Mark Schwartz, Chairman of Goldman Sachs Asia Pacific who joined the board of One97 Communications just two years ago became the match-maker in the Paytm-Berkshire Hathaway deal which marks the entry of the US-based investor in India. While the company did not disclose the size of the deal, it is expected to be in the range of $300-350 million. In a telephonic interaction with Moneycontrol, Founder and Chief Executive Officer Vijay Shekhar Sharma shares what this deal means for the company and the plans going forward.
Edited excerpts:Q: How did you manage to rope in an investor who hasn't really been looking at Indian firms in terms of investments. How did the ice-breaking happen?
A: One of my board members, Mark Schwartz introduced me to Todd Combs of Berkshire in mid February. He said he was talking to Todd and that he could be interested in talking to me so if I had time I should meet him. Then I scheduled this and went to Omaha with Ravi Adusumalli. We had a two hour long meeting and we had conversation about all kind of things -- payments, competition and scale, business, so on and so forth. The discussion went really good and the small meeting became really lengthy. Then we went to the next level where he asked us about the company data and and then two more calls and we were done.
Q: So it took almost like six months and the papers were done?
A: Yes. In the first three months all those things were done -- the documentation etc. and the rest of the time was for legal, diligence and all. The core decision making was very fast.
Q: Did Berkshire make the first move? And in that case, they must be interested in more deals in India. What do you have to say to that?
A: I don't think in a way we could say that the interest came from them. Mark had a relation. I don't think they were looking at Indian companies. It was more like a common person telling that you should meet them.
Q: What does this deal mean for Paytm? Last year you raised a huge round from Japan's SoftBank. Earlier, you had China's Alibaba on board and now a US-based investor has joined the cap table.
A: Berkshire is a very experienced financial services player. It is an opportunity for Paytm to leverage the network of Berkshire which includes large banks and financial services companies. Now, the best part is that (earlier) everybody would say that Paytm is from this side of the world, that side of the world. Now it is very clear that we have shareholders who are diverse and from different countries and each of them is equally capable than the other.
Q: Are you referring to the Chinese company remarks that Paytm used to get till about an year ago?
A: Yeah, so it got sorted once SoftBank came on board.
Q: Berkshire is not currently present in mobile payments as a sector. What sort of synergy can be expected between Paytm and Berkshire?
A: They are financial services experts so they will have a view in the (segment). They have large ownership in many banks in the US. So they do have some understanding of how this service works. And they are not a small investor. It is incredible to have them as a shareholder. They also have resources and whereabouts. They have a healthcare joint venture with Amazon and JP Morgan. So things can happen.
Q: One97 has a payments business. It has also ventured into e-commerce with Paytm Mall. And then it has also started things like online ticketing, travel etc. Who is your immediate competitor in the market?
A: Consumers can use us for anything that they connect with. So I do not think vertical players would be a competition for us.
Q: What is Paytm's current monthly gross transaction volume? What is the target for the next financial year?
A: We are running on an annualised run rate of more than $45 billion. By the next financial year which is March 2020, we should be $100 billion in annualised run rate.
Q: Where would you utilise the money raised?
A: It will be spent to expand payments and financial services business.
Q: What are the challenges Paytm faces as it goes ahead to rope in the new set of customers on board? What would be the strategy?
A: Localisation of language, expanding to Tier 2-3 cities and then creating many more use cases on the Paytm app. For example, we are looking at payments in apartments complexes, working with government payments etc.
Q: What about Paytm's international expansion plans?
A: Our primary play will remain India. International is secondary on the map.
Q: Was this investment part of a larger round? Or was it more like topping up your cap table with a marque investor on board?
A: It was more like standalone, like minded investor (coming on board). We don't have a fund raising plan.
Q: Do you plan to reduce your cash burn and target profitability anytime soon?
A: We believe that there is a market opportunity of user and merchant base. We will continue to be in the investment mode. We have been aggressive in acquiring consumers and merchants and I don't think there a reason to slowdown as of now because the market is wide open and ready to be acquired.
Q: So the target to have 500 million customers on board continues?
A: Yes. 500 million users and by the end of next year we should have around 18 million merchants.
Q: The company's valuation was $7 billion when the SoftBank round happened last year. It is expected to have shot to around $12 billion during this round. Can you comment?A: We are not giving the numbers but it is handsomely higher than the previous valuation.