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Building BNPL for education | Rohit Ghajbhiye @ LEO1
307 Plays2 years ago
Rohit started FinancePeer - a peer-to-peer lending startup but showing remarkable agility, he soon pivoted the company to become a leading player helping fund school fees for parents. He shares his journey of discovering product-market fit for LEO1, and the journey of building multiple moats for what is a very profitable and sticky business.
Read the text version of the episode here.
Read more about LEO1:-
1.LEO1’S Unique Fee Financing Model Making Quality Education Accessible To Parents In Karnataka
2.How fee financing is creating a win-win situation for parents and schools
3.Education’s commercialisation: Unraveling the constraints
4.“Blended education is the way forward for the education sector.” Rohit Gajbhiye
5.Financepeer founder Rohit Gajbhiye features in Forbes 30 under 30 Asia list
Recommended
Transcript
Adapting in Business
00:00:00
Speaker
Hi everyone I am Rohit here founder and CEO of Leo One.
00:00:16
Speaker
The best businesses are not built by perfectly executing a business plan but rather by being agile in listening to the market and being willing to switch gears when needed.
Rohit's Career Journey
00:00:26
Speaker
And the story of Leo 1 is the perfect example of this principle. Rohit Gajbir was an IIT graduate who spent a few years working at a bank in Singapore.
00:00:35
Speaker
He decided to come back to India to try his hand at entrepreneurship. And he started Finance Pure, which was a peer-to-peer lending startup.
Evolution of Leo One
00:00:43
Speaker
But showing remarkable agility, he soon pivoted the company to becoming a lending player, helping fund school fees for parents and finance peers was renamed to LEO-1. In this candid conversation with Akshay Dhat, Rohit shares his journey of discovering PMF for LEO-1 and the journey of building multiple modes for what is a very profitable and sticky
Solutions for Education
00:01:04
Speaker
business.
00:01:04
Speaker
Stay tuned for the conversation and don't forget to subscribe to the Founder Thesis Podcast or any audio streaming app to your journey of founders who have built for scale.
00:01:21
Speaker
We are an embedded finance stack for education ecosystem. So we have comprehensive financial solutions to solve for their core problems, which is essentially fee collection problems and liquidity problem for the parent to pay fees. So basically we have multiple products embedded into one stack, right? We have not just lending, which we started with.
00:01:41
Speaker
but we have payment solutions, we have card solution, we convert ID card into ID plus prepaid cards, so converting a campus to a cashless campus. And along with ERP, we offer this as a holistic solution to the institution, so that it's not just solving their loan problems for parents, it is holistically solving their fee collection and liquidity problems for parents. Okay, okay, interesting. And this is for what level, like schools, colleges, like what is the market that you cater into?
00:02:12
Speaker
So yeah, we have, we had started from schools and colleges with the card segment, of course, colleges where we have started with, but this fits for K-12 and colleges both,
Growth and Expansion
00:02:21
Speaker
right? Less for preschools or for alternate segment, but more for K-12 and colleges. Okay. Okay. Got it. And what, like, you know, some numbers that you can share, like what is your ARR or how many users and how do you measure users? Do you measure users as the students, as the number of institutions, like just some metrics that you can share around the business?
00:02:43
Speaker
Yeah, so see basically how we have grown from the past three years, right? In our first year, we were working with around 24 schools that time it was K-12 segment. And we did roughly around somewhere around five crores of disbursements in the first year. Because it was a lending product. So this five crores is what you financed parents to help them pay the fees. Yes.
00:03:03
Speaker
That year was completely into lending. So in the year two from that, we went to nearly around 450 institutions, just about touching 500. Increase our disbursements of financing to around $10 million in year two. And then in year three from there, we went to around 2,600 plus institutions. And we have done a hundred million dollars of disbursement.
DBS and Healthcare Venture
00:03:25
Speaker
That was our last year. And this year again, we have paired up with around 11,000 plus institutions and India.
00:03:33
Speaker
are touching more than 5000 plus pin codes already and we are expecting that it may not be direct multiple but at least 250-300 mil that we may touch in terms of lending volumes right. So because this has been our genesis we started offering the zero cost EMI product back in 2019 but apart from that in the past 18 months or so you will see in the fee segment
00:03:55
Speaker
We have processed more than $100 million of fees and that's not lending, but parents have started using our platform and paying fees also and it's in the same institution. So they are not two institutions. Some people pay fees via the platform, some people take the loan options. That's the second offering. If you look at the ERP, our software is deployed in more than 360 colleges across the country. Again, there is roughly around 2.7. So roughly 300,000 plus students, teachers and parents all using our platform.
00:04:24
Speaker
These are active users, right? So these are still there on the software portion. So that's something that has been done before. Our card product was recently launched less than two months since starting the product. We have around two and a half lakh students who have subscribed to the cards, right? So that's in progress for this year.
00:04:44
Speaker
Okay. Got it. Amazing. So let's talk about the journey of getting here. So, you know, I believe you were working with like Development Bank of Singapore. What is that? Like a World Bank kind of an organization? What is that like? So it's a private bank. It's private come public bank back in Singapore. So it has taken over POSB. So it's like the SBI for Singapore, right?
00:05:07
Speaker
So, and what was your role then? So I started as a graduate associate. I was selected straight from the campus.
Challenges in Healthcare Startup
00:05:14
Speaker
And initially we were to work on multiple projects. So we started with, if you've heard about PELA, which is used back then in Singapore, we worked on that project. We worked on developing a credit line and account opening for exchange students.
00:05:27
Speaker
From there and completing that first year, then we went into the credit and liquidity risk segment. This was the area where I had an expertise in, which were more into the FRDM space. So it's a finance risk data mart. So we were developing the finance risk data mart for the bank, taking help of Moody's Risk Engine. And that's where my area of expertise lies. So I used to compute all those ratios and understand the financial health in terms of the lending lines, in terms of other treasury inputs that we have done.
00:05:56
Speaker
So all of this regulatory reporting was managed by my department. So I had that expertise first in DBS. Of course, then post DBS, I had gotten into a healthcare venture as well. Very small still like nine months. We started a company called forget to remember.
00:06:11
Speaker
in India. That was in India but I was still working in DBS at that time so I had not left my job.
Birth of Finance Peer
00:06:17
Speaker
DBS was in Singapore. DBS was in Singapore. Healthcare actually was started from Singapore working with the other fellow co-founders in India and we had developed a concept of medical adherence for organ transplantations. The concept went well, prototype came in place, initial funding came in place but our team collapsed. By the time we all decided to leave our jobs and
00:06:36
Speaker
take it to the next level. So that was my first failure and obviously healthcare was in my space. So the CEO of that company was someone else back in India. And what is this medical adherence? What does that mean? Like there a transplant patient needs to follow certain diet and exercise regimen and then you build an app which sends them notifications and nudges. Was that what I mean? I'm just guessing.
00:07:01
Speaker
Exactly. Yeah, exactly captured. You can adjust for the family members along with the patient and the doctor. So that the doctor and family members, you essentially tell them if something is not happening. Because you are what happens even if you miss a single medicine on time. Basically, the problems could get severe. And even on cost structures, it could mean a lot for the family. So adherence means a lot in terms of the organ, kidney, liver, transplant kind of major issues.
00:07:30
Speaker
So that wasn't my area of expertise, healthcare space. Of course, I was looking at the finance and tech piece for that entity. It doesn't sound like a large time for
Pivot to Education Loans
00:07:39
Speaker
a product like this. I mean, how many people would be doing organ transplant?
