CRED – Dutch Uncles

Donning the Founders Hat Thrice: Journey of Serial Entrepreneur Kunal Shah

Dhishan Rajshekhar — Fri, 11 Jun 2021 02:35:04 +0000

Being born in a business family, children are expected to take the reins of the business and move it forward their way. Sometimes it is challenging for the younger generation to adapt to that notion or a matter of time to adjust. However, it becomes a bigger challenge when the unexpected happens and the decided path divulges. Amidst all, the business leanings remain the same. The story resonates with Kunal Shah – the brain behind FreeCharge, Paisaback and CRED, a venture capitalist, an entrepreneur and a true patriot of the technological revolution in India – whose Gujarati family business of pharmaceutical distribution in South Bombay tanked.

However, the business and entrepreneurial ‘germ’ ran deep in 10-year-old Shah, who was given Rs 5 everyday for working in his father’s business and later depositing the money in a bank. At the tender age of 16, he saw his father’s business fail and a well-to-do family plunging into financial distress. The incident taught the 16-year-old about failures and instilled a sense of courage to gather motivation, refuel and restart.

Kunal Shah was bestowed with responsibilities at a very young age. Being the eldest child, he had to support his family and his education. By the time he was in high school, he had his hands dipped in part-time data-entry jobs besides side businesses like selling Compact Discs (CDs) and mehndi cones, teaching computer science to neighbourhood children, and running a cybercafé from his house.

Contrary to the usual expectations of B.Tech followed by an MBA, Shah decided to pursue a Bachelor of Arts (BA) degree in Philosophy from the Wilson College in Mumbai. Was it a choice or a compulsion?

Shah did not give importance to the degree choice at that time as his priorities were different. Philosophy was the only course that had the option of evening classes and suited the entrepreneur’s schedule. The timings allowed him to work part-time to help ease his family’s financial conditions.

Having said that, the young chap graduated with flying colours and gained top scores. Though Kunal Shah was forced to choose this course, he actually enjoyed learning about the works of Socrates, Aristotle, Confucius, Immanuel Kant and John Rawls.

It’s interesting how everything in an entrepreneur’s life has some learnings or lessons. Being the only fintech founder with a non-engineering, non-tech background, Shah emphasised in many of his interviews how studying philosophy moulded him into a problem-solving entrepreneur who knows how to bring viable solutions to the table.

Few years after graduation, Shah joined Mumbai-based Narsee Monjee Institute of Management Studies (NMIMS) to pursue a part-time Master’s in Business Administration. This time, the decision was a choice! A choice to plunge into a full-fledged entrepreneurial journey. Shah wanted to learn the intricacies of entrepreneurial strategies, consumer behaviour and functioning of the vast world of business on the sideline of his job as a junior programmer at a BPO. He clearly joined the course to learn and not to add a degree to his resumé.

It is sometimes funny how certain movies can have an ever-lasting impact on a person. One of them being 3 Idiots. Shah found himself connected to the lead character Phunsukh Wangdu, played by Aamir Khan. Both attended college not to gain a piece of paper but to enhance knowledge and understanding. Getting into the ‘character’, Shah dropped out of college within a few months of enrolment out of sheer frustration with the way business principles were being taught. He wears the ‘drop out’ tag proudly on his LinkedIn profile today.

He, however, continued to follow up on one particular subject of his interest – consumer behaviour and marketing. Interestingly, he carried the ‘philosophy’ of – making a great product is not enough, marketing is the real deal – and took the entrepreneurial plunge.

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Shah chose to pursue BA in Philosophy from the Wilson College in Mumbai as it was the only course offering evening classes.

The Brave Diver

While working at the BPO, Kunal Shah grabbed the interest of one of its investors Sandeep Tandon, who had just returned from the US. Tandon quickly recognised Kunal’s prowess and promoted him up the rungs of the ladder, even though he did not qualify for the medals of ‘employee of the year’.

Meanwhile, Shah worked for Tandon’s Mumbai venture, Tandon Advance device Pvt Ltd, which was mainly involved in healthcare insurance and accounts payable projects. Shah helped Tandon expand the business to more than 1,200 companies and was promoted as the new business head. In 2009, a wish to commercialise and monetise the concept of ‘free’ crossed Shah’s mind which led to the inception of PaisaBack.

The start-up allowed users to get cashbacks at localised centers of companies like McDonald’s, Barista Coffee, Dominos, Croma etc, through the website. The entire company’s model depended on cashbacks and right from the first month, the start-up was filling up pockets.

