Global fintech major PayU is in advanced discussions to invest $100-$150 million in Bengaluru-based CapFloat Financial Services, which owns and operates digital lending platform Capital Float, as the Naspers-owned company looks to expand its reach in India’s small and medium business lending segment.
PayU, according to four people aware of the negotiations, is seeking to acquire a 25%-30% stake in Capital Float, a transaction that could value the Indian company at about $500 million. If successful, this deal will mark the largest investment by the Netherlands-based financial services major in an Indian startup. In 2016, PayU paid $130 million to acquire home-grown fintech startup CitrusPay.
“PayU has a huge focus on emerging markets, and India is possibly the biggest geography for them. The company will be committing substantial capital for investments and acquisitions, particularly to build its credit and SMB lending businesses,” said one person cited above.
Sources also indicated that the investment by PayU, the fintech and e-payment arm of Naspers, may later lead to it picking up a majority stake in Capital Float. But this could not be independently verified by ET. It is also unclear if the investment by PayU will be part of a larger round of investment for the Indian company.
Founded in 2013 by Sashank Rishyasringa and Gaurav Hinduja, both alums of Stanford University Graduate School of Business, Capital Float has emerged as one the country’s top digital lending platforms, backed by a number of marquee venture capital and strategic investors. The company, which offers business loans ranging from Rs 1 lakh to Rs 1 crore, with terms between 1-12 months, is keen to grow big in the consumer lending segment.
Meanwhile PayU, which has received a licence from the Reserve Bank of India to operate its own non-banking financial company in the country, the investment will be its most ambitious step in entering the SMB lending space. The financial services major has so far, largely focused on the consumer lending segment over the past two years.
PayU and Capital Float did not reply to email queries from ET on the developments.
In April last year, e-commerce giant Amazon had invested Rs 144 crore in Capital Float, a transaction that was an extension of the startup’s Series C round. The Bengaluru-based company also counts Sequoia India, SAIF Partners, Aspada Investments, Creation Investments Capital Management, and Ribbit Capital, among its list of institutional backers.
Naspers’ interest in Capital Float was first reported by Mint in December last year.
For the financial year 2017-18, CapFloat Financial Services recorded revenue of Rs 135 crore, up 154% compared to the previous fiscal, while losses widened 46% to Rs 92 crore for fiscal 2018. According to a note released by ICRA, its on-book portfolio stood at Rs 851.8 crore, while assets under management was at Rs 1,242.2 crore as of June 30, 2018.
India’s 50 million-plus micro, small and medium enterprises, according to industry reports and government data, contribute almost 38% to the country’s gross domestic product, and 37% of its manufacturing output. However, the sector continues to face significant challenges in accessing institutional financing and credit instruments.
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