Is CRED the poster boy of Sequoia and friends, privilege, old boys club based investment culture?

CRED is one organization which evokes a lot of emotions from both naysayers and fans, the fans of course think that it is a great ‘product’ and the naysayers always think it is a basket case symptomatic of the clueless venture capitalists operating in India. I am one of the naysayers and I think that if I were an investor I would be happy to deploy the money in businesses which either have a solid revenue model or are building great technology that sooner or later world would need. IMO businesses like Zoom cars is a business which really solves a problem in India, is cash generating and something which I would invest in, Postman is another business I would invest in, a pure tech company that solves tech issues. Razorpay is another pure tech company that I would like to have founded or invested in. To understand why CRED is the poster boy of privileged nepotism based culture lets look at its business model, team and basis for valuation.

What is Cred’s business model?

What is Cred’s business mode? Whatever it is, it is well guarded or non-existent or will be made up as we go along. Here are some of the guesses that I can make pretending I were the founder I would be pitching to my investors -

• India has about 52 Million credit card holders, arguably they are the richest of India. (They are not, the richest of India deal in cash, earn in cash and buy in cash).
• I will target to have all these credit card users on my platform (That’s potentially 52 Million users compared to Freecharge which when sold had 42 Million users).
• I can be like Groupon where I become a portal for businesses to offer a discount on services, experiences and luxuries targeted at my upper class credit card users. (Groupon’s India cousin Nearbuy.com has had no success, but that may be because it is owned by PayTM, another financial services company with muddled strategy.)
• I will sell them loans, Kunal Shah has actually claimed it is in the works, read it here.
• I will copy Founders card and maybe sell memberships.
• Hmmmmm
• Awwwwww
• Scratch, scratch 🚽

Now if I were an investor I would look at this plan and think:

1. CRED will essentially become a marketing channel for products and services, which BTW PhonePe, PayTM, GPay (Not to mention Facebook, Instagram, WhatsApp) are all trying to do without much success. Why will you succeed when others are also trying to do the same and not succeeding, and didn’t Freecharge have the same business model, then why did you sell it? Considering Facebook just saved a drowning Mukesh Ambani by throwing some billions his way, why will they not have an intention to throw another few billions and obliterate every fintech in town, after all WhatsApp already has 200 Million+ users in India, including every credit card holder!
2. On top of this why will a user come to CRED every day, it is not social media or a search engine. Its a credit card payment app, and that needs to be paid once a month. To make them come on the app every day you will have to market to them using SMS and e-mail marketing, which means in essence CRED will be spending millions of dollars to acquire an email list and phone list which is available for 5,000 rupees in India.
3. Curated services in India are a non starter. Intermiles, previously known as JetPrivilege has 10 Million users and are catering to the same demography that CRED is going after. They are also not able to entice customers with curated services even though they have been in the game for many many years and have loyal customers. They also had a co-branded credit card with Citibank, ICICI and what not.
4. Loans are a very competitive business in India, almost every fintech company in India has that in their business plan, from PayTM to GPay to Razorpay to anybody with 1000 SMB/Individual customers or more. Not to mention the pre-approved loans being offered to the privileged customers by banks themselves at low rates. Why is it a good business model to borrow money from banks at 10% and lend it at 14% when banks can do the same themselves, by investing in their own app. If you are a highly paid (Rs. 50K per month) employee of a stable organization and a HDFC Bank credit card holder, HDFC bank will climb over itself to give you a personal loan at a low rate.
5. RBI has recently tightened the regulations on how the financial digital marketing can market and collect, further limiting innovation and differentiation. Apart from this there is always a risk of RBI jumping in and regulating the loan businesses by marketing agencies as has been recently done. In worst case scenario government can do an UPI on the loan business by creating an app of their own and letting people apply to loans from all the banks through one single portal.

Why I would never invest in Kunal Shah?

Kunal Shah seemingly has credibility because he created a company called Freecharge where Sequoia was an investor and that company was sold to Snapdeal for $400 million which then sold it to Axis Bank for $60 million. There are many theories as to why Snapdeal took such a big haircut, the most popular one is Snapdeal needed cash urgenly and IMPS had destroyed the Wallet model (its another story no such impact was visible on PayTM and PhonePe which continue to thrive without having Wallet as a part of their business and still managed to grow their valuations if not business). My take is Snapdeal was sold a lemon and Snapdeal did not have enough expertise to recognize that Freecharge had very few active users and no revenue model or business model. As is always the case when the times are good everything sells — high tide raises all ships. Snapdeal spent $400 Million to buy a mailing list most of which it probably already had through Snapdeal itself.

I also believe Kunal Shah has no leadership quality and product management acumen, he has no attention to details or commitment to making a great product, his statements don’t show any signs of a leader who is willing to take blame for flaws. Here is his interaction with users on a Linkedin thread when pointed out that the site has a flaw, which shouldn’t be there because, hell you raised a lot of money ostensibly to make a great product. This is a very serious flaw in leadership quality.

In the interaction he refused to take ownership of the error, tried to bring everyone in his company to be accountable for the error and tried to play a victim. It also shows as a CEO he is not interested in his own site and does not even test his own site. Wonder what his job as a CEO is, ok sorry, it is raising money. This is what privilege looks like much like the struggles of Ananya Pandey, daughter of Chunky Pandey. Should you be allowed to get away with making mistakes and not taking ownership if you just raised $100 Million to make a UPI wrapper?

His lack of ownership is also coupled with his lack of respect for ordinary people, as he believes people troll him because he is rich and famous. I don’t know what to make of it or to think of it, you be the judge.

Lastly what should be CRED be valued at?

I am no expert in valuation, according to me real valuations appear only when the thing IPOs, the recent hyped products such as Uber, WeWork, Slack were all valued sky high by investors but the markets thought otherwise. It is also very difficult to value a zero revenue company. What are we valuing it for becomes tricky

• We can value it for a great product? CRED has no such kickass product that is already not out there doing the same things. In fact there are far too many.
• We can value it for user base! I can buy the 52 million credit card user information on the market, so that is also of not much value?
• I can value it for loyal customers! Intermiles has 10 million loyal customers, it was last valued at $500 Million approximately or 7 times its revenue.
• It can be valued for revenue! It has no revenue.
• It can be valued for a kickass team! Does not seem to have a kickass product or management team. A team that cannot figure out that a wrong link exists on their home page for which Sequoia and friends paid $100 Million is no team.

In summary I think Sequoia and friends have invested in Cred because of their bhai giri with Kunal Shah and that too at a very high valuation. Should they invest in this manner, well its their money and they can put gasoline on it and light it on fire. Can this money be used for something better? Yes of course. The same money could have been used to scale many startups that are being operated by talented entrepreneurs. Does this investment smack of privilege and nepotism, o yeah it does, its a slap on merit based investment philosophy. It would be interesting to see if what would happen if they are not able to find a Snapdeal/Softbank based sucker to buy this Led Zeppelin.

I wrote this because Kunal Shah asked me what my problem with Cred was.

You can find me on Twitter at Manish Sharma .