Could Paytm Money be valued $5 Bn and raise over $1 Bn?

Startups are amazing. They never let you down in terms of surprising you by solving difficult problems, innovation, jugaad, offering friction-free experience and a host of positive impacts. Mega funding, huge losses, little revenue, and valuations also leave people like seasoned financial analysts awestruck.

While you may struggle to justify the valuation of many consumer Internet space till now, eat this. Paytm Money has reportedly been in preliminary conversation with Alibaba’s Ant Financials and SoftBank to raise up to $1.2 billion at a valuation of $5 billion - making it the 5th most valued startup in India.

Business Standard broke this story last week. Entrackr had also covered it.

Really? What does Paytm Money even have to be able to negotiate a billion USD round based on? That too at a valuation of $5 billion plus. Before we try to answer this let’s take an account of the valuation of other companies that top the lists of unicorn startups.

OYO is valued a little over $5.4 billion in the last round while Swiggy attained the highest valuation of $3.3 billion. BYJU’s valuation is in the range of $5.5 billion. Ola has a valuation of $6.2 while Zomato is valued about $2.5 billion.

Let’s talk about the scale of some of these companies. OYO claims to be the sixth largest hotel chain globally with a pole and penultimate positions in Indian and Chinese markets respectively. Swiggy does over 50 million orders a month while BYJU’s has a top line of about Rs 500 crore.

In comparison, Paytm Money has a million users. Currently, it offers only mutual funds and plans to offer stock investment and insurance for retail investors. According to industry analysts, it has a total user base of 2.5 million with a million monthly active users.

It’s worth noting that Paytm Money hadn’t offered any comment on the fundraising plan.

“It’s one of the highest SIP generators in the industry,” claimed one of the analysts tracking the space. Paytm Money claims to have 70% users from smaller cities (tier II, III and IV towns). Besides mutual funds, it got approval for insurance and stock broking.

Still, can Paytm Money can be valued over $5 billion? Investors, as well as seasoned financial professionals, don’t think so. “Justifying valuation of even a billion USD is arduous for Paytm Money. It’s unbelievable,” added one of the above-quoted people said.  

Citing sources, several reports surfaced outlining that the company is likely to acquire Coverfox in the tune of $150 million. Even if it does so - can $5 billion valuation feasible? “No way. Look, Paytm Money is a very young company with a limited scale. We can say it’s only a well-planted rumour or mere imagination,” said two seasoned professionals in online financial services.

To put things further in perspective, PhonePe has been locked in conversation with investors for raising up to $800 million but valuation is an impediment. While the company claimed that it won’t raise capital at a valuation below $10 billion, Entrackr’s sources emphasised that potential backers - Tiger Global and Tencent aren’t ready to value it above $6 billion.

How can Paytm Money be valued only $1 billion less than an entire fintech app that has been outnumbering the umbrella Paytm in transaction value and volume for the past two months?

And does Paytm Money need to raise money independently at all? The experience of raising separate capital for subsidiaries at Paytm hasn't been great for investors. While the decision of raising capital by Paytm Money on its own is their call, let’s take a look at what had happened with Paytm Mall that spun off as a separate entity in 2017.

Even after raising over a half billion USD, Paytm Mall failed to make a mark and disappointed its backers - SoftBank and Alibaba.

So, will Paytm Money and investors learn from the mistakes around Paytm Mall? Has Paytm Money been looking out for valuation in the tune of PhonePe (which competes with Paytm directly)? Will it get such a towering valuation? Certainly, we don’t think so but we leave it to you to make your own judgment. Last but not least, beauty does lie in the eye of the beholder - it's up to investors how they value Paytm Money.