So after raising millions of dollars for "innovating in fintech", CRED has decided to get into the centuries old business of lending
The main company has burnt investor money mainly to build out distribution but no product.
Now when they decided to get into lending, Kunal Shah acquired an NBFC where he personally owns approx 80% stake and CRED owns 20%
Through this NBFC, CRED gives out their loans on BNPL products. Now Kunal Shah wants to slowly sell the rest of his stake to the main company CRED
Except the NBFC is worthless without CRED's distribution. And CRED is worth a lot less without any product and Kunal Shah holds only 12% equity in the main cash-burning loss-making company after all those dilutions in funding rounds.
By making CRED acquire this NBFC at inflated valuations where he owns majority stake, he's gonna personally cash out once again while CRED will still have a long journey ahead of them.
How are the CRED investors ok with this?
I am no CRED fan let me be very clear. However, what you are saying may look to be true and a good way to increase equity at the investor's/employees cost, but is a result of how RBI regulates NBFCs.
RBI will not let fintech entities with complicated corporate structure to own NBFCs, so they always want a founder/promoter who owns majority equity, >50% for unlisted. Now for RBI any fintech entity with VC investors is a complicated structure because of how funds are structured for tax efficiency and FEMA restrictions
So most fintechs are unable to get NBFC license or are shifting back or are simplifying their structures to get one.
The NBFC license is probably one of the most difficult license to get after a banking and a insurer license due to the extent of RBI scrutiny, as NBFCs have been ground zero for most financial scams in recent past, and due to systemic risks posed by lending.
Thank you for the comment. It does make sense..
But as latest news has been showing, RBI isn't letting Cred increase their stake in the NBFC due to the same reasons you mentioned.
So how will they proceed from here?
They will have to evaluate what specific feedback RBI has given and whether they are fixable or not.
If fixable you restructure and solve if not then they will do whatever the investors can live with some sort of very restrictive SHA at the hold co level with Kunal Shah to ensure he stays good with the NBFC entity, but the way Cred raised money last year unlikely the investors have such rights. Although not sure how Kunal Shah raised the funds so me have already signed onto something that limits his power in the NBFC
They will have to evaluate what specific feedback RBI has given and whether they are fixable or not.
Shah owns 25% of cred in total
another 13% through his form Qed or something
25% may seem like less but its a lot considering the funding he's raised, for comparison deepinder of zomato and harsha of swiggy both have like <5% in their respective companies
I dont like cred either but shah is chill as far as I've seen of him
This situation is very common in India. I'd be surprised if he sells it to get cash out. Probably a stock exchange.
If he gets a cash out, investors aren't acting in their own interests.
Are these guys on the path to profitability now? What do they even do? Just sell loans and insurance to rich people who won't fall for that shit anyway? What's their edge over the hundreds of other companies already doing that?
How ...
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