00:07:44
Speaker
No, there is. Essentially, the idea is if you look at TAM in terms of number of people or if you look at TAM in terms of the cost structures involved. So these are two different ways of looking at it. So if you actually look at organ transplant in terms of the cost structures involved, it's very heavy. And if developed nations, it's much, much larger as well. So even you don't really need to capture volumes of customers, but it matters in terms of the number of lives that you impact.
00:08:14
Speaker
So it told it to us, but of course the product that we have today, the TAM wasn't as big as what it is today. But of course the ticket size also is way different from what it was in that segment versus this.
00:08:24
Speaker
So you left that company and it carried on or the business shut down? Yeah, we actually sold it to the investor itself. He's just using the app and not running any other segments of the businesses. And as soon as I started, I know there are going to be challenges. We have to tackle it. I had a different learning in terms of team selection, right? And especially in terms when it comes to co-founders as well, you have to be very careful what you have to define upfront, right?
00:08:49
Speaker
First hint, a lot of learnings from it. And post that, I was working on the ideation which became my second venture. What went wrong? What was you learning from it?
00:08:59
Speaker
Yes, so see how that company was formed. While I was back in DBS, there was a program called Stanford Ignite, Stanford GSB program only. So DBS has sponsored me as an entrepreneurship program into that. And as part of the program, we had multiple projects. One of the project was this project, right? And we then studied through this project. We pitched through this project and we ended up.
00:09:21
Speaker
so those team members were my team members during the course as well and post the course we just took it a step forward right and the trouble was of course we were placed in different countries you are not at the same location we did expect a lot from the venture and we did get the first round of funds also but knowing the founder in terms of the risk taking ability was not done before because
00:09:46
Speaker
that three to six months was what we have spent with each other that was the only time right and it was a shocking thing for me also that the other people who were so passionate about this suddenly start feeling a bit cautious in terms of the risk that they're taking right so that last mile that you have to cross the other fellow founders could not
00:10:06
Speaker
So that's when that was, but I accepted it.
Partnership Strategies
00:10:09
Speaker
I'm still friends with them. No, it's a tough decision for everyone. So different learning for us. Okay. So, so then what led to finance peer? It was, you started by with the name of finance peer at that time. So tell me about that. The name finance peer, because the first thing that we started with back in 2018 was peer to peer lending. You are either one of the first three ones to receive a P2P lending license as well.
00:10:32
Speaker
So we started a concept back then and it became very popular because there was a lot of reasons as to why I started P2P lending first. So I was doing lending in a developed nation. So I knew how things are run and what digital lending means. Back then in India, even if we had to say, you're a digital bank and digital lending, we know the level of digitization that we can bring about in this process. So it was very funny when I came back in India multiple times and I want to take a loan from my course.
00:11:00
Speaker
my bank balance was larger than the loan but it was in the NRI account or it was in my Singapore account. And the banking processes here would not lend me an amount where my savings is larger. So that was very funny. You have an NRI account sitting but you just have such a rigid policy.
00:11:16
Speaker
So obviously borrowing was difficult and from that day I understood borrowing is not just difficult for people like us but a lot of doctors, a lot of police officials and there are n number of people I can say self-employed, a lot of those customers, new credit customers, a single mother. These are various cases where borrowing is very difficult.
00:11:35
Speaker
And if it is large amount of borrowing, because if you look at companies defaulting, it's large. In terms of personal loans, the default is not really affecting lenders that big, but it was very difficult. So that's something that I realized. And second thing is, of course, the interest that the person is making on an FD. They have an intent to contribute to the society, but it doesn't always have to be in the nature of donation, right? You can help each other and still make some interest out of it.
00:12:01
Speaker
So I just thought at back at that time, this wasn't a regulated space. And when we started, there was no regulations here. P2P lending 2017 in brainstorm and got all the things together.
00:12:13
Speaker
How did you find the next set of co-founders for this peer-to-peer lending? The next set of co-founders for me were from my own space. So they were my friends either in my college. So for example, the trust was already there. Trust was there. The kind of work that we complement each other was already there because we did that before. So one of
Funding and Partnerships
00:12:34
Speaker
my founders was my batchmate in IIT.
00:12:36
Speaker
So I knew him pretty well and we did a lot of assignments, a lot of projects put together. So I knew how we complement each other. Another of my co-founder was again in the same Stanford Ignite program. Then we were friends throughout after that. I knew what kind of development is capable of what he has done. And the fourth one was my brother himself. So again, I knew his specialty.
00:12:56
Speaker
So I just had to get these three guys together on the same page, explain and build that relationship before we sign up into a firm. So we did that in 2017. We really didn't sign up and establish an image immediately. So we did that exercise and once we were comfortable with each other and we had complete trust and the most important aspect of passion. That was the beginning of how we started.
00:13:19
Speaker
Of course, P2P lending is what made everyone come together. And it wasn't regulated. It was very attractive. We developed our prototypes and we evaluated with a lot of customers, potential customers back then. And we saw a lot of demand on both ends. And slowly, it so happened that people started making more interest than in an FD. And people on the other side, demand side, people started borrowing at a lower cost than a bank. They were actually borrowing money at around 9 to 11 percent.
00:13:47
Speaker
And probably much faster also. Much faster. It was like a same day, kind of a reversal. We had already defined the policy. We have fed it into the engine. So the things are going very well. So did you build this off your savings or you raised funds also for this?
00:14:03
Speaker
The initial portion, we did it out of a savings. And how did you prevent risk? Because when you're taking money from consumers, I mean, they're not like mature family offices or H&Is or institutions who are OK to take risk, you know, some like an end consumer, like a doctor who has excess cash. If he's giving that money to the platform, he would never imagine that he can lose his money. So what did he do to to prevent
00:14:31
Speaker
Yes, at that time, we used a lot of alternate data. We built a lot. We used to use the email text scrap at that moment, and it was allowed back then. So that gave us a lot of readings. We were not very rigid. If there is a bureau score, which we were hitting, we were hitting multiple bureaus to understand not just the bureau score, but their payment behavior as well. That itself gave an indication. If not, we went to the
00:14:55
Speaker
income
Expansion During COVID-19
00:14:56
Speaker
source which could be a bank statement we had an analyzer of it that helped us even if that is not in place and if you give me any other proof of your earning which comes via email SMS that also suffices if not you give me official receipts that also suffices right if not you know how a microfinance works right multiple people come together in terms of guaranteeing
00:15:17
Speaker
So we had established all these mechanisms so that the chances of approval rates are larger. And it really worked. We had zero default in year one. None of our customers did default back then.
00:15:28
Speaker
And was it one-to-one lending, like matching people with cash with people who needed money? It wasn't one-to-one. It was always a one-to-many approach, right? Because the basic concept of de-risking on the lender's front. So you're telling them some returns, right? So they're making more money on one borrower. They're making less money on the other. On an average, they will get their return. But even if one or two borrowers default, they will still not make losses, right?
00:15:56
Speaker
So you have to diversify. Capital will be protected, right? OK. Yeah, capital is protected. So that's how we always had diversification for the lenders from day one.
00:16:05
Speaker
And what was your take rate? Margin success. Yeah, what was your margin? So for us, essentially, in B2P, it wasn't very large, to be honest. We used to return around 9% to lenders. And anywhere from 11% to 15% was our borrowing rate. So from 2% to around 6% is what we used to make on the spread. Again, that 11% to 15% bases your credit score. So if you're a very good customer, we'll only make 2% out of it.
00:16:32
Speaker
Okay. Got it. Okay. Got it. Okay. So yeah, year one went very well. Zero losses. How much did you disburse in year one? In P2P, we started small. We overall in the entire year, we did roughly around 9 crores only. So that wasn't a big number, but that was the first year. And the knowledge awareness was very low. People did not, in India, the awareness was very low. The concept did exist in the West when we did a competitive research, but in India, it wasn't as popular.
