2 days ago
Why QED-backed Leo1 needs a sharp turnaround to stabilise its ship
Mumbai: QED-backed edu-fintech Leo1 is making sweeping cutbacks as it pivots away from its core lending business, seeking to stabilise operations and grow in new segments, according to multiple people familiar with the matter.
The company has undertaken significant rationalisation, shutting down its first loss default guarantee or FLDG model, scaling back underperforming business lines, and laying off staff.
Leo1's restructuring comes amid a broader slowdown in the edtech industry, including edu-fintech models. Companies started diversifying revenue streams and revisited business models after the pandemic-era boom faded, and investors grew sceptical about their sustainability. The Reserve Bank of India's (RBI) crackdown on new-age lending fintechsalso came as a major blow for edu-fintech companies.
'Since February, the firm has let go of around 25–30 people, mostly field and lending operations staff, in an attempt to turn profitable," a person with direct knowledge of the development told Mint.
Leo1 now employs just over 50 people, primarily in sales and technology, a steep drop from over 300 staff at its peak in 2022.
Founded in 2015 as Financepeer, the company had raised $31 million Series B funding led by venture capital firms QED Investors and Aavishkaar Capital.
It offers prepaid and debit cards, a community platform for students, and rewards and payment services for educational institutions. Its backers also include Ardent Ventures, DMI Sparkle Fund, 9Unicorns, LC Nueva AIF, and Maxar VC. To date, it has raised about $41 million, and was last valued at $108 million, as per Tracxn.
Leo1, QED and Avishkaar did not comment on the story.
Pivot from lending
Lending, once Leo1's core offering, has been gradually phased out starting 2024, after the company struggled to operate under changes in the FLDG rules first initiated in 2022, one of the people said.
FLDG is a risk-sharing arrangement in digital lending where a fintech company (a loan service provider) guarantees to compensate a regulated entity for a predetermined portion of loan defaults.
After the June 2023 amendments to the FLDG model, lending aggregators have become less attractive. With the FLDG guarantee now capped at 5%, lower than before, NBFCs see limited upside in sourcing loans through aggregators.
Moreover, amid declining volumes and a lack of scale, margins also took a hit for such aggregators. 'Margins on loans were only 2–3%, while first-loss default guarantees (FLDGs) cost around 5%, making it unviable without lending from its own book," said another person in the know, requesting anonymity.
Though company is still operating the lending model, it makes up for less than 10% of the business. RBI rules on digital lending and FLDGs squeezed aggregator-led lending models, forcing many to pivot or scale back.
Leo1's financials show a decline in revenue alongside mounting losses post the regulatory changes. After peaking at ₹13 crore in FY2021-22, revenue has steadily declined to ₹11.4 crore in FY2022-23 and further to ₹9.2 crore in FY2023-24, according to Tracxn.
Net losses widened from ₹21.1 crore in FY2021-22 to ₹64.7 crore in FY2022-23, and ₹48.2 crore in FY2023-24.
The company has since refocused on a SaaS-style model, onboarding colleges, training administrators, and enabling them to use Leo1's dashboard to manage student accounts and distribute cards, without maintaining a heavy on-campus staff presence.
One of the persons quoted above, however, said the company has started to see revenue increasing in the new model since FY25 clocking about ₹11-12 crore.
It has also become profitable at a monthly level since the start of FY26, largely aided by cost cuts, they added. The company is yet to file its FY25 financials with the MCA.
Next bets
The company now plans to introduce investment products, including digital gold, mutual funds, insurance, and loans, to broaden revenue streams, said the first person quoted above. This will put it in competition with a growing pool of wealth-tech players such as Stable Money, Dezerv, and Neo Wealth.
Leo1 is betting on capturing 18–25-year-old customers early, while they are in college, to build long-term banking relationships. Leo1 currently claims to partner over 13,000 schools, and colleges, including IIT Bombay, IIHMR University, Jain University and Poornima University, among others.
To scale further, Leo1 is in talks to raise a bridge round in the second half of this year. "Capital is not the key reason for stopping growth, it was the right path to explore. They need to find the right business model that balances growth with break even," said the second person quoted above. The funding amount could be in the $4-5 million range.
While the company has been approached for potential mergers or acquisitions, it is not actively pursuing an exit at the momen, the person added.