Even though the PaisaBack boomed, it could not compete with companies like CouponDunia, MySmartphone, Groupon India and others, who had already established their foot in the market. The shutter was rolled down. This was, however, just the beginning for Shah.

Start-up 2.0: Freecharge, Company with Zero CAC!

In 2010, Tandon and Shah came together once again to build FreeCharge, which moved away from the conventional business model and introduced something new to disrupt the system.

FreeCharge was an online payments services portal used for mobile recharges, bill payments and more. At the time, investors were not positive about the fintech industry and were hesitant to place their bets on the same. Eventually, Freecharge’s first cheque of $3 million came in 2011 from Sequoia Capital.

In the subsequent rounds, the founders managed to raise $120 Million. During this time, Freecharge was already having 14,000-15,000 transactions a day, making the investors pleasantly happy and surprised. The entire concept of the company was fresh and new and was deemed as the pioneer in the sector.

When asked about customer acquisition cost, Kunal Shah replied ‘Zero’, with a smile on his face. The investor from Sequoia Capital immediately handed over a cheque! There was zero expenditure from the company for signing up customers because the entire concept was online !

Shah and Tandon never prepared a presentation for their investors’ meeting, vouching on their start-up’s strength to sell itself. FreeCharge recorded Rs 2.19 billion worth of transactions in 2012, with amounts of over Rs 6 million recharges a day. In 2014, the company made history by raising $33 Million Series B Funding from Sequoia Capital, Sofina and Ru-Net, the highest for any start-up in a single round to date. Shah also led the acquisitions of Wishberg and Preburn.

In 2015, Snapdeal offered $400 million in cash and stocks to the founders for acquiring FreeCharge. Kunal Shah was on top of the charts with his valuation booming to the higher millions. In 2017, due to Snapchat’s assets offloading drive, Axis Bank bought Freecharge for $60 million and made it a complete payment system.

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In 2009, a wish to commercialise and monetise the concept of ‘free’ crossed Shah’s mind which led to the inception of PaisaBack.

Choosing Innovation over Wealth: The Unicorn Maker

After adding $400 million to the bank, a lot of people decide to hang their boots or maybe take a temporary break, some yoga retreat etc. Shah did the same. He took a break after the FreeCharge deal and travelled extensively.

His entrepreneurial bug, however, refused to let go of him. Once you dive into that pool, everything comes under evaluation from a business point of view.

During his break, Shah observed that countries with a higher trust relationship with the citizens prosper more. The thought ushered a plethora of ideas in the entrepreneur’s mind. One of them is CRED, the noisiest fintech start-up valued at $2.2 Billion in a short span of two years.

Kunal Shah learnt that it’s impossible to make money from the masses when their per capita income is not going to allow them to pay for convenience. After giving it a fair amount of thought, he turned his attention to the untapped users in India, the ones who use credit cards and pay bills on time, without any benefits whatsoever.

CRED was founded in 2018, a platform that caters to credit card users with a score of 750 and above. The platform has a meticulously well-designed app that rewards users on timely payments of their credit card bills and manages their expenditure.

The start-up has been making a lot of noise with its extravagant advertisements featuring famous personalities like Jim Sarbh, Rahul Dravid, Jackie Shroff, Kumar Sanu, among others. CRED has conquered more than 35 per cent of the total credit card users in India, raging with graphs that are not coming down. The start-up has managed to raise $215 Million from Sequoia Capital, DST Global and Tiger Global. Despite a lot of murmurs around the business model of the start-up, it has achieved a valuation of $2.2 Billion within 2 years.

Despite the negative murmurs around the business model of the start-up, its sustainability and advertisement extravagance, Kunal Shah continues to hustle. His confidence is backed by the strong line of investors placing their valuable money in the same.

With two successful and one almost successful start-up, advisor to a plethora of companies and a venture capitalist, Shah has done it all at the age of 37. Media-shy Shah was always a risk-taking entrepreneur from an early age of 16. He never gave up, be it his family’s financial difficulties or raising money for his ventures.

As a venture capitalist, the entrepreneur has invested in renowned start-ups such as Unacademy, Razorpay and Pianta. He has been an advisor to many companies, including Bennett Coleman and Co. His faith in consumer behaviour and marketing has never failed him, as he smartly coupled it with strategic decision making. No wonder he is regarded as one of the most innovative thinkers in the 21st century.

“If you fully accept the worst that can ever happen in your journey, fear won’t ever be an obstacle in starting-up,” – Kunal Shah.