00:16:59
Speaker
But we had enough lenders through wealth partners who came on our platform and we had enough borrowers who directly came through a lot of DSA's. And you were giving a margin through the DSA? Yes. If the DSA comes in, then there's a normal margin that they have to also make.
00:17:15
Speaker
But you know, in that year one itself, more than 60% of the portfolio to us, to my surprise as well, it was from education space. And what I understood back then, the assumption that I went to before I went into the data was mostly this could be customers for the higher education space. It's either a post-grad program or a study abroad
Tech Stack Enhancement
00:17:35
Speaker
program, et cetera. But most of them were actually from K-12 and UG.
00:17:40
Speaker
So people were taking loans of 1 lakh, of 2 lakh, and they were willing to pay 11, 12% kind of an interest on it. But they wanted to put their kids into those schools and colleges, right? From there, I started digging, going deeper into this, because at my time, honestly, 6 rupees to 10 rupees a month, that's the kind of fees I pay, right? So this kind of 1 lakh, and all of us were like, OK, man, I probably have to come back now.
00:18:09
Speaker
It was a drastic change. If you look at it, probably 15 years back, someone was paying like a $45,000 per annum as a rich kid. And 15 years later, you come back and someone who's paying $50,000 is an affordable kid. That has the kind of fee bracket that happened.
00:18:26
Speaker
And if you look at the income sources, they're nearly the same. They're gradually incoming. Your average income of per capita income hasn't grown at that rate, right? So obviously this problem was about to come. But when I first looked at the data, I was like, oh my God, they are willing to pay. And the school fees are really large. The schools I went to also stayed in more fees now. So that was the space I interacted a lot with parents. I interacted a lot with the schools initially.
00:18:49
Speaker
And we understood that this is a very good segment from two perspectives. Our understanding of the space was good because we honestly, all the co-founders came in from a background where we were luckily able to get scholarships to cross different stages. I didn't really had that amount of money to take anything at leisure or even buy books at that. We used to use friends books and all of that. So we understand a lot of our friends could not make it. So how much it matters if you don't have that fun kind of a backup.
00:19:19
Speaker
So that was one reason we chose this space. It related very well with us for us to dig in and become more passionate. And secondly, if you look at the space, right, it's a very noble cause. You're actually educating every kid and the default rates are inherently not built into the model.
00:19:36
Speaker
because you're one year into the institution if you're not paying for the loan. Essentially the institution also gets alarmed that this parent may not pay me the next year or they kind of withhold the marksheet probably for a week or so. Just to exert pressure and you will see there's no default happening. When it comes to your kid, you know, parent doesn't want to have any kind of name, shame or any kind of default that happens and any reminders with respect to your kid.
00:20:00
Speaker
So, and for our lenders, it was a next game. And back then, when I did an education, it was P2P, right? Lenders are very happy. If you look in P2P,
Innovative Financial Products
00:20:09
Speaker
you're lending to anyone taking a personal loan, you don't know the end cause, vis-a-vis someone who's actually, you're just putting your money into a school or a college, not into a personal account. Lenders are very comfortable, right? And we were able to expand a lot on the supply side when this came in. So that's when we first created a pivot.
00:20:27
Speaker
So you created a category on your platform saying education loans or education, something like that. So we created it, yeah. But the supply was all like people with excess cash.
00:20:38
Speaker
Supply was from individuals, like retail basically. It's not new to them, it's like for wealth partners who are there in a city, they diversify the wealth of their clients. This was one of a new portfolio for them and they were taking it well, especially if it's an education segment, they are very happy because they know if you're making this return in this space, they have a lot of clients who want to create an impact as well.
00:21:02
Speaker
So it was a very good fit for us. The education portfolio became our first pivot and we only and only focused on education. So we understood that we don't have to go after DSS again and again. A third reason why we took that also with DSS, every month you have to do your sales. So if you're just sitting out, your business will not happen. You have to generate demand.
00:21:24
Speaker
In this B2B space, which you went into schools, fees are paid every year. So the ones which have partnered in the previous year, this year, even if I don't have to acquire new customers, your business repeats. So repeat value is large. Your lifetime value of your customer is very large.
00:21:40
Speaker
So six, seven years on an average as an LTV is quite good. And that was one point first pivot, but of course we did pivot from P2P also. We established a parent entity which was into technology of the money that we had put back then. All four of us had already exhausted on our money and this became a regulated space. As soon as this became regulated, there was a need for two crores minimum funds and then over and above we had to operate on the complaint. So of course the cost structures came up.
00:22:06
Speaker
And we had ended up on our savings. So we went into fundraise. We did that raise also. So we were still lending via P2P to the borrowers in education. But demand went so high because we used to do B2B partnerships. We didn't directly reach out to parents. We reached out to schools and colleges. They told their parents to pay fees via us. Suddenly, in 2019, the demand went very large. And in terms of the supply, we were not able to match that rate of growth. So P2P had their restrictions.
00:22:36
Speaker
So P2P at that point in time, after being regulated, every individual cannot put more than 10 lags and then the restrictions started coming in terms of the amount. So for us, we had to choose between the two. Either we focus a lot on the demand and solve this education fee as a problem
00:22:55
Speaker
or we focus a lot on supply. But at one point in time, we could not do both the things. So we decided we'll focus a lot on the demand and we'll solve for that education fee problem. Whereas with respect to supply, what we have is good. But what we can do is we can start integrating with NBFCs and banks and then use their books to lend to the customers. So we started doing integration piece. That's where our tech entity was born.
00:23:19
Speaker
And the tech entity then integrated with other lenders. NBF season banks integrated with RO and P2P also as one of the lender. So our lending became not only from P2P, but from other lending options. The supply automatically increased.
Future Growth Plans
00:23:32
Speaker
So we didn't have to work on a day-to-day basis. And then we focused on getting into the demand space and understanding the space better.
00:23:40
Speaker
When did you do the NBFC tie-ups? In 2019, 2018 we were only doing P2P and from 2019 between somewhere from Feb to May where demand suddenly increased a lot. That's the time I think around after May we started going to NBFCs and we partnered with them and then we started matching the supply. And when did you raise your first round? It started back in Feb and March and by around May to June that year.
00:24:07
Speaker
We were able to pick answer. So almost immediately after raising the first round, you started the NVFCs. And this must have been your peak season, right? Because generally March, April is where you have to pay your school fees. Yes, it was. Because first year, we majorly worked with K-12. From second year, that buyer's stores fee cycle went away because of various other reasons like colleges and new admissions and all of it. But in year one,
00:24:32
Speaker
We were majorly working at K-12. So that April till July was kind of a peak. So a couple of hows, how did you raise funds? Like, you know, any, like any tips from there, like, you know, in terms of was it that the business was doing so well that it wasn't a struggle or did you have to struggle? And how did you crack your NBFC deals? How did you crack the institution tieups, the school tieups?
00:24:58
Speaker
Our model was definitely good. Our LTV, repeat values were all good, but we hadn't done enough in terms of the seed stage rate. We had to go to Angels first, so we understood when we had to raise our first round. First thing, our season wasn't placed, so we need to raise it quickly.
00:25:14
Speaker
So had we gone via traditional raising route, it would have taken us probably nine months or so to end six to nine months to close, right? So we went by the angel route. We spoke to a lot of angel companies, a lot of angel investors who we met in the Stanford program as well. And from there we could pick up, right? But again, it wasn't that I had a conversation once. I kind of probably not even exaggerating. I would say more than 120, 130 pitches minimum that I did to get my first angel on board. And I changed a lot of the deck.
