Inspired by U.S. based firm Lending Club, Sequoia Capital and SAIF Partners-backed Capital Float wants to make a dent in the SME lending space

When Shashank Rishyasringa and Gaurav Hinduja met at Stanford Business School for the first time, while a passion for entrepreneurship brought them together, what set the foundation for a future business partnership was the complementary skills they possessed to start a venture. While Rishyasringa came with over four years of experience in consulting and strategy at McKinsey & Co and Bain Capital, Hinduja came with considerable experience in Gokaldas Exports, a family garments business. “Both of us were fascinated about starting a business in India. We wanted to solve an ominous pain point and after extensive research, the idea boiled down to supporting small-time entrepreneurs and creating further job opportunities,” recalls Hinduja.

Thus was founded Capital Float (under its parent company, Zen Lefin Pvt. Ltd.), an online lending platform for small and medium business across the country. Setup in 2013, the founders’ first reference point to arrive at a sustainable model was U.S. based Lending Club, an online lending platform which enables businesses to obtain loans and investors to purchase notes backed by payments made on loans. “Although we knew that the challenges back home were multi-fold, added to the limitations imposed by RBI, there were several interesting insights we could draw from this model” voices Rishyasringa.

Typically, Capital Float follows a three-step process to disburse loans to its customer. First, the customer files an application online, one that the founders say doesn’t take more than ten minutes. Then, the Capital Float team underwrites the customer’s business, analyses data sets provided by the company as well as from external sources, to determine the feasibility of the business. Lastly, it approves the loan, depending on the customer’s nature of business and requirement. “The entire process takes three to five days, a significantly lesser period than that taken by traditional lending institutions in India,” points out Rishyasringa. In setting up this process, the company derived inspiration from the likes of Lending Club on three aspects; firstly, on how they can access data to underwrite their customers and expand the pool of non-addressable customers with loan requirements. Secondly, how they can reduce operational cost by eliminating the need for physical outlets and taking the entire process online. And lastly, in turn, how they can ensure quick turnaround for customers and pass on the reduced operational costs to customers in the form of lower interest rates.

Till date, the company has extended financial support of Rs. 250 crore to over 150 customers, and aims to take this number to Rs. 1,000 crore in the next three years. Its loan size ranges from Rs. 2 lakh to a crore, with the average loan size being around Rs. 10 lakh to Rs. 15 lakh. On this, it charges an interest rate of 15 per cent to 20 per cent.

The Customer Acquisition Strategy

“The one big difference we see in our model as compared to other traditional models is, while traditional lending companies insist on experience, profitability and collaterals and find reasons to reject their loan, we look at multiple other variables to be able to analyse the credit worthiness of the business,” opines Hinduja.  For example, Capital Float employs several unconventional strategies such as understanding the profile of the promoter (their personal attitude towards business, their past business decisions and responsibility towards managing credit), their customer sentiment (reviews on online and offline platforms) and psychometric tests, to name a few. “Instead of adopting a cookie cutter approach, we find reasons to say yes to our customers,” shares Rishyasringa.

Hinduja’s prior experience in his family garments business helped the founding duo identify their first set of customers, ones who were supplying to large retailers such as Madura Garments. “We were able to understand the challenges they faced in securing loans and their working capital requirements,” says Hinduja. Following this, they partnered with ecommerce portals such as Flipkart, Myntra and Snapdeal to understand the challenges faced by their vendors and support them. While naturally, the customers were initially hesitant to seek support from a company which was new and didn’t have reasonable awareness in the market, once they took the first step, they began spreading the word amidst their segment, which helped Capital Float further expand its customer network. “We let our product do the talking. We were confident that we had a seamless product at competitive prices, and this would excite them,” indicates Hinduja.

In terms of sales and marketing, as he pointed out, while the company gained its initial traction through word of mouth, as it scaled up, it began employing several online and offline strategies to target customers even in Tier II and Tier III regions across the country. “While the early days were about feet on street marketing, now, we are in the process of rolling out several interesting marketing strategies which include digital marketing and relying on data to identify regions where most of our customers operate and targeting them with our products,” states Hinduja. Particularly, the founders believe digital marketing, one that traditional lending channels hardly adopt, will help them target fairly tech savvy second-generation SME entrepreneurs.

Fund raising

The Bengaluru-based company has raised three rounds of funding, a seed round of U.S. $2 million from Aspada Investments, an interim round of U.S. $ 1 million from SAIF Partners in 2014, and a recent  (February 2015) Series A round of U.S. $13 million from Sequoia Captial, with participation from existing investors, SAIF Partners and Aspada Investments. As Rishyasringa indicates, the funds were primarily channelised into three directions; to enhance its underwriting platform, to further expand its footprint from the current 12 cities it is present in, and to build an efficient team.

“The SMEs we address lie in the interim, between ones supported by MFIs and ones supported by large banks. They face several challenges in accessing finance, and our goal is to actively reach out to these segments, particularly in the Tier II and Tier III regions,” indicates Rishyasringa. Known for its customised and unique offering of financial services, the company is expanding its product portfolio to suit the need of every type of SME. For example, a vendor selling his mobile phones on Snapdeal buys inventory from time to time, sells it online and pays the retailer. This nature of business requires a different loan structure. On the other hand, a production business needs a different kind of investment to increase its capacity, expand its business, and launch new products. For such companies, Capital Float offers term loans and so on. “In such a complex ecosystem, our one big challenge and ambition is to be a one stop shop for SMEs and offer them financial assistance for every conceivable scenario,” envisions Rishyasringa.

Snapshot 

Capital Float (Zen Lefin Pvt. Ltd.)

Year: 2013

Founders: Shashank Rishyasringa and Gaurav Hinduja

City: Bengaluru

Concept: An online lending platform for Indian SMEs

Investors: Sequoia Capital, SAIF Partners and Aspada Investments

Impact: Disbursed loan worth over Rs. 250 crore to 150 customers across 12 cities (including Tier II and Tier III regions)