The post Donning the Founders Hat Thrice: Journey of Serial Entrepreneur Kunal Shah appeared first on Dutch Uncles.

Start-ups Now Account for 10% in India’s Advertising Expenses

DU Desk — Tue, 04 May 2021 11:35:04 +0000

From Shah Rukh Khan becoming a teacher in Byju’s new ad highlighting after-school learning to Pankaj Tripathi showing Kirana store owners ease of doing business on Udaan app, Indian start-ups have been all in with their advertising spend.

Be it Indian Premier League (IPL) on a TV Channel, an episode of your favourite show on an over-the-top (OTT) platform, a fitness video on Youtube or casual Instagram scrolling, you cannot ignore the growing number of ads by start-ups that are ruling the break time.

Nothing New, Yet Unusual: What Changed?

It is not new for start-ups to go aggressive with advertisements in attracting and retaining customers in their growth stage. Back in 2015, we saw a huge surge in ad spends by e-commerce start-ups like Myntra, Flipkart and Snapdeal as the industry boomed. This trend picked up pace over the years with start-ups riding a particular industry boom (e-commerce, e-retail, edtech) each year, putting in big cheques in advertisement.

This number was expected to rise in future. However, something has been unusual in the past one or two years, especially post pandemic. According to media buyers’ estimates, start-ups now account for 10% in India’s advertising expenses. The overall ad spend may hit Rs 80,000 crore in 2021. This means 8,000-8,500 crore (10%) has come from new-age companies. No doubt, the surge was expected, but not to the level of 10%.

Besides developing a big advertising appetite, the start-ups have gone a step further and overshadowed big brands across many platforms. What happened in the past one year? Let’s find out.

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Byju’s spent Rs 400-500 crore in advertising in 2020 while gaming firm Dream11 spent Rs 350-400 crore and My11Circle spent Rs 150-250 crore.

A Strong Backing: Funding Galore

The lockdown threw a curve ball at a lot of industries. Start-up industry was one of them with fewer deals and comparative less funding. Having said that, investors poured in $9.3 Billion into the Indian start-ups in year 2020 alone with some of the largest venture capital firms doubling on Seed and Series A deals. Big funding deals were seen for start-ups such as Byju’s, Unacademy, Zomato, CRED, Delhivery, Razorpay, Vedantu and Cars24 along with ballooning valuations.

This momentum refuses to slow down. Barely four months into the current calendar year and the sector has already birthed 10 unicorns (11 in 2020) with $4.4 billion funding in the January-March quarter of 2021.

This spells one major change. The curve ball thrown across sectors by pandemic was caught well by the new-age tech/digital start-ups, who are today in demand more than ever. This is their opportunity to grow.

Strike While the Iron is Hot!

Now what happens when you have large investment, fast- growing revenue potential and an addressable base? You look to invest in brand equity and go all in to capture the user base and create a brand recall, especially when the space becomes extremely competitive and digital (Lockdown).

This is in complete tune with flush of funds from venture capitalists. Following the pandemic, outdoor/below-the-line advertisement has become extremely limited, leaving the choice limited to digital mediums. Now, since the choice is limited with everyone flocking to the same medium to capture the screen time, companies are looking to associate with high-profile (expensive) properties for aggressive marketing and advertising.

Who will step up? The one who needs to (growing stage, competition, user base) and very well could (deep-pocketed investors) during these times i.e. start-ups.

Sports Leagues + Festive Season: Cherry on the Cake

Apart from usual ad mediums like television, OTT platforms, social media and websites, start-ups splashed cash like never before on sports league-IPL, Indian Super league (ISL) and Pro Kabaddi League (PKL)- which come as a one time opportunity in a year for companies to create a recall. This is especially significant during Covid times. The IPL also coincided with festive times.

Looking at the advertising budget of some of the top start-up- Byju’s spent Rs 400-500 crore in advertising in 2020 while gaming firm Dream11 spent Rs 350-400 crore and My11Circle spent Rs 150-250 crore, as per a Pitch Madison Advertising report. Other new breed of sponsors include PhonePe, CRED, Paytm, Dailyhunt and Khatabook, Acko, WhiteHat Jr, Policybazaar, Netmeds and Upstox.

Given the thriving revenue, funding and valuation numbers of start-ups (digital, edtech platforms, payment gateways, gaming platforms, OTT players) amidst the current state of affairs, the 10% ad spend figure will continue to jump further.

The post Start-ups Now Account for 10% in India’s Advertising Expenses appeared first on Dutch Uncles.

Was IPL a Ticket to the Billion-Dollar Club for Start-Up CRED?