00:25:43
Speaker
because they used to give a lot of feedback and a lot of the business model was also enhanced after receiving the investor feedback and how they look at the models as well. So that happened, got in the first check and as soon as you get the first check, the next check quickly follows. So it's always that way. Because there's validation then that someone is putting in.
00:26:04
Speaker
There's validation. If someone is putting a chunk you get a lead and then it was done through an angel round for us and the other angels they are all in conversation but as soon as they saw the first term sheet and money coming in then we were always oversubscribed. First round also we had to give it a stop.
00:26:20
Speaker
and then we went ahead from India. Okay. Amazing. Okay. And how did you crack the institution tie up? The school tie up? School tie up was a very interesting way that very different from NBFCs, right? For NBFCs, we used our investors to talk to them, right? And try and get the first partner, use the first partner to get the second partner, go one to one, because we didn't need a lot of NBFCs, right? Even two would survive. And these were like new age NBFCs or like traditional?
00:26:49
Speaker
They are smaller new age NBFCs, but smaller book size, right? But they're willing to do this. They're willing to explore. And we were very clear. Of course, we go to a larger one. They want to see a lot of history. And it's a classic chicken egg problem. So you had to approach someone for whom one or five crores per month makes some difference. So we approached those NBFCs first, got a few.
00:27:11
Speaker
And on the school side, we had a very different approach of going. Of course, we didn't want to do a feet on street method, which would be capital intensive as well. So how should we go about it? So what we did was we created a network called channel partner networks. A lot of people now use the same coin, the same word, but essentially people who know the trustees of institution because we want to go top down.
00:27:35
Speaker
It's a financial decision principle, won't be able to take that decision with the trustee who is able to bring that into picture. So bottoms up, knocking the doors of a school, talking to admin principle, that's a longer way, capital intensive. We needed people who can influence or were directly connected to the school owner, the trustee.
00:27:56
Speaker
If there's disbursement happening in that school, I do a refshare with that channel partner. So we started a channel partner network, who are prima facie, some of the school owners themselves. There was chartered accountants, there were ex-bankers, there were some celebrities, and there were many people who knew the owners closely. And as soon as we pitched the product, they were like, yes, this is a problem. I know it very well. I will give you this. Give me this refshare.
00:28:20
Speaker
And we started establishing that. In the foster itself, we had around more than 70, 75 of channel partners on an India basis. And these were the partners who spoke to institutions for us. They kind of did the first work, and then we kind of came into in the closer conversations. That's how we increased. But how did you identify? I mean, you can't run a Facebook campaign to find such channel partners. How did you identify and reach out?
00:28:46
Speaker
So it was more an organic play, right? So first institution for us was Masuri International back in Masuri. Once we had that institution, we went into common forums in that city and we got hold of other owners.
00:29:02
Speaker
the city had small media channels, then we spoke to them, this is happening in the school and we used them to get to other players. That was one area that we did. Then through investors, we reached out through a few CAs and ex-bankers because investors always had their own bankers and charted accountants.
00:29:19
Speaker
and they got us a few schools. So what we did from this, we then reached out to school owners, and we told them, you get us this, and then we will have this structure with you. We will kind of recover the sub-bench in cost only if you refer to another institution. So we started a referral program, but very close nexus with school owners, charted accountants, and ex-bankers. That's how we started. And then the CA network started connecting us to more and more people who are not the school owners, but they became a channel partner again.
00:29:48
Speaker
So this is how it started to spread. I think the one big learning from this is how getting angel investors in early can really give you a leg up in terms of how they unlocked so many opportunities for you. Absolutely. I had always believed with respect to investment is not just the money, because I'm not like a repeat founder when I wanted to start this. So obviously, with the money, if the network comes in, it will solve for the chicken egg issues.
00:30:16
Speaker
So the person has to play a role. And in all my investor conversation, I'd always been clear with them, even with the institutions today. I'd always spoken there is something and that is why I'm with you. So it has to be that you also play a role apart from the monetary support there. And what's a good playbook for reaching out to angels? Did you use LinkedIn messages or did you ask for referrals and use your network?
00:30:41
Speaker
Yeah, so there's no hard and fast playbook when it comes to a fundraiser perspective. Also, everyone can do it their own way. They have to have enough confidence in doing so because few conversations can change the entire landscape for you.
00:30:55
Speaker
a first few conversations, right? The other person believes you in the first few conversation and you will kind of explore on the network that can be built up on it, right? So your pitch matters. The way I built up was, of course, I had my IT connects. So the IT alum network, which I utilized, and these guys were connected to a lot of funds, a lot of angels. Some of them were the angels themselves, the seniors, they had enough money, they're working.
00:31:19
Speaker
abroad. So I used them. That was one area. Then I reached out to other Indian Angel Network and Mumbai Angels, then Angel Bay. So I basically reached out to them because they made us talk to a lot of other angels like DevX and others. So there were a few which I knew were around and I started speaking to them.
00:31:40
Speaker
they started arranging the calls for us. That's the network, I think. The IT alum network and this one helped us a lot, even before we went to any investment banker, actually. The first stage was only through these kind of an angel network and a few networking sessions that had been part of before. Okay. So yeah, let's continue the journey. So you got these NVFCs on board and now you had the problem of supply was solved once you got these NVFCs on board.
00:32:08
Speaker
Yeah. So once that happened, right? First 24 was more on the K-12 side and we were still discovering how to penetrate. So initially when we started the model, we had a B2B tie up with the school, but the schools did not subvent it. Initially there was an interest bearing on the parents, right? But the schools promoted us so that there's a loan facility. You need to define subvent for people who are not from the space. What is subvention?
00:32:34
Speaker
Yeah, so subvention means whenever you are about this zero interest product, right? So it's not that it's actually zero interest. Someone is paying for the interest. It's either the end customer or the product provider. So in this case, if the interest is borne by the school, then it is zero interest for the parent. So when I say subvention is basically subventing that interest component. So school does that.
00:32:59
Speaker
Instead of giving a discount, you give zero EMI, and that interest you're bearing is equivalent to the discount you would have given otherwise to increase your sales. Exactly. It's very popular for the consumers to understand, right? In the consumer durable space, like when you buy a laptop or television, you buy it on an EMI. But the television or laptop provider has a partnership with, say, a Bajaj or others, where actually the interest, the subvention of the discount is given by them to the financial provider, right?
00:33:29
Speaker
It's very simple, the same thing here in subdivision.
00:33:32
Speaker
The whole BNPL industry is built on this, basically. Exactly. Very similar. The schools actually give discounts to us, right? And it wasn't, but even before we went into that model, right? The first thing that we started was we didn't ask for that. We just had partnerships. We asked the schools to please bring this awareness that we are there for the parents in case they need our help in terms of paying the fees, right? It got popular. And when we went into schools to further promote this, we understood that schools are already providing discounts.
00:34:01
Speaker
It's not that we asked for it. The schools, you will see most of the schools, most of the popular ones also you must be aware of. If you're paying a full year fees on day one, the schools were themselves willing to give a good chunk of discount to the parents because schools were facing this problem of collecting fees on time from the parents. So they promoted that you pay upfront, I'll give you a discount. So I have my growth and working capital issue solved.
00:34:27
Speaker
But in spite of them pitching, hardly 3-7% of the parents were paying their fees upfront. The remaining were choosing, they still chose to pay 10 quarterly installments, right? So this wasn't new. And when we observed this, we were like, why are we asking parents to pay the interest? The school is willing to give a discount. We go to the school and tell them, parents don't have liquidity, we bring in it.
00:34:52
Speaker
We bring the liquidity in, you pass the discount to us, and we'll make it zero interest for the parents. So we'll not charge them. Because why should we charge them if the school is willing to give? It is zero interest irrespective of period. Like normally in BNPLs, you have, for example, split into three AEMIs, which is zero interest. But if you want to pay over a year, then you have to bear some cost on it. Was there something? So we also...
