Private equity and venture capital firms saw median returns of 5x from fintech public listings over 5-6 years, with a 30% internal rate of return. Despite the attractive returns, caution is advised against over-investing in the lending sector within fintech, especially in developing economies like India.
Private equity and venture capital firms made median returns of about 5x from fintech public listings after an average holding period of 5-6 years, according to a study by JM Financial and Beams Fintech Fund. The companies under study were PolicyBazaar, Paytm, Tracxn, Angel One, KFintech, CMS Info Systems and Newgen.
The returns are broadly in line with industry expectations and seem consistent across sub-spaces within fintech, investors TOI spoke to said.
They added that these returns went hand-in-hand with over 30% internal-rate-of-return for venture capital firms.
A 30% IRR is a benchmark for technology investments. The metric is an annualised percentage rate of return over the life of an investment fund – the higher, the better.
“At a growth stage, coming in as a private investor allows these funds to make superior returns. The numbers look very good, with 5x returns. At the extreme end, there are also outperforming companies doing 10x,” Beams Fintech Fund co-founder and managing partner Sagar Agarvwal told TOI.
The returns are an indication of what investors can expect in the future. However, an investor at an overseas fund that invests in fintech and who did not want to be named, warned against overweighting with lending as a category within fintech. “A lot of these companies make money off lending, which is peculiar to India, among other developing economies. It would be crucial to not put all eggs in the same basket,” he said. India has over 10,000 registered fintechs of which 26 are unicorns. However, funding this year has dropped sharply for fintechs, and Sebi and RBI have been getting more active in notifying rules for them.
