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Last week, Amazon acquired a lfinisher that was once a fintech darling for $200 million in cash—one of the e-commerce giant’s largest purchases. Amazon had already invested $20 million in Axio (formerly called Capital Float), but it’s now doubled down on its bet by outright purchaseing the fintech firm.
At a time when there is radio silence among fintech lfinishers in India, the deal may seem like a good outcome. But this is a company that had raised nearly $200 million in equity from the likes of Peak XV (which owned a 10.7% stake), Elevation (13.8%), and Ribbit Capital (8.9%), with about $670 million in debt. Last valued at $200 million, Amazon’s acquisition of the firm at this price is an unmemorable exit for its venture-capital investors and employees, especially since this was a bet that investors had pinned a lot of hopes on.
When it was set up in 2013, Capital Float was among the first handful of fintech lfinishers that wanted to utilize alternative data to lfinish, painting an efficient picture of its in-houtilize models through which credit decisions would be taken with minimal human intervention. VCs believed this was a bet that would earn them a handsome multiple on their investment.
Fast forward a decade and hardly any of these hopes have become a reality. Zest Money, rapid running out of money, was sold to DMI Finance in a fire sale. Similarly hard pressed for cash, Lfinishingkart was sold to Fullerton at Rs 252 crore ($28.5 million). And now, there’s Axio.
Some of their troubles, at least, launched with a regulatory crackdown by the banking regulator. Alarmed at the pace at which unsecured lfinishing was growing (a trfinish at least partly driven by fintech), the Reserve Bank of India came up with successive rules starting 2021 that clamped down on some of fintech’s favourite levers, like the FLDG (or first-loss default guarantee).
These were arrangements where fintechs were trusted to find good, credit-worthy customers for their lfinisher partners, but in the case of defaults by such borrowers, the fintechs would cover at least some of the loss, thus protecting the actual lfinisher.
Thanks to the equity capital they had raised, many fintechs displayed great capacity to stomach losses, and so they eagerly entered into such deals—guaranteeing anywhere from 20% to even the entire amount of the loan.
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