00:35:15
Speaker
not very similar to that because bn pill like you said credit card bn pill is more like a three month things but for us it was per annum rate so you pay your per annum fees like 12 installments or nine installments if you exclude the vacation but that's the period you get at zero interest now if you want to go beyond a 12 month tenure because you're already into the next year of education
00:35:36
Speaker
And if you still want to go, it's not going to be disallowed, but the idea was you clear your fees before you pay for the second year fees. And that's when we subvention model became popular. First 24 schools, we are not very popular on subvention side, but a first year, first three months, we understood this. And then we started approaching schools and that one year from 24, suddenly we crossed a 400, 450 around in that year.
00:36:01
Speaker
2019 financial year, were you? 2019, yeah. So your peak season is like this March, April and this is when in 2020 COVID hit, right? Did that have an impact?
00:36:14
Speaker
Overall, I can say it had a positive impact, but definitely it had an impact in terms of how to plan the business and restructure things to adapt to this. Because even the schools stopped asking for fees and they gave extensions and parents also were up in arms. Why should we pay fees when it's just one hour online class, stuff like that. I mean, it must have been a jolt.
00:36:39
Speaker
Yeah, I mean, see that's how our assumptions and advisors also came on board on how should we go ahead. But it was very interesting how that year actually turned out to be for us. So 2019 first half was about K-12 schools, second half we onboard a lot of colleges also, UG segment. And when we went into 2020, both of them are functioning good. And this when the COVID hit the first
00:37:03
Speaker
One quick question. By this end of the financial year 2019, was it all tech-based onboarding, etc? Parent onboarding was all tech-based, yes. But school onboarding wasn't completely tech-based. So it was actually physical documents that we used to sign.
00:37:20
Speaker
But on the parent side, yes, it was tech-based. So lending to parents was taken. They could download an app, send their adhar, pan, whatever information you wanted all through the app they could do, and then they would get an approval to pay by installment. Online.
00:37:35
Speaker
Everything, yes. And the school would circulate a link to parents that if you want to. Absolutely. So once we sign an agreement with the school, which was more on a physical nature, after that the school in their fee circular, they'll announce that you can pay. This is a new mode of payment. You can use them. They will circulate an email, put us on their ERP so that whenever a parent is coming to pay fees, they'll understand, put some standees brochures in the campuses, right? So that's an activity that we do together.
00:38:01
Speaker
For a parent, the advantage is that instead of paying quarterly, they can pay monthly. That was only one of the advantages. Better cash flows. So when we started itself, we gave them a second advantage as well. First, of course, was like zero interest. Why wouldn't you take? You can make more money elsewhere also. But that anyway, the zero interest is there as a quarterly installment for them, right?
00:38:24
Speaker
Courtney, so typically the way it happens if you're paying one lakh, say 25,000 every quarter, instead of paying 25,000 in April, you can pay 8,000, right? So in April, then 8,000 in May, 8,000 in June. So there's a net present value benefit that parents, if they're more financial savvy, they can make on it, right? But apart from that, we started offering free insurance. So if you're paying your fees via, at that point of time, it was finance peer. If you're paying your fees via finance peer,
00:38:51
Speaker
you are ensuring your kids. So if tomorrow something happens to a parent in the form of accident, in the form of hospitalization, some permanent disability, then we take care of your kid, not only for that year, for the remaining tenure in the same institute. And this is a classic case that happened with us also.
00:39:10
Speaker
where when brother who was supporting his younger one had expired and the younger kid is still completed his education where our insurance helped him. So that's something that we added on for the parents along with the normal zero cost. That insurance covered the entire X number of years which is left in the schooling.
00:39:30
Speaker
It was five years, but it kind of survived. It was 60 months, but on an average, it kind of sufficed for them. So that was a benefit. So the journey from there was after school college, of course, we came into 2020, 2020. 2019 was quite good for us. Good amount of disbursements happening. We onward a lot of colleges, which we were supposed to serve in 2020. So we are very excited about it. And then COVID happened, of course. The first thing, even before you go into business, of course, COVID, what it did to us was everyone went into re-planning. We had term sheet committed.
00:40:00
Speaker
of nearly 1.5 mil at that point in time which was big amount for us that time and that term sheet first one could not go through because covid hit and their liquidity came into a problem the second term sheet again we signed one investor taking the full round
00:40:17
Speaker
And because of COVID, the same issue, he's postponed it from the month of February till the month of May, and we still did not receive the money in May. But he was still committed to it, but we had to move on. So we had to terminate the term sheet. How much time did you have at that time?
00:40:32
Speaker
Three months, three months. After May, we had three more months, a very delicate situation. And that point in time, of course, the advice given to us, a lot of investors and advisors back in then was to, you know, manage cash flows, you know, go through this reduction exercise, save money and extend your runway. But, you know, it was also a critical time for us, a second year. And it was a good scale. A previous year school needed us more today than the last year.
00:41:01
Speaker
And opportunity was big. If you look at the opportunity during COVID, schools are not able to collect fees. And parents, it wasn't just the liquidity problem, parents had a liquidity issue because they knew that if they're not going to office, anything could happen with their jobs. Secondly... Right. A lot of people received pay cuts and got laid off. Exactly.
00:41:23
Speaker
There's a lot of pick-ups. So the need for money for parents was more, for schools was more. And parents always told the school that I will pay in as many installments because I don't know if you are going to stay or not. So the need for installment was very large. So the way we looked, the founders looked at this like a big opportunity.
00:41:41
Speaker
because our product is now more needed than before. But of course, if we had some riff with our investors versus back then that instead of letting go, we should actually take a stand and just go ahead, trust our business model and just go aggressive. So instead of reducing the cost and all of it, we actually ended up increasing. We took a debt to extend it by another couple of months. And initially before the debt, we reduced our runway from three months to one month.
00:42:09
Speaker
And it was a big, big thing that we did. What did you spend on? Acquisition. So the school acquisition, right? So we rather expanded the team. We didn't go through any single cut, right? We went with a normal increment cycle, proper increments, no cuts, more people hired. And, you know, it would look absurd, but it did wonders. From no one had addressed a thousand institution partnership before that, right?
00:42:36
Speaker
That 400 plus we went to 2000 plus institutions in that single year. That's the number of partnerships that suddenly $10 million of disbursements happened. Even you started coming in. This became super attractive to every investor. Everyone wanted to reinvest in this model. That year changed it, right? And if today, if you look at it, everyone goes in the school financing space, but that was the year which defined it.
00:42:59
Speaker
Everyone went on back foot, but we really took it very aggressively. And today, all other players who initially didn't want to enter the space, you will see many players entering this space. So that is the year which actually created 2020. It was a very big year for us. And the best point for us was, you must have met a lot of school owners.
00:43:21
Speaker
They typically like to sit face to face and sign an agreement, right? So signing up with schools wasn't that easy in 2019. But 2020, suddenly they started accepting digital practice.
00:43:34
Speaker
So people are signing agreements online. They are using all digital signature format to complete the formalities. They are accepting standard terms. They are coming on calls and finishing it up. So things became fast. We could talk to schools fast. We could talk to parents through webinars. Actually, it turned out to be good because I would not give benefit to code. Digital adoption was very large in 2020 and 2021.
00:43:59
Speaker
So parents and schools, they used to come. So obviously, a cost of acquisition reduced. And we could scale at a different pace from homes itself. So that helped. 2020 and 2021 for us became one of the profitable, most of the most revenue and most partnership for us was those two years. It gave us a big boom. So bold step we took back in the month from May, but it turned out to be wonders for us later.
