw keen interest from investors across venture capital, private equity investors, and corporate houses to partner and catapult them on the next phase of growth. RuralShores consummated the funding from a large domestic IT firm. The investment was further validation to the business model attractiveness and track record of the company as it showed conviction from an investor who is an established player, having operated and invested in the BPO space for decades. RuralShores is now utilizing the funds to further expand its presence across India and create more rural employment opportunities. The funding has also helped them build a strong senior management team with an average work experience of close to 20 years in the sector. As part of this latest investment round, a new investor has bought Lok Capital I LLC shares providing a complete exit for the fund. Through this sale, Lok recorded a highly profitable exit from RuralShores, generating 4.6x cash-on-cash returns in dollar terms and 6x in rupee terms, across a four year investment period. The magnitude of these returns is of significance when one looks at the M&A market in the IT and BPO space. Since 2008, there have been nine exits in this sector involving blue chip PE firms like Carlyle, Blackstone, General Atlantic, etc. The highest rupee return among these exits was at 3.2x and the average stood at ~2x cash-on-cash (VentureIntelligence - IT & BPO exits, Mar 2008 – Mar 2014) Lok had earlier realized exits from its other portfolio companies like Spandana, Janalakshmi, Satin, etc. which were highly profitable as well. However the exit in RuralShores has been testimonial to Lok’s ability to explore newer sectors and identify investment opportunities early on and growing them to create substantial social and commercial returns. With its first investment outside of microfinance registering colossal success in delivering social and commercial returns for its LPs, Lok continues its journey of funding and growing sustainable and impactful businesses. In this effort, Lok acknowledges employment generation and income enhancement as a high priority sector, given the direct impact and huge market potential, for creating tangible long term impact on the economy by funding and building large successful businesses. For more information, please visit www.lokcapital.com or write to Arun Asok at aasok@lokcapital.com KEY SUCCESS FACTORS The investment in RuralShores was successful in terms of financial returns and social impact generated. The key success factors in this investment were:  Investing in a business that has impact as an inherent part of the business model  Working with a strong founding team – both in expertise and intent – especially in newer sectors  Identifying early stage investments in newer sector with huge market potential and supporting its growth – making fast but diligent investment decisions and calculated risks

×