At a recent startup event, Kunal Shah, the founder of credit card payment platform CRED CLUB (CRED for short), was asked about how he raised so much money. 

“I am able to raise money now because of past success,” Shah responded.

Few will dispute this contention. After all, Shah previously founded Freecharge, an online recharge business, which was sold for a then-record sum of $400 million to e-commerce company Snapdeal. This was in the halcyon days of e-commerce, circa 2015. 

Now, an uncharitable observer might question whether Freecharge was a “success”. It never actually found a profitable business model and was eventually hived off by Snapdeal for a fraction of the acquisition price. However, at least from a venture funding perspective, there is little doubt that Freecharge proved to be a hugely successful exit for all concerned.

It, therefore, came as no surprise that Shah was able to raise a large sum as seed funding for CRED, “a platform to aggregate and reward people who have good credit scores”. Even before the launch of its product, CRED raised $30 million from marquee investors such as Sequoia Capital India and Ribbit Capital. 

In a land where startup exits are few and far in between, founders who deliver large exits to investors are a precious commodity, and in this market, capital chases credibility. The rather vague value proposition of CRED was easily trumped by the credibility of Shah’s previous success. 

What was more surprising, though, was that barely six months after announcing this seed round, CRED raised a mammoth follow-on round of $120 million led by its existing investors.

Why surprising?

When it comes to raising funds, startups deal with two types of currency in exchange for the literal currency they seek from VCs.

First, the currency of credibility, primarily determined by the perceived quality of the founders and team. This is usually a “gut” bet based on hope.

Second, the currency of confidence, determined by market data and company performance. Great unit economics, rapidly growing revenue and usage, an evangelical, loyal customer base with low churn. This is almost always a bet based on quantitative metrics with the conviction that the startup has achieved meaningful product-market-fit and all further investments will provide a clear and predictable return on capital. The flywheel model.

While seed rounds are raised using the currency of credibility, later rounds are inevitably based on the currency of confidence. CRED, on the other hand, is a rare instance of a startup that has raised a huge Series B round almost exclusively on the basis of founder credibility. What’s more, the size and valuation of this round are both extreme outliers—CRED is said to be valued at nearly $500 million (to wit, a demicorn?) after this infusion.


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.

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