00:44:26
Speaker
And you raised, I think, 2.3 million CDSA around in 2020, right? Yes, roughly around 3 million. So it was a bit spread it out. And yeah, so one of we took fun from one of our good NBFCs back in Rajasthan, who understood. So along with their funds, they gave us lending lines. So in COVID times, we did not stop lending. So that NBFC supported us. Previous NBFC supported us. So we were not kind of getting rid of lending at that point in time.
00:44:55
Speaker
I mean, I can see there are about some maybe 40-50 investors listed for that round. So again, you must have been doing a lot of meetings. Yes, many meetings. I didn't even have to look at the pitch deck. I just have to start and end. And even in my sleep, I could say I could give the same pitch.
00:45:16
Speaker
I did a lot of virtual meetings and a lot of funds but at that point of time those funds did not accumulate the money into their account and transfer it to us. You would see a lot of people on the cap table because those funds at that point they centralized it but every individual had to deposit the money directly into our account and that is where they had to come on the cap table.
00:45:37
Speaker
But essentially that time the round was led by this, it was led by MS FinCap, which was the NBFC who started Purbish NBFC. And then by RM Ventures, like a firm of Aarti Industries and Gala Bansali Group. These two ones actually supported in a big way. And then the other funds, Jito, DevEx, Angel Bay, these were the groups who came in and they got in their angels as well. And then HEM and others as well.
00:46:05
Speaker
So, and 21 again, you raised about a six and a half, seven million round, approximately. This time with more institutional funds. Yes, this time with more institutions or this time around, of course, we wanted to raise a larger check as well, because we were seeing that growth happening. And in terms of acquiring, we had to say either we stop at this number and then try and go deeper with the same economy or we
00:46:32
Speaker
do that economy of scale and put more money and get more institutions. So we decided that we'll put more and get more institutions. So it had to go with time. So while we were still tackling the growth because reaching in like less than three years to 100 million of disbursement, it actually shook the market and we had a lot of new partnerships that came into picture.
00:46:55
Speaker
So we had to adapt to it. We had to get a lot of data work done digitally. So while we were doing it, we said, OK, we'll raise a small and we'll do it one by one. Of course, we didn't want to dilute together a lot of stake also. So we started going to institutions that year. 2021 is when we started approaching institutions because they felt it was better.
00:47:14
Speaker
But why did you need funds? Your school, your sales process of onboarding, your sales is essentially just the sales to the school, right? You're not doing B2C or retail sales. To the parents. An acquisition costs more to acquire the parents because in an institution, if there are say a hundred parents, even if you're partnered with the institution, just the fee circular and email does not convert parents.
00:47:36
Speaker
into taking a product. The school has to tell them because these communication, typically a school communicating with the parent is more on academic front. When it comes to fees, people just know this is the fee payment date and they just come and pay. So to make them aware is where our cost structure started coming in. So we had to do events in the campuses.
00:47:56
Speaker
to let people know that firstly, zero interest EMI is not any kind of a scam, right? It's an actual lending product that we have built. So you don't have to be scared. So people have to get accustomed to it.
00:48:08
Speaker
And we had to go through different kind of behaviors from the parents also. So a classic example is if I had schools in the north in Delhi side, I had schools in the south in Chennai area also. In the north, when we did this exercise with parents, a lot of parents, they had the stigma of taking a loan. So they went back in their homes and they used to call us and take the loan.
00:48:31
Speaker
But in front of each other, when there are events happening, they were like, I don't need it. They felt ashamed to take a loan. But if you go in the South, it was a huge queue. So people were not ashamed. So it's a very different behavior. So for us, acquisition happened across the country, not in the East, but it was in Southwest and North. And behavior pattern was different. So we did a lot of spending to understand the parent behavior there.
00:48:55
Speaker
And you're not lending on your own books, right? You don't have an NVFC license. So you did not need capital from that perspective, like otherwise, yeah, okay. Yes. No, we did not. Our capital requirement was majorly on the tech development, followed by the parent acquisition, right? Because, see, when we started doing the lending,
00:49:17
Speaker
to be itself has a lot of development when you have to manage multiple stakeholders in a single loan you kind of manage more than 10-15 people right so that itself had a lot of development apart from that our tech stack had to be digitally integrated with the lenders because if you work manually
00:49:32
Speaker
then operational levels were very large. And this integration with lenders, we started working with large lenders and large NDFCs and banks as well at that point in time. So integration required a lot of tech resources to get that product integrated and get into the system, build our own LOS, LMS, this Loan Operating System, Loan Management System, get into the reconciliation processes. So the tech buildup took a lot of effort.
00:49:57
Speaker
And major lecture, if you look at it, we were very clear, even when we started this, that, you know, any business model is not just about acquisition, it has to have a retention and engagement perspective to it. So we always went with this AR approach, right, our approach, where retention engagement products were being built.
00:50:16
Speaker
Now this was R&D for us, which today you look at it as payment platform, as cards platform, as ERP. This is not built overnight, like two months, three months. We knew we had to build this. There is people are not going to take my loan multiple times in a year. So for them to stay put with you and then come back in the following year and for the school to stay put with you and not know you don't have a drop-off, you need to have a retention engagement product. So you're working on that elements. That's where we needed most of the funds for.
00:50:46
Speaker
Okay, got it. I guess to scale this from the demand side, you can't be continuously taking workshops and doing offline events. So instead, if you integrate whether schools payment is handled by you entirely, then it's a lot easier to direct the flow towards zero EMI.
00:51:05
Speaker
Exactly. That's what we did. So we built our own fee module. That's the first fee module that we built. Then we acquired an ERP on top of the fee module and we started deploying it in institution. Now that implementation itself also is a tedious exercise because schools do not have teams which are very tech savvy in nature. So, you know, they have some kind of a technical debt on their side as well. So that integration, so we got in a fee module first so that, you know, this happens digitally. So that was the idea.
00:51:36
Speaker
Right. And most schools would be quick to adopt because it's how they survive. Whereas ERP would take more time. And this ERP is like a free product for them. It's part of your retention. Yes, exactly.
00:51:50
Speaker
That was a cost structure for us, to be honest. It's retention engagement aspect. Revenue was still the lending piece. So much of deployment, so much of integration, but that is as a free product offered to the institution. We have developed retention engagement on it, but at that year it was a cost. Today we are converting more, so it's becoming more revenue from there, but it was a cost back then.
00:52:13
Speaker
And the fee module is what it's essentially like a way to send reminders to parents and have a payment gateway where parents can come and pay from any method that they want to and accounting like who's paid, who's not paid, stuff like that. Like that's what a fee module does.
00:52:28
Speaker
Exactly like you pointed out, the fee calendar of institution is integrated, so we know which student has to pay when, so there are automated reminders. And once the fee is collected, the institution is given a dashboard, so the data recon can happen on the institution's front, who has paid, who has not paid, who has partially paid, and for the partial payment, when to trigger the link. So that is taken care by the software.
00:52:49
Speaker
And while doing the payment, there will be every option available. It's not just you can pay via say debit card, credit card kind of a thing, but you will have facility of taking a loan as well. So then fee data is already integrated into the loan platform, so you don't have to resubmit it. So the loan taking process becomes simpler for the same parent.
00:53:09
Speaker
Do you get like, you know, payment gateways, have a processing fees, like it's typically, I think less than one percent or something, but do you earn that? We do very less, to be honest, because again, like I said, we had planned off this as a retention engagement. So then at that point in time, we did not build this as a revenue center, right?
