Why Paytm has not spooked private market investors

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The tepid public market debut by Paytm parent One 97 Communications has not dampened the spirits but is merely a course correction for growth-stage companies, believe private market investors.

While online payment and lending firm MobiKwikhas delayed its IPO on the back of Paytm’s weak listing, private market investors believe this will lead to a ‘flight to quality’.

While early-stage venture funds are not too bothered by Paytm’s performance, Private Equity and pre-IPO funds believe that Paytm’s performance on the public markets will lead to the tempering of valuations, even as appetite for domestic technology investments increases.

“For us, nothing changes. We typically come in one to three years before the IPO of a company and the valuations we enter at are private market valuations and not public market valuations,” said Anshu Kapoor, President and Head of Investment Management at Edelweiss Wealth Management

Paytm founder Vijay Shekhar Sharma

“Given that our pre-IPO fund life is of five years, if we feel the valuations in the private market are too high, we will slow down the pace of investments but we will continue to evaluate companies,” said Anshu.

He further added that Edelweiss Wealth Management, backed by PE firm PAG, is set to close FY 2021-22 by raising Rs 4,000 crore for Edelweiss Crossover Opportunities Fund III.

Paytm’s public market performance will impact valuations across the startup ecosystem, beginning at the top. This will temper the buoyancy in valuations in 2021, with startups like Mensa Brandsand Apna being valued at $1 billion in six months and less than two years respectively.

“The valuation pull-away started with late stage and pre-IPO companies and trickled down to earlier stages around 12-14 months after COVID-19 hit. The tempering in valuations will also follow the same trajectory and it is not a bad thing,” said Siddharth Mehta, Founder and CIO at public markets fund Bay Capital Partners.

The fund has also made technology bets during the pre-IPO round of PolicyBazaar, apart from backing other technology unicorns Lenskart, Josh parent VerSe Innovationand travel platform Ixigo.

He further added that since the fund took a seven to the 10-year view of businesses, the near term implications did not matter. That said, the fund said it was taking a cautious approach to investing in fintech.

To be fair, Paytm shares continued to rally on Thursday, opening at Rs 1,766.7 apiece. According to a report by Bloomberg, anchor investors of Paytm, BlackRock Inc, and Canada Pension Plan Board increased their shareholding in the company when the shares were down by nearly 41 percent.

“Fintech as a sector includes online brokers, insuretech, digital lenders, payment gateways, neobanks and others. We are waiting for the right set of winners to emerge. There is very little differentiation and some consolidation will happen in the space,” Siddharth added.

On Wednesday, Rehan Yar Khan, Managing Partner at the early-stage fund, Orios Venture Partners took to LinkedIn to post his views.

Kumar Abhishek, Co-founder and CEO of proximity-based contactless payments company ToneTag, which counts Amazon and Mastercard among its investors, said that while there might be hiccups, the fintech journey has just begun.

“Only 50 million Indians are actually transacting online now. The opportunity ahead is multiples of that.”

Edited by Saheli Sen Gupta

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