DST may back PhonePe's $1 billion raise

BENGALURU: A set of marquee investors like Israeli-Russian billionaire Yuri Milner's DST Global, Ribbit Capital, Falcon Edge, Green Oaks and China's Hillhouse Capital have held discussions with PhonePe to invest in its independent fund-raise that is expected to be $1 billion in size. These investors are looking to back Walmart-owned Flipkart's payments platform and have held multiple rounds of talks with the Bengaluru-based company, said three sources familiar with the development.

The valuation at which PhonePe finally agrees to raise the capital remains a critical condition for the talks to go through. PhonePe, which recently crossed 3-billion-transactions landmark on its platform, is believed to be looking at a valuation in the range of $8 -12 billion. As reported by in May, Tiger Global and Tencent, which have previously backed Flipkart, continue to be involved in the investment negotiations. PhonePe is on an annual gross transaction value run-rate of more than $90 billion.

"The final capital being raised would depend on the valuation but they (PhonePe) are looking to dilute about 10% in this fund-raise," one of the people mentioned above said. Sources in PhonePe said the company, at this stage, won't look at a valuation under $8 billion. The company is on track to close 5 billion transactions (volume) by 2019.

After Flipkart's board gave its nod for PhonePe to raise external capital this year, the company has been negotiating for a higher valuation to close the transaction. A PhonePe spokesperson declined to comment on the matter, while emails to investors did not elicit any response.

Among the earlier-mentioned investors, DST Global had also backed Flipkart in 2014 and last year it supported food delivery platform Swiggy and business-to-business commerce platform Udaan, started by former Flipkart executives. Sources added large strategic investors, who had put money in Flipkart, are likely to end up investing in PhonePe as they are familiar with the payments platform's growth trajectory and the founding team.

Started by former Flipkart executives Sameer Nigam and Rahul Chari in December 2015, Flipkart had acquired the startup about four months later in 2016. The company has been spending aggressively to market its brand across the country to take on rival Paytm. Of the 335 million transactions PhonePe has clocked in July, 20% of it came from its offline network. PhonePe claims to have about 6 million merchants on its network, while its separate business app has about 3 million merchants.