00:53:33
Speaker
But we do have some revenue share from there. On the payment side, typically the PGAs already work with schools, colleges. But their cost of funds to them, their rates are a bit larger unless they are working with very large group. But if you work with a school or a college which only has 5 crores of collections or 10 crores, they charge them more on a debit and credit transaction or a UPI transaction.
00:53:57
Speaker
But when we integrated with a PG and then brought our entire payment solution, the same PG looks at us as 11,000 institutions, not like one institution. So they give us... Power of collective bargaining. Yes. So we get at a very low rate and we pass it to the institution. So wherever we have integrated, we haven't actually matched or increased or actually decreased their cost.
00:54:18
Speaker
So if they were paying 1.1% or 1.2% of a credit card, they will now pay 0.8, 0.9%. So they've actually reduced it. And for us, either we make a no revenue or we make like a 0.1% on the top. Okay. And which company did you acquire for ERP or did you just acquire the software?
00:54:37
Speaker
We acquired a company. It was back then called QPIC. It was a Kerala based entity. It has its ERP and MET, a few colleges in Bombay as well.
00:54:49
Speaker
and then some in Bangalore like JN. So it has their ERP there. It was working in less than 50 institutions when we looked at it. And we had a good amount of institutions. So we just took over the full form with all the products they developed, merged our fee product into it along with lending. And then we started offering that to institutions without a cost. The integrations take time. So hence we were only able to do around 360 in the last year.
00:55:16
Speaker
What is the integration needed? You mean like the migration of data? Yeah, you kind of pointed out. Integration involves a lot of data heavy work, right? Data mapping has to happen because they're already working with a legacy system or they don't have a system, right? Either way is you'll have to do a mirror.
00:55:33
Speaker
So data mapping, data inflow, before they put into the system, the data recon. So this effort has to be done on both sides, right? And getting that into a framework, then giving that solution to them. Once we give it to them, then they have to do a lot of configurations. Configuration is the easy part, but the entire data flow into the system is something that is a back and forth process. Right. Right. Got it. Okay. And what all does this ERP manage? What are the modules in it?
00:55:59
Speaker
We essentially manage end-to-end segments. It has all the inventory management tools with them. It has all the transport management tools with them, hostel management, academic library management tool, examination management tool, assignment correction, online classes as a tool. All of this was available. Lead management was the plugin for us. And then other modules were also built in. Okay. Got it. And there's also colleges or both colleges and schools?
00:56:29
Speaker
Originally when we acquired the entity, it was into college space. So majorly we'll see all placement module, alumni modules. K-12 is as a subset. So typically they are built for college, which actually had more pieces to it in terms of accreditation as well. But if you go down to K-12 segment, we just had to reduce the components there.
00:56:48
Speaker
Okay. Got it. Okay. Okay. Cool. So yeah, so 2021 you raised the next round and you also acquired this ERP company. And so you were investing in retention and engagement in 2021.
00:57:00
Speaker
Yes, we are majorly investing in the RE component of it. Second thing, this is a creator market. So there's a lot of stigma. So if you compare a creator market versus getting into a market which is already created. For example, today e-commerce is created like Flipkart and Amazon. So now if you build something into that space, a user is accustomed to buying something online, right?
00:57:20
Speaker
But here, a user is not accustomed to paying their core fees via loads. They're accustomed to paying your study abroad fees via loads. So we know this is a creative market. People are not accustomed to it. It's like I have a habit change that we are calling out for. So it will take some time in terms of product built up to understand the persona. And then it will also take some time in terms of deployment.
00:57:42
Speaker
because it's a slight habit change, right? So that point we were on the build phase and the following round that we did, we had a very clear understanding that this is what we are building and what kind of change it will require. And we had proof cases where we had shown those pilots where it worked.
00:57:59
Speaker
But to scale it up, you know, you can't take these products on a larger groups. And once we started working on that, then we started expanding on the school partnerships, right? So we went very aggressively, not only focusing on Mumbai Pune or Dehradun. Dehradun was the first market, right?
00:58:16
Speaker
We started very extensively in the Hyderabad Telangana segment, AP segment. Then we went to the Rajasthan segment. Then we went into a lot into the north. Eastern, we slowly started Eastern segment. We initially avoided because it was a credit negative zones. But this time we had more, I would say more grip on the supply side as well, on the policy side, on how the parent behavior happens. We always had a default rate of less than 1.5.7% kind of a default rate.
00:58:43
Speaker
So, we know this could be managed well. So, we focused a lot on institution partnerships, first stage 1, then go into lending, stage 2 and then you get all your RE products into the same institution. So, our cap was initially go and increase the top of the funnel.
00:59:02
Speaker
So 21 was top of the funnel year, 22 for us was not top of the funnel year, 22 was different. We had already scaled our funnel. So we already crossed a lot of institutions. Then for us it was go deeper into each funnel. How many institutions did you have in 22? We nearly reached about roughly seven and a half thousand institutions. Today, although we have 11,000.
00:59:21
Speaker
We could have reached probably more than 15,000 as well, but very consciously we took a decision that there are more institutions already with us. Now it's time to go deeper into the funnel. And in 22, we had the money as well when we raised. So we know now we can put money on deploying these products that we have developed. At 22, you raised from QED and like much bigger funds. And this was a pretty big round of 31 million.
00:59:48
Speaker
Yes, yes. That was on QVD, Avishkar, Ardent, DMI, the new EVA fund, Let's Venture. So we got a lot of VC round fund at this point in time. The model of course was going well, but all of us were now betting more on going deeper into the funnel. The validation that happened is that this kind of a firm has touched base with more than 10,000 institutions that itself for them meant big because we have a largest distribution.
01:00:16
Speaker
And we are very close to the trustees of more than 10,000 of these groups. But now it's time that we can explore a lot into the education market. So the base is established. So now this fund is actually going into deployment, like even if you do the card deployment, for example.
01:00:32
Speaker
That itself has a card printing cost, a KYC cost. There is an upfront capital you have to give. Then the card goes into a student's hand and then you get your revenue back from the school. So there is a capital requirement there. So 22 was where we put a lot of money on the card deployment. The card development first in 22, 23 we're putting that money in the deployment segment.
01:00:55
Speaker
So this is a prepaid card or what is this card? Just help me understand the card product here. Yeah. So the card product that we started, the idea was, see, it's a very straightforward if I had to explain it, but difficult in terms of development side, right? Every institution, they have an ID card, right? Which is compulsory for the, whether it's a kettle or a college for the kid, right? We convert that ID card. So on the back side, it's a card and front side basically a branded card placement. It's a, to start with, it's a prepaid card, right?
01:01:24
Speaker
First, numberless ID come prepaid card. So there's no number on the card, right? The number, et cetera, sits on your app. So this numberless ID come prepaid card helps you in multiple aspects. One is, of course, tap and pay works everywhere. So you can actually use it like a debit card everywhere. That's one aspect to it. You are rewarded on every transaction. You make 10% back because we have some merchant partnerships that we have established, right?
01:01:50
Speaker
So it's a reward card for the student. They use it as an ID, as an access card as well. The campus becomes cashless campus. The owner starts understanding that my school not only collects five crores, but I am a school whose gross fee value, like Amazon puts it, right, is like 15 crores, 20 crores, right? So because of that, the bank looks at the school differently, right?
01:02:13
Speaker
So, and if you start paying your fees via the card, then you get more rewards. If you pay on time via the cards, on time fee payment improves. So these are certain benefits that you get. You can use the same card on travel in metros as well. It's a single smart ID card, which is established for the student. The big portion that we did on the card was we got in financial literacy into it.
01:02:35
Speaker
So NEP, which is that National Education Policy, it clearly stated that you would have to now build financial literacy into your courses, right? And colleges are already working on it. Now, if they develop these courses, if they develop an infrastructure like card infrastructure to teach them, it is going to take them two, three years with rows of rupees as a spent. Today, without having this upfront spend and time, they get it as a plug and play.
