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Cred's valuation slump signals caution for India's fintech companies
After the fundraise, the firm's valuation has gone down to $3.5 billion, a fall of 45 per cent from the $6.4 billion in 2022.
Valuations have fallen even as existing investors put money in the company, including Kunal Shah, founder and chief executive officer (CEO), Cred.
'Between 2022 and now, there has been a reset in the fintech market, both domestically and internationally. We have seen valuations come down and that is evident in the Cred fundraise. It will be fair to say that the market is much more realistic now,' said a person in the know.
'When Cred made its entry, it genuinely had a different offering. But now, it has also got into credit. How is it different from any other fintech? There is not much innovation there. If you look at the credit segment (personal loans), almost all the fintechs have a write-off in the range of 12-13 per cent. I don't think Cred will be any different,' said an investor when asked why the firm has seen its valuation drop so low.
Another head of a fintech-focused fund said that valuation fall is normalisation happening in the sector.
'There is a realisation that the situation is not where it was or when it started. And, gone are the days when people said fintechs have no speed breaks, no hurdles…that has been proven wrong,' he said.
This is evident in the numbers too. The fintech sector has raised a total of $4.5 billion so far (year-to-date or YTD), down 29 per cent compared to $6.4 billion raised in the same period last year.
Cred is not the only player in the fintech ecosystem that is seeing this markdown.
Earlier this year, when Fullerton Financial Holdings acquired a controlling stake in Lendingkart, the latter's valuation came down to $100 million from $821 million in December 2024, according to data from Tracxn.
The trend of discount to valuation has impacted the non-fintech segment too.
Recently, when Udaan closed its funding at $114 million, it did so at a flat valuation of $1.8 billion.
The sector has also been impacted by regulatory changes that the central bank has introduced in recent times. This includes norms such as digital lending guidelines (DLGs), first loss default guarantee (FLDG), and increased risk weights for unsecured personal loans.
In the case of Cred, it looks like the firm has chosen to raise funds at a lower valuation as it looks at expanding product portfolio and reach.
'Cred has been focused on reducing profits and being earnings before interest, taxes, depreciation and amortisation (Ebitda) positive as it wants to reduce cash burn. By opting to raise funds at a lower valuation, it is a clear signal that it is chasing strong growth,' said another source.
The company — over the past 18 months — has focused on launching products and offerings.
In February, it announced a suite of products under the Savlbard brand, including a credit line against mutual funds (MFs). It also included a tool to predict and improve customers' credit scores, and a non-profit entity called Cred Foundation aimed at financial literacy.
Cred is also among the earliest players to launch Cred eRupee wallet in beta mode. The company also entered the insurance space through its vehicle management platform Cred Garage.
New product launches and services have also seen an improvement in the financial performance of the company.
For FY24, it managed to reduce losses to Rs 609 crore from Rs 1,024 crore in FY23.
According to filings, Cred raised this fund in a series-G round from Singapore's GIC, along with RTP Capital and Sofina.
'At the early stage, you're often investing in a promise — a large market, a potential business model, and the assumption that if it works, it will work big,' said an investor about Cred's valuation reduction.
He added, 'But as companies mature, valuations need to start reflecting business fundamentals. The gap between promise and performance can't stay wide forever.'
'I don't know about the company (CRED) specifically and cannot comment with authority on the reasons. However, I do not see anything wrong with companies raising money at lower valuation than earlier. This is largely happening in the industry because of reset in valuation multiples from the peak of Covid times,' said Ashish Kumar, co-founder and general partner, Fundamentum, the venture capital (VC) firm led by Nandan Nilekani 'Valuation multiples reflect investors sentiment on industry or company growth, broader liquidity, higher competition amongst a host of other factors. The fintech sector and many other relatively mature tech sectors indeed have profitability expectations and it is good for the ecosystem,' said Kumar.
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