Naspers drops plans to invest in Indian fintech startup Capital Float

A logo sits on display inside the headquarters of Napsters Ltd., at the Media24 Ltd. office complex in Cape Town, South Africa. Photographer: Halden Krog/Bloomberg

Naspers Ltd and Capital Float have abandoned talks for the South African internet giant to invest up to $200 million in the Indian fintech startup, said three people aware of the matter.

An investment by the Cape Town-based company would have made it Naspers’s biggest so far in an Indian fintech startup, said the people cited above, all of whom spoke on condition of anonymity.

Sashank Rishyasringa, co-founder of Capital Float, confirmed the development. In an emailed response, he said: “As the largest digital lending company in India, we do engage in conversations with interested investors with similar strategic ambitions and perspectives. Naspers/PayU and Capital Float were involved in such a discussion for a period of time. However, the parties have mutually decided that the best route to collaborate would be through business initiatives in the future rather than via a strategic investment.”

A spokesperson for Naspers declined to comment.

Capital Float’s existing investors had “some concerns,” said the first of the three people cited earlier.

“(Some existing) investors may not really want to exit a company like Capital Float, which holds an NBFC (non-banking finance company) licence, since they feel it’s a long-term bet; so they were not willing to exit now,” said the second person, a former top employee of Capital Float.

“We cannot comment on behalf of our investors, and would refrain from commenting on any speculative questions at this time,” said Rishyasringa.

Founded in 2013 by Gaurav Hinduja and Rishyasringa, Capital Float, formerly Zen Lefin Pvt. Ltd, is an NBFC registered with the Reserve Bank of India. It is one of the most well-funded fintech lenders in India, backed by Amazon and Sequoia Capital. The company has raised $107 million in equity since inception, and $90 million in debt in the last six months.

“Even after this, our leverage ratio stands at only 2:1. Hence, we are currently not looking to approach the market for equity,” said Rishyasringa.

“As we continue to scale, we are open to strategic tie-ups with like-minded partners, who believe in the huge untapped lending opportunity in the country’s underserved segments,” he added.

Naspers, on the other hand, has been taking big bets in India and its portfolio includes learning app Byju’s, food delivery unicorn Swiggy and online consumer lending platform PaySense Services India Pvt. Ltd.

India’s fintech companies have generated strong interest from foreign investors, particularly Japan’s SoftBank.

This year so far, the segment has seen 66 rounds of investments worth $746 million, according to data sourced from business intelligence platform Tracxn. In 2018, there were 204 such deals worth $1.5 billion, compared with 203 such deals worth $2.1 billion in 2017. In 2016, there were 189 such deals worth $644.8 million.

Increasing smartphone adoption is facilitating explosive growth in India’s e-commerce and fintech space.

Industry experts say fintech is the next big opportunity in India after e-commerce, as India has 190 million adults without a bank account. According to the World Bank, India has the world’s second-largest unbanked population after China.

“There is a huge potential for companies to help India get out of the cash economy,” said Harish H.V., managing partner at ECube, an environmental, social and governance fund. “With Aadhaar, which can authenticate each individual, online transactions will increasingly become easier. Insurance companies are getting online completely. Fintech firms have the potential to make banks lose relevance.”

To be sure, several fintech companies in India have raised large cheques and have been identified as segment leaders. Paytm has raised nearly $2.8 billion from investors including Berkshire Hathway and SoftBank, while online insurance aggregator Policybazaar has raised $317.6 million from SoftBank, Tiger Global and others.

According to Harish, with fintech, lending businesses are expected to scale up in a big way, besides payments, payments gateways and authentication services providers.

“Unicorns (startups with valuation above $1 billion) will emerge in the lending space,” he said.

This article was first published on livemint.com.