Chinese investors, angels plan exit from Cred in secondary share sale

Chinese investors Hillhouse Capital and Morningside Ventures are looking to sell their complete stake in fintech platform Cred along with angel investors who include India’s most prominent 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 requested not 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 the exact expected return multiple could not be ascertained.

The credit card repayments platform grants users points for paying their bills through Cred, which can be utilized for offers and discounts on various products. Cred only serves the most credit-worthy customers in India- whose credit score is over 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 Truecaller founder Alan Mamedi, Pine Labs CEO Amrish Rau, Cure.fit CEO Mukesh Bansal, Jupiter neobank founder Jitendra Gupta, and Freecharge co-founder Sandeep Tandon among others. These investors also intend to sell their holdings completely, possibly to new investor Falcon Edge Capital, and some existing investors.

“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’s exiting also makes sense. At a billion (dollar valuation) they still make some money,” said a person with knowledge of the transaction, urging anonymity.

Techcrunch announced on March 15 that Cred is in talks to raise $200 million valuing it at $2 billion. However, a substantial 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 refused 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 Ribbit Capital, Tiger Global Management, Sequoia Capital, and General Catalyst.

Cred, the second venture of Freecharge co-founder Shah, has drawn scrutiny for raising money at successively higher valuations in a short period without a business model. However, this may be changing. Cred has begun giving personal loans with a tenor of up to 48 months and is collaborating with IDFC First Bank, according to a report from The Morning Context. It has distributed about Rs 1000 crore in the last 5-6 months at a rate of 12-15%- the industry standard.

However, its investors continue to think that monetization at scale by collaborating 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 freshest example of Chinese investors giving up their stakes in Indian startups, led by an investment ban and a broader anti-China sentiment in India. Lately, 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 the lending platform Krazybee.

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