T Rowe leads $1bn infusion in Paytm

Digbijay Mishra | TNN

Bengaluru: Paytm has raised $1 billion in a new financing round, led by US-based asset management firm T Rowe Price, cementing its position as the most valued startup in India at $16 billion.

T Rowe Price, along with Discovery Capital and D1 Capital, has put about $400 million (Rs 2,871 crore) in the Noida-based company. Paytm’s existing investors SoftBank and Alibaba Group affiliate Ant Financial have invested $200 million (Rs 1,435 crore) and $400 million (Rs 2,871 crore) respectively.

TOI on March 28 first reported that Paytm was raising a new round. And in its October 15 edition, TOI reported about T Rowe, D1 Capital, and Discovery coming as investors in the $1-billion funding round.

The company, as reported last month, is still finalising its plans to close a $1 billion round in debt financing to make a serious play in the lending business. Both Discovery and D1 have earlier bought shares of Paytm in secondary transactions and now have invested primary capital in this round. In a secondary transaction, existing shareholders sell their stake to new investors and the money does not go to company coffers.

Interestingly, as part of this transaction, SoftBank, which owns just about 20% in Paytm parent — One97 Communications — cannot sell its share for the next five years. If Paytm manages to go public during this timeline, SoftBank can choose to sell its shares or it can offer to sell its share to existing investors, in case it still remains a private firm.

Paytm founder and CEO Vijay Shekhar Sharma told TOI the company will use the new capital to double down on the merchant expansion in both online and offline channels while making an aggressive push in the financial services business. “Lending, insurance and new-age banking will be the focus for us. We are in the final process of applying for a general insurance license. On merchants’ side, we have 15 million of them and want to add 20 million more in the next two years,” said Sharma, who is allocating Rs 10,000 crore for the next three years to expand deeper into rural markets.

Paytm’s fund infusion comes at a time when large-size investments by SoftBank founder Masayoshi Son are being questioned following WeWork’s failed IPO in the US, which also brought compliance and profitability issues to the fore. SoftBank has now taken over majority control at WeWork. This underscores the changing dynamics between founders and strategic investors at a time when the public market is being highly sceptical of private valuations of large startups, which are yet to show a near-term path to profitability.

Sharma said the company will focus on its payments gateway business as it reduces spends on incentivising peer-to-peer (P2P) transactions on Unified Payments Interface (UPI). “We are a more mature, leaner and thinner organisation now. We have reduced our burn by about 35-40% in the last six months,” he added.

Paytm has seen a series of old-timers leaving the company in the last six months, who have been replaced by external candidates. Paytm competes with PhonePe and Google Pay in the consumer payments segments while its rival in payments gateway business are PayU, Razorpay, etc.