Fresh round of funding to make Paytm a $5 billion company
BENGALURU: One97 Communications, which runs mobile payment and ecommerce platform Paytm, is in advanced talks to raise fresh funding of about Rs 2,000 crore ($300 million) from Taiwanese semiconductor maker MediaTek, Goldman Sachs, Singapore’s Temasek and other investors, according to two persons with knowledge of the development. This round will see Paytm‘s valuation more than doubling to $5 billion.
“The new round is expected to value the company at close to $5 billion,” said one of the people cited above. The money will be deployed across all of Paytm’s businesses — digital payments, online marketplace and the upcoming payments bank, the person said.
Paytm was valued at $2.3 billion in the last round of capital infusion in June.
Paytm E-commerce Pvt Ltd, set up earlier this month, will house the marketplace and is expected to initially mirror parent One97’s shareholding.
This unit is also expected to become the launchpad for Alibaba’s online operations. The Chinese company’s business-to-consumer site Tmall is expected to make its India debut in six months.
Founder Vijay Shekhar Sharma, who holds the payments bank licence in his personal capacity, has established Paytm Payment Bank to house the financial services business.
The arm’s CEO Shinjini Kumar and Ash Lilani, whose investment firm Saama Capital is an early Paytm backer, are on the board of this entity. The bank is likely to be launched in October.
ET was the first to report on Paytm’s plans to spin off its ecommerce business and raise fresh capital in its March 21 edition.
The new round of financing comes after Alibaba and Alipay invested a total Rs 4,400 crore in 2015, according to Registrar of Companies (RoC) filings. Paytm has said it raised about $675 million from Alibaba and Alipay.
ET could not ascertain the cash split between the payments bank and commerce business. Paytm did not reply to a detailed email questionnaire sent by ET and multiple calls made to its spokesperson. There was no response to emails sent to MediaTek, Goldman Sachs and Temasek.
Largest round this year
If the deal goes through, it will be the largest financing round in India’s broader technology and internet space this year, going past the $200 million raised by online marketplace Snapdeal and $150 million by grocery retailer Bigbasket.
Last year saw several bumper rounds with cab hailing app Ola getting $900 million, Flipkart raising $700 million and Snapdeal getting $500 million.
But in the last 10 months, investor sentiment on the broader tech and internet ecosystem has turned cautious.
Snapdeal and Flipkart have found it hard to raise capital at their existing valuation, according to multiple sources directly involved in these talks, with the latter also seeing a series of valuation markdowns by mutual fund investors.
What helps Paytm in raising capital is that it has established market leadership in consumer payments, while ecommerce companies like Flipkart are under constant threat from US rival Amazon, according to analysts.
“In the payments space, they (Paytm) have a big lead and an edge in terms of execution on the ground,” said Forrester Research analyst Satish Meena. “They are tapping the next 100 million customers, while other mobile wallets are pushing their services to the same top 50 million customers by offering cashbacks.”
Paytm rivals in payments include Mobikwik, which recently raised $40 million from South Africa’s Net1, and Snapdeal-owned Freecharge, which has been looking to raise a $150-300 million round since October 2015. Flipkart is also expected to launch its mobile payments business under PhonePe next week, and plans to invest $100 million initially.
Total payments through digital instruments is expected to reach $500 billion by 2020 in India, according to a study by Boston Consulting Group, with customer payments to merchants driving growth.
Paytm has been pushing its offline to online business aggressively over the last 12 months, entering areas like movie ticketing, petrol pump payments, taxi payments, education fees among others.
This is expected to be key driver in monthly gross merchandise value (GMV) increasing to $500 million by December from $300 million in July, Sharma told ET in an interview earlier this month. Sharma had also said that Paytm is running at a 1 per cent operating loss, which includes online marketing, payment gateway and cash-back costs.
According to RoC filings, One97’s losses swelled to Rs 1,534 crore in the year ended March from Rs 372 crore in FY15. This would mean that its average monthly cash burn was $19 million as it spent aggressively to build a mobile wallet customer base and launch an online marketplace after first raising capital from Alipay in February 2015.
As of now, Sharma holds 21.33 per cent stake in One97 and its earliest venture capital investor SAIF Partners has 30.81 per cent. Alibaba holds 8.53 per cent while Alipay is the single largest shareholder with a 32.41 per cent holding.