: K50 Ventures’ focus on mainstream consumers is generating strong returns, founder says


The founder of K50 Ventures says the venture-capital firm plans to stick to its focus on technology that serves mainstream consumers — not just 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 [U.S] middle class is shrinking, it’s still the majority of the nation.”

Globally, the middle class continues to grow and 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 healthcare, financial services and the future of work.

Now in its seventh year, K50 is often the first institutional money put to work in a business. Along with Bloomer, the team at the New York-based firm includes Stefanie Ng, Nick Talwar, Adriel Bercow and Daniel Vasquez.

“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 debut fund, which launched in 2016, has a net internal rate of return of more than 40% and an investment multiple of 4.8 times on paper.

That’s well ahead of the threshold of 3.1 times for top 25% performance among all venture funds, according to industry data. 

“The fund has also returned 97% of LP [investor] capital back to LPs, so not all of these returns are just on paper, which is also rare,” Bloomer said.

Eight companies out of the 33 in K50’s debut fund now generate more than $25 million in annualized revenue, and five of those eight are now generating more than $48 million in 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 company Self Financial Inc., which was founded in 2012. Self has since raised about $127 million in capital and serves more than 2 million customers.

K50 was one of Self’s first investors, getting behind the company’s business model of helping the roughly 120 million Americans with credit scores below 650 to boost their creditworthiness.

Instead of offering these consumers another credit card, Self Financial helps them build credit and improve their financial responsibility.

Customers sign up for Self and then loan themselves money. As they pay back the loan, they build up savings they can access through a self-funded credit card.

K50 exited 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 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. In 2018, Walmart Inc.
WMT,
-8.16%
paid $16 billion 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 services 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 October 2021 with Iconiq Growth and several other investors.

Looking ahead, K50 continues to seek company founders who are building value-based healthcare services, vertical and horizontal software solutions for small and midsize businesses and embedded financial solutions aimed at driving access, affordability and improvement to the bottom line.

The firm is now investing from its third fund.

“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



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