The founder of K50 Ventures says the firm plans to stick to its focus on technology that serves mainstream people — not the wealthy — after its success with portfolio companies such as Self Financial and India’s Groww.
“We look at small businesses and and middle class consumers as the heartbeat of the economy,” Ryan Bloomer, founder and managing partner of K50, told MarketWatch. “Although the middle class is shrinking, it’s still the majority of the nation.”
Globally, the middle-class continues to grow as it now represents 73% of the world’s spending. More than 90% of businesses are small and they produce nearly half of the world’s gross domestic product.
K50 describes itself as a purpose-driven venture capital firm. Its objective is to drive access, affordability and an improved bottom line for mainstream consumers with technology across health care, financial services and the future of work.
Founded in 2016 and with three funds now under its belt, K50 is often the first institutional money put to work in a business. Along with Bloomer, the leadership team at the New York-based firm incudes Nick Talwar, Daniel Vasquez and Adriel Bercow.
“Since 2016, we’ve invested in over 150 companies that have generated top-decile [top 10%] venture returns for our investors and material impact for millions of people,” Bloomer said.
K50 invests “super early” in its portfolio companies with valuations of about $10 million, with average investments of $500,000 to $1.5 million per business, Bloomer said.
K50’s $14.5 million first fund, which launched in 2016, has returned about 4.8 times net total value paid in. That’s well ahead of the threshold of 3.1 times net total value paid in for a top quartile, or top 25%, performance among funds in its class, according to industry data.
In its debut fund, K50 returned 97% of the capital from its limited partner investors within five years for a net internal rate of return (IRR) of more than 40%.
Eight companies out of the 33 in K50’s debut fund now generate more than $25 million of annualized revenue and five of those eight are now generating more than $48 million of annualized revenue. When K50 first invested in them, seven of those eight had less than $1 million in annualized revenue and most were doing zero, he said.
A poster child for K50’s approach is Austin, Texas-based financial technology, or fintech, company, Self Financial Inc., which was founded in 2012. Self has since raised about $127 million in capital and it serves more than two million customers.
K50 was one of Self’s first investors behind the company’s business model of helping the roughly 120 million Americans with credit scores below 650 boost their credit worthiness.
Instead of offering these consumers another credit card, Self Financial helps them build credit and improve their fiscal responsibility.
Customers sign up for Self and then loan themselves money. As they pay back the loan, they build up savings to use through a self-funded credit card.
K50 exited its 90% of its investment in Self in September, 2021, when the company raised a $50 million Series E investment round led by Altos Venture, with participation from Conductive Ventures and Meritech Capital. Self Financial generated a return of about 40 times K50’s initial investment. K50 still holds 10% of its original investment in Self.
K50’s 2016 investment in India-based financial services provider Groww is the firm’s top performer, Bloomer said. The founders of Groww had worked at Flipkart. Walmart Inc.
WMT,
paid $16 billion in 2018 for a 77% stake in Flipkart.
“The whole point of [Groww] was to give access to millennials and Gen Zers…to stocks and mutual funds at first and then start providing things like loans, insurance, and other financial service to become a financial super app that doesn’t really exist in the U.S.,” Bloomer said.
Groww raised a Series E round of funding of $251 million at a valuation of $3 billion in Oct., 2021, with Iconiq Growth and several other investors.
Looking ahead, K50 continues to seek company founders who are building financial solutions to meet customers where they transact. The firm is investing from its third fund, which has a $35 million capital-raising target.
K50 remains keen to create data that doesn’t yet exist to better underwrite middle-class people through products that work for them, without steep customer acquisition costs.
“Every fund we’ve done has been shining a bigger brighter spotlight on the problems that small businesses, middle class firms and middle-class consumers are facing,” Bloomer said. “The world is waking up to the
fact that these are great customers to be able to serve and build products for.”
Also read: Private equity: Everything you always wanted to know about this $12 trillion asset class but were afraid to ask
Read the full article here
