Of credit and credibility: Why Madhusudan Ekambaram and KreditBee get a strong vote of approval from investors

Madhusudan Ekambaram, Cofounder and CEO, KreditBee Image: Hemant Mishra for Forbes

It was crazy,” recalls Madhusudan Ekambaram. No marks for guessing. The ‘crazy’ year was 2021, and it seemed the startup world was busy churning out a blockbuster sequel of Alice in Wonderland. Dollars started flowing freely from the tap, a rarest of rare mythical animal—unicorn—suddenly multiplied and fluttered majestically in all its glory, and venture capitalists turned into King Midas—whoever they touched turned into gold. And the founders—even those with meagre revenue, questionable business models and dubious corporate governance—got a makeover with a heavy glitter of valuation. Entrepreneurs immersed themselves in scripting a fairytale of chasing crazy growth at all costs, raising money became the most glamorous and rewarding act, and valuations were generously pegged on multiples of revenue. The real world turned surreal.

Ekambaram, though, was not daydreaming. “It was indeed crazy,” says the first-time founder, who started his professional innings with TCS in 2004, spent the next dozen years in the software, telecom and ecommerce industries, and finally took the entrepreneurial plunge in 2016 when he co-founded KrazyBee, an NBFC which lends through its digital lending platform KreditBee. In 2016, Ekambaram was 35, had a home loan and the startup ecosystem in India was still largely untouched by the curse of heady valuations.

Five years later, things changed in a flash. “I got 11 terms sheets when I hit the market for the Series C round of funding,” recalls Ekambaram, who was then 41. “Don’t you find this crazy?” he asks. The founder shares reasons for his deep scepticism. In early 2021, the world, including India, was struggling with the pandemic, the clouds of uncertainties still gripped most of the ventures, and the business of lending was the riskiest of the entire lot. And it reflected in the way the revenues of KreditBee crashed: From ₹800 crore in FY20 to ₹327 crore in FY21.

What was even more damaging was the fact that the venture slipped into loss for the first time—from a profit of ₹130 crore to a loss of ₹100 crore during the same period. “Amidst all this, 11 term sheets was how the market responded,” says Ekambaram, who went with four funds—the TPG-backed NewQuest Capital Partners, Premji Invest, Motilal Oswal Alternates and Mirae Asset Naver Asia Growth Fund—when he closed $145 million in the Series C round of funding in March 2021.

Two years later, in January 2023, Ekambaram managed to get just three term sheets in his Series D round of funding. Interestingly, two out of three—private equity major Advent International and Mitsubishi UFJ Financial Group (MUFG), Japan’s largest bank—pumped in money. Interestingly, there were no offers from VC funds. “The market was cold,” recalls the founder, who started the fundraising process in May 2022, got the term sheets in a month, and closed the process over the next seven months in January 2023. Apart from the funding winter, there were other reasons for the absence of venture capitalists.
 
First, Ekambaram was looking to raise over $100 million in funding. What this means is that the lead investor should be one who could do the heavy lifting. “There are not many who can write a $100-million cheque,” he says. And given the context and realities of the market, VC funds would definitely not be in the fray. With growth-stage VC funds—Series C and beyond—too chickening out, the ground was wide open for PEs (private equities) to fill the vacuum.

Also read: How Ankit Agrawal's cover drive sheltered InsuranceDekho in the funding winter

Second, the nature of KreditBee’s operations has a lot to do with the kind of backers on Ekambaram’s wish list. Being a fintech company and an NBFC, the lender has to regularly get rated by ratings agencies. It also has to borrow from banks—government as well as private—to meet its needs. Lastly, NBFCs also need to raise money through public issuance of bonds. “Now, when we have to do all these things, the credibility of the cap table becomes critical,” he says.



The rules of the game, therefore, change. While a $1 billion valuation—unicorn—might be an exciting thing for others, it makes little sense for an NBFC. Why? The quality of validation and validator becomes important. The founder explains. To raise debt—which again an NBFC has to—comfort and trust play a huge role. “The reason why I went for Premji Invest, Motilal Oswal, Mirae, Advent, MUFG and others is the kind of trust, integrity and credibility they bring to the table,” he says, adding that, for an NBFC, these attributes are more important than lofty valuations and a unicorn tag. “If I am good, then I should be rated good by a tough evaluator,” he says. Roping in marquee guys with huge credibility, he adds, sends a positive and right signal to the market.

Third, for a startup and a company in a high-growth phase, the lens of evaluation also changes. Take, for instance, the way VCs and PEs judge a company. While the former places early bets on startups and focuses heavily on the future potential and promise of performance, PEs look at past records. “They want a lot of sanity in the way the business should grow,” he says. For an NBFC and all its stakeholders, sanity is the most important thing as the segment is regulated by the RBI.



So, was raising money easy for the market leader in digital lending, which also happens to be profitable? In spite of a sustainable pace of growth (see box), Ekambaram reckons the task was not easy. Much like Alice who was first startled by anthropomorphic characters in the fantasy world of Wonderland, startup founders, including Ekambaram, were baffled and came to terms with an alien phrase: Quality of profit. The founder explains—the investors were not satisfied with just a profitable entity, they wanted to dig deep and find out about the quality of profit, and asked questions about revenues, cash flow, and compliance, audit and diligence.

There was another lens through which an NBFC started to be evaluated: The level of resilience to absorb shock events such as Covid. KreditBee scored high on this metric as well. While the revenues dipped from ₹800 crore in FY20 to ₹327 crore in FY21, it bounced back and logged in ₹642 crore in FY22. Then there were digital lending guidelines which came into effect from September of last year. “Since it came during the fundraise process, everybody had to look at the impact on the company,” says Ekambaram, adding that the usual duration of diligence of 3-4 months almost doubled to 5-6 months, and BCG and McKinsey were appointed to complete the process. “It’s rare to have two big guys do the diligence,” he says. KreditBee, he adds, has been diversifying its portfolio of unsecured loans by getting into secured ones—business loans and loans against properties. “All these are strongly structured loan products from the RBI’s perspective,” he says.



  Saravanan Nattanmai, meanwhile, explains what helped KreditBee get a strong vote of approval from investors. “We saw the company in July 2019 and invested in KreditBee at the peak of Covid,” says the partner at Premji Invest. A lot of time, he adds, was spent in understanding customer acquisition, underwriting and collection strategy. Fintechs, the funder underlines, have two angles: Finance and technology. If you miss one of the two, it will be a disaster. “KreditBee had both,” he says, adding that the startup also went through trial by fire in Covid, but came out with flying colours. “That tenacity and discipline to build a business with a strong focus on unit level economics make them special,” he says.  

Ekambaram, meanwhile, points out what he prefers to call special: The process of building and keeping the trust of the users, backers, and the stakeholders. “We are firmly on our journey to become a bank. It will take time,” he says. Anything happening overnight or in a short span is ‘crazy’. “KrazyBee is geared up for a patient, sustainable and long-term play,” he signs off.