Bharat-focused enterprise capital agency, India Quotient, has been an lively investor in fintech start-ups, significantly within the lending area. A few of its portfolio firms embrace LendingKart, LoanTap, Pagarbook, Sharechat, and Sugar. LendingKart is a direct competitor to the SME (small and medium enterprises) lending vertical of fintech unicorns ($1 billion valuation), Paytm and MobiKwik. Each the billion-dollar valued firms have filed papers for public listings this yr. BusinessLine spoke to India Quotient’s Common Associate, Gagan Goyal, on how these two IPOs may affect SME lending start-ups in India and India Quotient’s fourth fund.
How do you suppose IPOs of Paytm and MobiKwik will affect the SME lending enterprise?
In lending, the largest uncooked materials is the cash that you just mortgage to the end-user, and your skill to boost this capital for lending. From that perspective, the businesses that are worthwhile are in a greater place to supply cash at a really low price. Usually, lending tech firms borrow from NBFCs or banks at a excessive price of capital. However, as soon as the corporate turns into worthwhile and opts for a public itemizing, it’s attainable for it to safe low-cost capital. Now, I can not touch upon whether or not Paytm and MobiKwik will have the ability to try this. However the likelihood is vivid for firms like LendingKart to stay aggressive.
Provided that each MobiKwik and Paytm have a longtime community of SMEs, have they got a bonus over different current SME lending firms by way of low acquisition prices?
There are undoubtedly benefits by way of buyer acquisition price, however the sport of lending shouldn’t be about having the ability to purchase a buyer. The essential a part of the lending enterprise is to underwrite clients and decide if the corporate may give them a mortgage, as it is a book-building enterprise. People who find themselves creditworthy have many choices to get loans from a number of sources, they will go to the financial institution and ten different locations. However in SME lending, firms need to discover a buyer who’s creditworthy, and on the similar time doesn’t have a excessive CIBIL rating. Somebody whom they will underwrite and nonetheless anticipate to generate profits from by giving him a mortgage and recovering that. Paytm and MobiKwik have a bonus as a result of they’ve a big base, however there are ten extra issues in lending that are extra essential.
Does that imply you will need to have low NPAs (non-performing belongings) in SME lending?
You possibly can run a excessive NPA enterprise in lending too; banks usually have a 2 per cent NPA. I believe it’s about discovering the precise spot, between the borrowing price of capital and lending rate of interest in order that one is ready to get better the money, cowl operation prices and in addition make income.
What’s the replace on India Quotient’s fourth fund?
Initially, in January, we aimed to boost $80 million for our fourth fund and we obtained a fantastic response from home HNI capital. We have been in a position to announce our first shut at $64 million final month. Relying on the response we get from institutional buyers, we would enhance our goal corpus from $80 million to $100 million. Until now, now we have dedicated 4 offers from our fourth fund. We do not normally spend money on US copycat companies as a result of they’re largely capital-driven. We search for concepts which might be within the early stage and are backed by the distinctive market insights of the founder or their product-building skill as a result of that is a vital issue for constructing a profitable enterprise. The common ticket dimension of India Quotient’s investments is $250K to $1 million.
The Indian start-up ecosystem is taking a look at about 5 IPOs this yr. Do you suppose these firms will have the ability to preserve their valuations within the public market?
I can not precisely predict whether or not these firms will have the ability to preserve the valuations, however everyone knows that their present valuations are very excessive. There is not any doubt about it. Folks are likely to see future worth and so they’re okay to pay a premium, however the true judgement will come when these firms get listed. I’m curious to see how that shapes up, however it’s true that these firms are extremely valued they usually need to go the take a look at.