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With Robust Backing from Sequoia, this Fintech Startup Aims to Redefine lending for the Unorganized Sector
Event Venue: Jaipur
Start Date: April 14, 2018
Getting Sequoia Capital to pump in venture capital is no mean thing.
In March this year, early-stage Finance startup Finova Capital wooed investment major Sequoia Capital to participate in a second tranche Series A round that saw as much as USD 6 Million being raised. Now, the latest round of funding assumes significance considering the fact that Finova Capital (which is NBFC Licensed by the Reserve Bank of India) was founded in 2016 and has so far managed to raise a consolidated venture capital (VC) of INR 52 crores.
In this regard, Entrepreneur India interacted with Mohit Sahney who is Founder and CEO at Jaipur-based Finova.
“We are NBFC focussed on MSME space & do funding in small tickets & in smaller semi urban, rural markets,” states Sahney to Entrepreneur India.
The Funding journey of Finova
As per Sahney, Finova Capital has managed to raise INR 52 crores as consolidated capital; with INR 38 crores amounting to VC funds raised through Sequoia Capital.
“Sequoia has given us venture capital, and we are working with as many as thirteen investors who have lent us debt,” explains Sahney.
Now, it is worth noting that Sequoia’s GV Ravishankar has also mentored Finova apart from just having invested venture capital on the startup.
As far as connecting with Sequoia is concerned, Sahney explains that it was his earlier stint at ICICI Home Finance that enabled him to clearly analyse the mortgage business.
“Looking at my experience, and the huge unmet demand in the MSME domain, Sequoia Capital decided to invest in us,” explains Sahney.
Sahney explains that Finova Capital, since its inception, has been profitable; which helped to connect better with Sequoia.
“We don’t believe in burning cash. For us, income is first and then comes expense,” informs Sahney.
Developing the right technology-driven models
With today’s investors taking keen interest on the technology focus of new ventures, Sahney states that the startup’s domain-specific templates that helps address credit worthiness within unorganized segments served as the icing on the cake with respect to getting funded.
Sahney believes that with India’s heterogeneous market nature, there has to be an amalgamation of both Fintech as well as conventional approaches when it comes to the financial sector. He states that venture capital funds are always seeking the right entrepreneurs with the right models.
For new entrants, Sahney’s recommendation is to focus on making businesses self-sustainable. He advises entrepreneurs to develop long-term plans and think professionally focussing on wealth creation.
“Always remember that corporate governance and compliance is a must, and there are no shortcuts,” he signs-off.
Opinions expressed by Entrepreneur contributors are their own.
Sequoia puts $6m in NBFC lending company Finova Capital
Event Venue: Jaipur
Start Date: March 05, 2018
NEW DELHI: Jaipur-based Finova Capital, an NBFC lending to small businesses and service providers in small towns and rural areas, has raised $6 million from Sequoia India. The lender will utilise the funds raised for expanding operations, investment in technology and talent acquisition. The company had raised Series A round from Sequoia India late last year in its first external round of fund -raising.
Boutique investment bank Unitus Capital which specialises in debt and equity investments for impact enterprises was the financial advisor for this transaction. Finova Capital has till date disbursed loans to the tune of Rs 90 crore to over 1,100 customers. Founded by husband-wife duo Mohit and Sunita Sahney in March 2016, the RBI-registered NBFC claims to be profitable from the first year of its operations. The company had built customised underwriting models for borrowers from over 15 different unorganised segments like tea vendors, fruits and vegetable vendors, carpenters etc. The company specialises which counts its differentiation in focussed on services segment in semi-urban and rural markets lends with an average ticket size of Rs 7 lakh at an average annual interest rate of 22%.
We are investing significantly in technology as we believe it is an enabler to the traditional brick and mortar model, and the most efficient way to deliver credit to our target segment, said Mohit Sahney, CEO, Finova Capital.
Profitable from year one, Finova Capital closes Series A funding from Sequoia India
Event Venue: Jaipur
Start Date: September 12, 2017
Finova Capital, a Jaipur-based non-banking financial company (NBFC), announced on Tuesday that it had raised an undisclosed amount in Series A financing from Sequoia India. The MSME lending firm will use the funds to expand its presence across the country.
Story so far
Founded in March 2016 by Mohit Sahney, Finova Capital is an RBI-registered NBFC. It provides home and business loans to MSMEs by bringing access to formal credit to their doorsteps. Finova Capital aims to provide affordable and customer-centred credit to micro, small, and medium enterprises in a time-bound fashion. This is done by leveraging technology and efficient products, relevant policies, and robust processes.
MSME finance in India is a largely unorganised sector, especially in smaller markets which have significant opportunities for small businesses but lack access to formal credit. Most players in this space exist at two ends of a lending spectrum:
1.Those who disburse low-ticket loans: Rs 2-3 lakh for a period of two-three years.
2.The larger players: who lend above Rs 25 lakh for 15 years or more.
