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Walmart-backed PhonePe taps General Atlantic for funding at a valuation of $12 billion

If PhonePe’s massive round goes through, it will make the startup India’s most valued fintech, amid a rout in startup funding

October 21, 2022 / 07:37 AM IST
Representative image

Representative image

Payments and financial services unicorn PhonePe is in talks to raise a new round of funding led by General Atlantic at a valuation of over $12 billion, in what would make the Walmart-backed startup the most-valued fintech in India, people aware of the matter told Moneycontrol.

“General Atlantic is likely to lead the round with an investment of  $450-$500 million,” one of the persons cited above said.

A second source said this is not a pre-IPO round because the company’s public listing plans are at least 2-3 years away. PhonePe will use the funds raised to double down on its ambitions to become a financial services super app - offering everything from payments to insurance to investments to commerce.

If the round goes through, PhonePe will become a decacorn or a startup valued at over $10 billion, joining the likes of Flipkart, which was acquired by Walmart, Paytm (which went public last year), Byju’s and Swiggy. PhonePe’s valuation will also surpass that of digital payments and neobanking unicorn Razorpay, which was last valued at about $7.5 billion.

It will also be a rare instance of a late-stage round amid a startup funding winter where investors are signing smaller cheques as they turn cautious in a deteriorating macro environment. PhonePe was valued at $5.5 billion when it was hived off into a separate entity by Flipkart. Flipkart had pumped in $700 million then.

PhonePe’s fundraising talks come at a time when its closest competitor, Paytm, has seen its valuation drop over 60 percent since it got listed in November last year, with public shareholders raising questions over the company’s ability to achieve company-level profitability. As of October 20, Paytm’s total market capitalisation was a little under $5 billion.

But, Paytm’s revenue is much higher than PhonePe. As of FY22, Paytm had a revenue of Rs 3,892.40 crore, while PhonePe had a revenue of Rs 1,646 crore.

While PhonePe had reported a loss (excluding ESOP cost) of Rs 671 crore for FY22, its net loss for the year is expected to be much higher as in FY21, its net loss including ESOP costs was Rs 1,728 crore, while excluding it was Rs 789 crore. Paytm, meanwhile, had reported a net loss of Rs 2,325 crore for FY22, which widened from Rs 1,560 crore in FY21.

PhonePe and General Atlantic did not respond to queries sent by Moneycontrol.

Discussions of a new funding round came even as PhonePe moved its registered entity from Singapore to India ahead of its plans to launch an IPO here. But a source said moving the domicile to India was also because PhonePe’s many businesses come under the purview of the regulators here.

In an interview for CNN News18’s Bits to Billions in June, PhonePe co-founder and CEO Sameer Nigam had revealed that the company is in the process of moving its registered entity from Singapore to India. He had said that the board had already signed off on the plan and the completion of the process was only a matter of time.

"We are a made in India company. Every office, data centre, and employee of ours is here. There is no reason why we should not contribute to wealth creation in this market," Nigam had said.

The fundraise deliberations also come at a particularly challenging time for fintech companies in the country as the Reserve Bank of India (RBI) has come down heavily on the sector affecting businesses across the board.

Moreover, valuations of financial services and technology companies, globally, have dropped significantly this year amid a broader correction in the global financial markets due to macroeconomic uncertainties. Earlier this month, Prosus-owned PayU had walked away from its $4.7 billion BillDesk deal, in what was one of the biggest indicators of stress over fintech valuations in the country.

PhonePe was founded in 2015 by former Flipkart executives Sameer Nigam, Rahul Chari and Burzin Engineer, PhonePe. The fintech has over 400 million registered users with a leadership in Unified Payments Interface (UPI) transactions. The company has a market share of 47 percent in monthly UPI volumes.

The company expanded into financial services in 2017 and allows customers to purchase gold, insurance and mutual funds on its platform, besides making bill and utility payments.

Moneycontrol reported on September 5 that PhonePe has begun work to launch its own payment gateway as an extension to its current Quick Response (QR) Code-based UPI payment service and in-app payments.

The company will be competing with the likes of Paytm, Pine Labs and Razorpay as it may look at targeting large offline players as well as small and medium businesses to offer its payment gateway to.

In the past year, PhonePe acquired GigIndia, WealthDesk, OpenQ and closed the long pending acquisition of IndusOS.
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Chandra R Srikanth is Editor- Tech, Startups, and New Economy
Nikhil Patwardhan