💔 Smallcase and Cred Breaking Up?
A deal between Smallcase and Cred had many fintech enthusiasts excited. But their potential relationship has seemingly fizzled out. Here's why.
Everyone's favourite ad-maker Cred has recently been on an acquisition spree.
The unicorn wants to expand beyond its current offerings and become a complete wealth management platform.
And to do this it was set to acquire Smallcase.
But sources claim the deal has now fallen through.
So, we're here to explore why that could have happened.
🧐 Did Cred and Smallcase Make Sense?
On paper, Cred and Smallcase's pairing made perfect sense.
They were like the "it" Bollywood couple.
You see, Cred had already acquired a lot of fintech companies like:
Happay, a corporate expense management platform
Hipbar, an alcohol delivery platform, with a prepaid payments instrument licence
Parfait Finance and Investments Ltd., an NBFC
It also backed CredAvenue, a corporate debt raising platform and has applied for a payments aggregator licence.
Basically, it has its hands in a lot of pies.
The only thing missing? Equity investments.
That's where Smallcase case in.
Suppose, you think green energy is the current space to be in. Smallcase will show you stocks belonging to that space and you can invest in that portfolio of stocks.
It's kind of like a mutual fund where you make the choice about where your money goes.
So, instead of just a trading platform (which Smallcase is not, it partners with other trading platforms to allow people to buy portfolio stocks), Cred would get what was essentially a portfolio management service.
Even those who didn't want to invest could understand current stock trends and get stock market updates through the platform.
Plus, PhonePe had already acquired Smallcase rival WealthDesk earlier this year, announcing its entry into the wealth management space. This could have also prompted Cred to get its hands on Smallcase.
And for Smallcase, the deal would reel in Cred's massive 7.5 million user base. This could probably help the platform cut down losses and finally become profitable.
So, what led to the fallout? Well, both sides have been quiet about this so far but we have a few speculations:
Valuation Trouble: Smallcase is in no way small. The company has major backers like Amazon and Zerodha. Thanks to this, its valuation has reached $200 million. And with this new deal, it was looking at almost doubling its valuation to $400-500 million. But in today's startup market where funding is drying down, this could have been considered too much by Cred. Shah reportedly wanted to close the deal at $200-$250mn. This obviously would not make a lot of sense to Smallcase.
Point to be noted: Cred started out a couple of years after Smallcase but already has more users and a higher valuation ($6.4 bn).
Regulatory Trouble: Cred could also have lost interest in Smallcase after news that its business model could be in danger. You see, SEBI recently announced that SEBI-registered research analysts cannot provide model portfolios or advisory services. Though Smallcase hasn't been pulled up by the agency as of yet, SEBI's currently in a mood to omit all loopholes and grey areas that fintech firms are operating in. So, the acquisition could have been potentially risky for Cred.
So, the two have reportedly decided to part ways.
🔮 Future Prospects
Even before the acquisition talks, Smallcase was growing rapidly. It saw a 5.3x growth in FY21, with losses only rising by 16%.
Its users have grown from 6.6 lakh in 2020 to 45.2 lakh in 2022.
Plus, the company apparently has enough cash saved up to survive a year without funding.
So, the best move for it would be to focus on its growth and become profitable, as funding might be difficult to come by this year. But if it improves its metrics, it may get a better deal when the markets are less panicky about global crises.
And it may not have to look far for a new deal. Its current investors Zerodha and HDFC Bank could also offer it an acquisition offer, something that would add value to both companies.
As for Cred, it seems to be reducing spending in the current environment. So, we may not hear anymore about acquisition deals from Cred's side.
The two parties may, however, still make major headlines if and when they choose to come out about the real reason behind their breakup.
Until then, all we can do is speculate about what went wrong.
Source: The Morning Context
⚡In a line: Cred and Smallcase could have been couple goals but the funding winter and SEBI could have resulted in a breakup.
💡Quick question: Do you think their breakup makes sense?
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