Naina Sood — Sun, 11 Apr 2021 06:35:04 +0000

“Not everyone gets it”, even Anil Kapoor, Madhuri Dixit, Bappi Lahiri and Govinda. Intrigued? The goal was to start a conversation and it was indeed started among 40 million customers on CRED’s target list through its audition-styled campaign launched on India’s biggest advertising platform – IPL.

It has been raining start-ups when it comes to IPL associations since 2020. One of them being credit card bill-based rewards marketplace CRED, which joined the bandwagon of start-ups looking to score big with IPL and it indeed did.

The partnership came into being in September 2020 and within six months, CRED has managed to raise two rounds of funding (Series C and D) and successfully entered the billion dollar club. Was the start-up’s bet on the IPL association its ticket to the billion dollar club? Let’s find out.

Did it Make Sense?

CRED reportedly paid Rs 120 crore ($16.3 million) to become an official partner of the IPL for three seasons, starting the first one in October 2020.

With this additional investments and incentives it offers to users, CRED knew that it would be spending $12-15 million per year – almost 10% of its total funding. (Before Series C and D). CRED had ballooned its total loss by 491.9% in FY20, with the largest contributor, for the reported period, being costs relating to marketing activities. It rose over 9X year-on-year to Rs 180.30 crore.

Seeing these numbers, why did CRED become a part of this expensive sponsorship game amidst the mounting expenses and losses? The company targets credit card bill payments and it already had 60% of the total audience on the platform. Then why play such a “big game” for just 40% of the remaining target audience? Remember, this was before the Series C and D rounds.

A Ticket to the $1 Billion Club

It was a “go big or go home” scenario for CRED. Start-ups, especially fintech, have been looking to expand or raise their market share significantly and affiliation with a property like IPL is a win-win scenario.

CRED has been in a cashburn process (EBITDA margin of -1979.5% during FY20, annual loss of Rs 360.3 crore) but has been well-funded by deep-pocketed investors. Before its association with IPL, CRED stood at a valuation of about $450 million that it had attained after its $120 million Series B round in 2019 besides its seed funding of $30 Million.

Hence, its IPL investment made business sense for the start-up and did not dramatically affect its cash flows. The ultimate aim was to increase user base and target and attract credit-worthy customers to justify the investors’ money. Since its inception, the company grew to a customer base of 3 million and post joining the IPL, the number surged multifold. The user base has doubled to 5.9 million individuals in 2021 over the past year.

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Start-ups, especially fintech, have been looking to expand or raise their market share significantly and affiliation with a property like IPL is a win-win scenario.

In the start of 2021 itself, CRED secured a major funding round, drawing $81 million in fresh capital, which brought its total funds raised to $228 million across four rounds. This inched the burgeoning start-up towards the unicorn status with a post-money valuation above $800 million.

With further surge in customer base and shining numbers as the second season of IPL drew closer and closer, CRED managed to receive another major funding round on April 6 led by new investor Falcon Edge Capital and existing investor Coatue and has finally entered the Unicorn club. It raised Series D funding of $215 million at a valuation of $2.2 billion.

That’s two rounds of funding and a doubled-user base within 6 months of IPL association.

‘Clicking’ the Right Ticks With Ad Campaigns

It’s noteworthy how a comparatively new brand like CRED made the best of this association by running its campaign to its targeted users on television. It reached out to its premium class of audience i.e the first-generation wealthy, by leveraging the HD feed only for the IPL matches – helping the brand to target the audience who is more likely to use credit cards.

The star-spangled ads created a massive stir with the app registering six to seven times increase in sign-ups. CRED trended on Twitter during its 2020 campaign starring Anil Kapoor, Madhuri Dixit, Bappi Lahiri and others. It created a constant recall value which helped in customer acquisition. It is important to note here that CRED wasn’t a robust advertiser before IPL.

Following this viral success, CRED is now all set to launch a total of six ad films over the course of the new 2021 IPL tournament. The first one came out this week featuring actor Jim Sarbh and legendary Indian cricketer Rahul Dravid in a never-seen-before avatar. As expected, it’s viral!

Besides these campaigns CRED reached out to people by focusing on digital engagements. One such activity included ‘CRED Power Play’ where those who pay their bills on time using CRED can win cash back offers as well as a chance to be on television during a live IPL match.

CRED managed to hit its target – increased user base, a household name, more money in the pocket and a Unicorn badge! Let’s see how the start-up manages to retain this user base captured through the IPL and spend that money raised wisely.

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