Seemingly since its inception, credit card payment business CRED has been subject to heated debates on the company’s business model or seeming lack thereof.

“What is CRED’s business model? How will it make money?” has been the questions du jour in startup circles for a while.

But those may be the wrong questions to ask.

The actual question should be, “Why is CRED valued as highly as it is?”

Even before starting the company, CRED founder Kunal Shah raised a seed round of US$25 million. He then followed it up with multiple funding rounds totalling more than US$200 million, with the last publicly disclosed round of US$80 million reported in January 2021 at a valuation of US$800 million.

If that wasn’t enough, there are now reports reports TechCrunch India’s CRED in talks to raise $200 million at $2 billion valuation Read more that it is set to raise a new funding round of US$200 million at a US$2 billion valuation—a unicorn twice over. All this, barely three years since it was founded and with precious little to show for revenue. In the year ending March 2020, the company reported an operating revenue of Rs 52 lakh (US$71,700) with a loss of Rs 360 crore (US$49.6 million).

To the lay observer, these numbers might seem outlandish. A company with less than US$100,000 in revenue in the last reported financial year being valued at US$2 billion.

But there is some serious money behind this venture. CRED’s investors include marquee names such as Sequoia Capital, Tiger Global, and DST Global.

These VCs are canny operators and some of the shrewdest investors in the globe. So, there has to be some VC calculus wherein these numbers make sense.

The core belief of this calculus is that CRED delivers a decacorn exit. US$10 billion is the magic number for CRED’s investors for a couple of reasons.

If the upcoming funding round values CRED at US$2 billion, the expected payoff would be 5X from this base—a US$10 billion exit.

At a US$10 billion exit, major investors like Sequoia Capital would own roughly 10% each and would therefore get around US$1 billion each. A unicorn exit but also one that would return an entire fund by itself.

The big question then becomes: How does CRED get to a US$10 billion exit? Is there a best case scenario where such a valuation is possible?

Parsing this bull case for CRED requires us to analyse a few key aspects of the VC calculus.

Mindset—No business like show business

The first aspect that we need to grok is the investor mindset. This mindset closely resembles that of a movie producer.

Producing movies and funding startups are more alike than one would imagine.

AUTHOR

Sumanth Raghavendra

Sumanth is a serial entrepreneur with more than eighteen years experience in running startups. He is currently the founder of Deck App Technologies, a Bangalore-based startup attempting to re-imagine productivity software for the Post-PC era. Sumanth’s columns appear regularly in leading publications. He holds MBA degrees from the Indian Institute of Management, Bangalore and Thunderbird, The American Graduate School of International Management, USA.

View Full Profile

Read this story. Subscribe Now

This story is available across both editions. Subscribe to the one that’s most relevant for you. Questions?

Pick an edition

MOST POPULAR

Annual Subscription

12-month access to 200+ stories, archive of 800+ stories from our India edition. Plus our premium newsletters, Beyond The First Order and The Nutgraf worth Rs. 99/month or $2/month each for free.

Rs. 2,750

Subscribe
 

Quarterly Subscription

3-month access to 60+ new stories with 3-months worth of archives from our India edition. Plus our premium newsletters, Beyond The First Order and The Nutgraf worth Rs. 99/month or $2/month each for free.

Rs. 1,750

Subscribe
 

Single Story

Instant access to this story for a year along with comment privileges.

Rs. 500

Subscribe
MOST POPULAR

Annual Subscription

12-month access to 150+ stories from Southeast Asia.

$ 120

Subscribe
 

Quarterly Subscription

3-month access to 35+ stories from Southeast Asia.

$ 50

Subscribe
 

Single Story

Instant access to this story for a year along with comment privileges.

$ 20

Subscribe

Questions?

What is The Ken?

The Ken is a subscription-only business journalism website and app that provides coverage across two editions - India and Southeast Asia.

What kind of stories do you write?

We publish sharp, original and reported stories on technology, business and healthcare. Our stories are forward-looking, analytical and directional — supported by data, visualisations and infographics.

We use language and narrative that is accessible to even lay readers. And we optimise for quality over quantity, every single time.

What do I get if I subscribe?

For subscribers of the India edition, we publish a new story every weekday, a premium daily newsletter, Beyond The First Order and a weekly newsletter - The Nutgraf.

For subscribers of the Southeast Asia edition, we publish a new story three days a week and a weekly newsletter, Strait Up.

The annual subscription will get you complete, exclusive access to our archive of previously published stories for your edition, along with access to our subscriber-only mobile apps, our premium comment sections, our newsletter archives and several other gifts and benefits.

Do I need to pay separately for your premium newsletters?

Nope. Paid, premium subscribers of The Ken get our newsletters delivered for free.

Does a subscription to the India edition grant me access to Southeast Asia stories? Or vice-versa?

Afraid not. Each edition is separate with its own subscription plan. The India edition publishes stories focused on India. The Southeast Asia edition is focused on Southeast Asia. We may occasionally cross-publish stories from one edition to the other.

Do you offer an all-access joint subscription for both editions?

Not yet. If you’d like to access both editions, you’ll have to purchase two subscriptions separately - one for India and the other for Southeast Asia.

Do you offer any discounts?

No. We have a zero discounts policy.

Is there a free trial I can opt for?

We don’t offer any trials, but you can sign up for a free account which will give you access to the weekly free story, our archive of free stories and summaries of the paid stories. You can stay on the free account as long as you’d like.

Do you offer refunds?

We allow you to sample our journalism for free before signing up, and after you do, we stand by its quality. But we do not offer refunds.

I am facing some trouble purchasing a subscription. What can I do?

Please write to us at [email protected] detailing the error or queries.