India’s CRED raises $81 million, buys back shares worth $1.2 million from employees

Bangalore-based CRED is kickstarting the new year on a high note.

The two-year-old startup, led by high-profile entrepreneur Kunal Shah, said on Monday it has raised $81 million in a new financing round and bought shares worth $1.2 million (about 90 million Indian rupees) from employees.

The Series C financing round, as first reported by TechCrunch in late November, was led by DST Global. Existing investors Sequoia Capital, Ribbit Capital, Tiger Global, and General Catalyst also participated in the round, and so did a few new names including Satyan Gajwani of Indian conglomerate Times Internet, Sofina, and Coatue.

The round gave CRED - which operates an eponymous app to reward customers for paying their credit card bill on time and offers deals from interesting online brands - a post-money valuation of $806 million.

In an interview with TechCrunch, Shah said that about 10 percent of CRED's captable is currently allocated to employees and those who held vested stocks were eligible to sell up to 50 percent of their shares back to the startup in its first ESOP liquidity program. We believe that startups should think about creating wealth for every shareholder, including employees."

CRED has nearly doubled its customer base to about 5.9 million in the past year, or about 20 percent of the credit card holder base in India. The startup said that the median credit score of its customer was about 830, and about 30 percent of its customer base today holds a premium credit card. (On a side note, more than 50 percent of CRED customers pay their bills using UPI.)

CRED is one of the most talked about startups in India, in part because of the scale at which its valuation has soared and the amount of capital it has been able to raise in such a short period.

One of the biggest questions surrounding CRED today is just how it makes money, given how most fintech startups in the country today - and there are many of them - are struggling to find a business model.

Shah said CRED makes money by cross-selling financing products - for which it has a revenue-sharing arrangement with banks and other financial institutions - and levies a similar cut from merchants who are on the platform today. More than 1,300 brands including big names Starbucks, TAGG, Eat.Fit, Nykaa, and emerging premium direct-to-consumer brands such as The Man Company, Sleepy Cat, and Crossbeats have joined the platform in recent years.

Direct-to-consumer market in India is still in its nascent stage, though some estimates say it could be worth $100 billion by 2025.

I don't think we were very deliberate to make D2C happen. It just so happened that in the early days when we offered rewards for D2C brands, they started to see huge traction," he said, adding that CRED drove more than 30 percent sales for some brands.

We realized that we were able to solve the discovery problem for customers. We are approaching this with themes - work-from-home and coffee - and it's working out well. We are now playing matchmaking role between customers and brands that otherwise had to spend a lot of money in marketing."

One of the biggest propositions of CRED is that it has been able to court some of the most sought-after customers in India. Unlike many other startups and giants such as Google and Facebook, CRED is not going after the next billion users.

About 20 million customers account for 90 percent of all online consumption in India. These are the customers we are focusing on," said Shah, who previously ran financial services firm Freecharge and delivered one of the rare successful exits in the country. The core challenge in chasing customers in smaller cities and towns in India is that very few people have the financial capacity to buy things, Shah said.

For that model to work, the GDP of India - where the average annual income of an individual is about $2,000 - needs to grow. And for that, we need more participation from females, said Shah. Less than 10 percent of the female population in India are currently part of the workforce, compared to over 90 percent in China.

An interesting use case for CRED today is that it could potentially license data about the traction D2C brands are seeing on its platform to venture firms, who could use it as a signal to inform their investment decisions.

Shah cautioned that the startup is extraordinarily sensitive about data" but said the team is thinking about ways to help venture firms discover these firms. We are planning to create a newsletter to showcase many of these brands to the investor world," he said.

And finally, will CRED launch a credit card or other banking products? Can we partner with banks to cross-sell every product that they today offer? The answer is yes," said Shah, though he cautioned that the startup is in no hurry to supercharge its offerings.