Chinese investors Hillhouse Capital and Morningside Ventures are planning to sell their entire stake in fintech platform Cred along with angel investors who include India’s most well known entrepreneurs, with existing and new investors planning to give them an exit, sources told Moneycontrol.
Hillhouse owns less than 10% of the Kunal Shah-led company, while Morningside owns less than 5%. Both investors are selling their stakes at a valuation of a billion dollars- at a time when Chinese investments are banned in India- while Cred is raising primary capital at a valuation of $2 billion, said these people, who did not want to be named. Primary capital refers to fresh money for a company, while a secondary round is when one investor buys another investor’s shares.
Both Chinese investors are expected to make 1.5-3x on their investment, although Moneycontrol could not ascertain the exact expected return multiple.
The credit card repayments platform gives users points for paying their bills via Cred, which can be used for offers and discounts on various products. Cred only caters to the most credit-worthy customers in India- whose credit score is above 750, and has so far seen itself more as a lifestyle brand than a financial services platform.
Cred’s early investors also include angel investors such as Jupiter neobank founder Jitendra Gupta, Pine Labs CEO Amrish Rau, Cure.fit CEO Mukesh Bansal, Truecaller founder Alan Mamedi, and Freecharge co-founder Sandeep Tandon among others. These investors also plan to sell their holdings entirely, likely to new investor Falcon Edge Capital, and some existing investors. Moneycontrol first wrote on October 9 last year that Falcon Edge is in talks to back Cred.
“Kunal (Shah) didn’t want to dilute his shareholding further. So he told some of the angels to take an exit and they were happy to help. The angels are anyway getting a 15x return on their investment. With the China investment ban, Hillhouse and Morningside exiting also makes sense. At a billion (dollar valuation) they still make some money,” said a person aware of the transaction, requesting anonymity.
Techcrunch reported on March 15 that Cred is in talks to raise $200 million valuing it at $2 billion. However, a large part of the round is expected to be secondary share sale at a $1 billion valuation, and about $60 million at a $2 billion valuation.
Cred declined to comment while the angel investors, Hillhouse Capital and Morningside Ventures did not respond to emails seeking comment.
Cred was valued at $800 million in January when it raised $80 million led by DST Global. Its other investors include Sequoia Capital, Tiger Global Management, Ribbit Capital and General Catalyst.
Cred, the second venture of Freecharge co-founder Shah, has attracted scrutiny for raising money at successively higher valuations in a short span of time without a business model. However, this may be changing. Cred has started giving personal loans with a tenor of upto 48 months, and is partnering with IDFC First Bank, according to a report from The Morning Context. It has disbursed about Rs 1000 crore in the last 5-6 months at a rate of 12-15%- the industry standard.
However, its investors still continue to believe that monetisation at scale by partnering with banks and NBFCs is possible, and that building scale first, and having the kind of data it has- on creditworthy consumers- is important.Cred is the latest instance of Chinese investors offloading their stakes in Indian startups, led by an investment ban and a broader anti-China sentiment in India. Recently, Koo- a local alternative to Twitter saw Shunwei Capital sell its entire 9% stake to existing investors Accel, Blume Ventures and others. Shunwei and mobile phone-maker Xiaomi also exited their investment in lending platform Krazybee.