Finova Capital aims to serve the "missing middle" of the MSME segment, small businesses and services in small-town and rural India who are looking for mid-ticket loans - Rs 8-9 lakh for a period of up to seven years. The loans are provided at customised interest rates and flexible tenure plans. Talking to YourStory, Mohit Sahney, CEO, Finova Capital, noted that their interest rates, while dependent on many factors, are about 18 percent on average.
Finova claims to have disbursed close to Rs 45 crore to over 500 small businesses till date. With a team of 50 employees, the venture has five branches across Rajasthan.
How Finova Capital works
Given the sector it addresses, Mohit noted that Finova looks at a borrower's cash flow as opposed to formal documentation for credit assessment. The company has created customised templates which are used to analyse credit ratings across each sector. Mohit explained that they have customised templates for different professions ranging from chaiwallahs to carpenters. He said,
A large chunk of India's MSME market falls into the service sector. And this is the segment we cater to - the electricians, plumbers, carpenters, and chaiwallahs, those who don't have access to much-needed capital due to lack of formal documentation, financial literacy, or presence of mid-level players."
Mohit further explained that Finova currently works with 10 lenders and is looking to explore further partnerships to expand its lending portfolio. The team expects to end the year at 100 crore assets under management (AUM) in its second year of operations while having been profitable from the first year itself. Mohit shared,
We feel that a marriage of technology and brick and mortar would work well in a complex country like ours, so we are investing in technology to digitise everything right from loan application to disbursement.
To ensure timely repayment of loans, Mohit said that his team engages in financial literacy programmes that tell their customers exactly what they are signing up for. Finova also leverages technology to send timely alerts and reminders to customers.
But considering that MSME financing has long been a disorganised sector, Mohit admitted that his team faces many challenges on a regular basis, which include finding locations which are cost-effective, local experts who understand the framework, educating the borrowers who are used to working with money lenders, and even creating customised templates for cash-flow analysis.
The arrival of demonetisation in late 2016, though, turned out to be a boon in disguise. Mohit explained that with surplus cash deposits in the bank during demonetisation, liquidity in the system ensured growth for Finova as they had already got their customers to embrace digital transactions. Also, the fact that their customers mainly constituted electricians, plumbers, and chaiwallahs, who come under the essentials category, ensured that there was a constant flow of capital.
GV Ravi Shankar, Managing Director, Sequoia India Capital Advisors, said,
Finova Capital is addressing a critical need gap in the highly underserved MSME market by making credit available to small businesses with undocumented income through their innovative credit models. Sequoia is delighted to partner with Mohit and his team to build a market leading platform for MSME lending in the country.
Sector overview and future plans
According to a PwC report, NBFCs have scripted great success stories and recorded healthy growth — a compound annual growth rate (CAGR) of 19 percent over the past few years — comprising 13 percent of the total credit and expected to reach nearly 18 percent by 2018–19. The World Bank too has endorsed the use of reported non-financial data in the credit origination processes and considers it a powerful tool for driving financial inclusion in emerging markets.
Mohit explained that for the near future, Finova aims to focus only on Rajasthan and the goal is to expand to 15 branches by the end of FY 17. With the funds raised, the startup aims to increase headcount to 120 employees and further invest in technology.
Rajasthan's fastest growing NBFC licensed by RBI, Finova Capital has announced on-boarding Rahul Sahney and Anurag Agrawal as Chief Operation Officer and head of Credit and Operations at Finova Capital.
"I am excited to announce that Rahul Sahney, previously associated with Axis Bank and Reliance Consumer Finance etc will be joining Finova Capital as the COO. He brings on board an enriching industry experience and hands-on knowledge and his contributions will be crucial in the growth of our enterprise. Furthermore, it gives me immense pleasure to welcome Anurag Agrawal as Head - Credit and Operations. Being associated with established conglomerates like ICICI Bank and Tata Telecommunications, Agrawal has the right vision and domain expertise to take Finova Capital at the pinnacle of success. I look forward to collaborating with these two visionaries and propelling Finova Capital on its projected growth curve," said MD and CEO of Finova Capital, Mohit Sahney.
Rahul Sahney has rich experience of over 13 years in Financial Services Industry. In his previous undertaking, Rahul was associated with institutes like Axis bank, Reliance consumer finance, AU Financiers, and the Standard Chartered Bank. Rahul is credited with scaling up construction finance business in AU financiers.
On his new undertaking, Rahul Sahney, COO, Finova Capital, said "It is exciting to be part of Finova Capital that is focused at bringing about financial inclusion within the non-urban sections. I look forward to collaborating with the team and making credit solutions easily available and accessible to the MSMEs."
Echoing the same thought, Anurag Agrawal, Head of Credit and Operations at Finova Capital said, "I am glad to join Finova Capital and assist the NBFC in its crusade for financial inclusion and growth of the MSMEs in India." In the past, Anurag Agrawal has handled several key leadership positions and has been associated with ICICI Bank and Tata Telecommunications.