01:03:00
Speaker
So in financial literacy, we have developed our own courses. You will get to go through to understand what money transaction, what a loan transaction is, what investments is all about. So you will get all those courses also available along with your card. So that's something that we developed in the last year. Okay. So students download like say an Amity app or the download of Finance or a Leo One app for this literacy.
01:03:26
Speaker
Leo. So the way we have, it's a institution branded app for the students. So they download a Leo one app. And if after downloading a Leo one app, they select their institution, right? Typically they don't even have to do that because it's a B2B partnership. So if there is a college, which already uses our cards, the data is already plugged into the institution dashboard. And when the link goes to the student, right, the student downloads the app from the link, then the institution is already identified.
01:03:54
Speaker
So essentially when they open it, they open the Leo one app, they will see institution branding on the app. Okay. Okay. Okay. Got it. Got it. Okay. And this was prepaid card. So that amount in the card, is that a loan from you or is it like parents transferring money? Okay. Parents loaded, right? So basically it's good because the first thing parents can track, it's not tracking every transaction.
01:04:18
Speaker
But essentially, if the kid runs out of money in terms of cash, you can top it up from anywhere. Second is if you don't want the card to be used at a bar or somewhere, you can put those MCC restrictions and all of it. So if you wanted to be used within the campus, so all of that could be enabled. So that is why it's a secure card for the student. So parents don't prefer always giving their own credit cards and open debit cards with all their balances. So they can give that to them. And then the students can step in.
01:04:47
Speaker
And parents can also download the app to see transaction history and things like that. They can. Transaction history is available. Spend analyzer is available. So kid gets to learn. Learn all of this, right? So it's basically my time I didn't have all of this. So later in my college time, I actually realized how to do a banking transaction.
01:05:07
Speaker
Right. But nowadays kids can do it with these kinds of systems coming in. Kids can do it in the schooling days as well. And this would need to be with a bank, right? You would need a bank partnership to issue a card. So which bank are you doing? Yes. We currently work with NSDL.
01:05:23
Speaker
So NSDL payments back. So that's who we work with at the moment. We have a few other banking partners also, but we've already gone live with NSDL today. So it's NSDL and MasterCard, NSDL and Visa as a name. And there is a merchant discount rate. So you earn something in that, like a few basis points would come to you, like some sharing. Yeah, yes. There's an interchange income. So there's some sharing that we have in the banks there. And how many cards have been issued so far?
01:05:51
Speaker
See, in terms of orders, we have two and a half lakh cards. Fifteen thousand cards are already in circulation, which the students are using on a daily basis. Probably by September, you would see around two lakh cards in circulation. Because I guess July, August is when the colleges start. So that's when you would ship. Yeah, exactly.
01:06:10
Speaker
So July to September is when I'm looking at an actual circulation, because orders are there. But the card distribution as an ID would happen back, because we have done this majorly in the college space to start with on the card side. Yeah, obviously. I mean, before that, they don't really need a debit card. And so a college ID card is now replaced with this. So every enrollment a college has, you get an order for it, and you send them. And do you charge for this, like a one-time fee?
01:06:38
Speaker
see that pricing model is still under testing but initially we did not charge the demand was too large to handle then we started charging them it's roughly priced at around 299 rupees the card is priced as priced at that's roughly around 300 there is still enough demand to take the cards at that price right now the idea is we are trying to go through the rollout process and understand our own implementation
01:07:02
Speaker
timelines and how much we can handle as a team in terms of deploying it. Then we look at it in terms of demand supply match, right? But at the moment, yes, we charge. It's roughly at around a 300 rupees per student. Okay. Amazing. So we are now at the present. Let's talk a little on what's on the future. What do you expect will be your dispersal this financial year?
01:07:22
Speaker
See this I would say right now we are focusing as going deeper into the funnel so it may not go from 100 to 500 mil kind of a disbursary. So roughly it would still stay around 200 to 50 mil kind of a disbursary. With respect to the payments we would have half a billion dollars of payments happening through our fee module.
01:07:41
Speaker
And in terms of ERP, of course the consumption right now 3 lakh students are kind of using it. Roughly it would be 7 to 8 lakhs. A major focus on the payments and cars that will enrich.
01:07:54
Speaker
And of course there would be an error in lending happening through the mechanisms of payments and cards, which I'm not accounting at the face because I, like I said, it's a learning phase for us. Let us go through the implementation and understand more about this before trying to put in large numbers on this. How would lending happen through cards? Card is being spent by the student, right? Like how would you do like? Lead gen, no. So basically the idea is just like a fee module acts kind of a lead gen for you.
01:08:19
Speaker
ERP acts like a lead gen for you and the cards would also act like a lead gen for you, right? How much of the lead gen, how much is the conversion value, et cetera. That's only for us to comment on it, but definitely acts like a lead gen. Like says a student wants to buy a mobile phone using that card. So he would get a BNPL option there. Is that what you're thinking of? He'll apply for a loan. He can't use the card as a credit card, but he can apply for a loan.
01:08:45
Speaker
and pay through the card for the installments. Okay. Okay. Okay. Amazing. So now you're entering into Bajaj finance territory also though. Amazing. Aren't they doing pretty well in the consumer? We should learn from the biggies always, right? So yeah, they're doing pretty well in the consumer market. And your margin is still around 3%. You told me in the early days, the margin was around 3% on the amount disbursed.
01:09:13
Speaker
P2P side goes from like 2% to 6% kind of a spread margin. Yes, it started with three on a non-P2P segment, but it goes up. So it's above a four today. It goes up because your cost of finance comes down every year because your portfolio performs good.
01:09:31
Speaker
And that's how the economies are working, right? Okay. And what is your NPA rate? At the moment, it was around 0.5, 0.7%. But if you include the full book till today, it's around 1%, 1.1%. There's no written off there. But by the end of the year, a lot of loans will get cleared. It'll come down to 0.5, 0.7%. But it hovers around 0.7 to 1% on an average.
01:09:56
Speaker
And how does this compare with the general retail lending or BNPAs? What's the way to look at this number?
01:10:03
Speaker
This is an excellent number because the number that I've given you is including the COVID cycle, right? COVID cycle, people are saying double digit default happening at 15%, 18%, 12% kind of thing. We never went there. We never went to that kind of a spread because we stuck to a single model in education space, right? So compared to that, it's pretty good. Even a personal loan kind of performs at a higher default rate than we are on.
01:10:27
Speaker
operating at the moment, right? So that's it's actually performing good and inherent it had to, since you're going into a formal market and you know that the course tenure is there and the kid has to take your loan again in the following year. So they will clear it at the end of the year, they may delay their payments, but they do clear it by the end of the year.
01:10:46
Speaker
And what is the approval rate? Like do you approve everyone who wants to pay through EMI or is there a drop off there? Like some people don't clear the credit underwriting process. There are a few people who don't clear the credit underwriting process, right? We do have NTC approvals. We do have a linear credit policy because there's alternate data available.
01:11:09
Speaker
from the institutions as well. So our approval rate typical to a bank or a generic unsecured personnel, typically unsecured personnel has an approval rate for around 32 to 38%.
Education Financing Approval Rates
01:11:19
Speaker
We have an approval rate, a blended approval rate of roughly around a 64% to 65%. If you only look at schools, colleges, an approval rate is way beyond 75% as well, right? If I mix some of the alternate skilling segment that we finance,
01:11:35
Speaker
then the approval gets a lower on the scaling segment. Hence, a blended of around 65%.
Credit Risk Assessment
01:11:40
Speaker
You said you have a lot of alternate data, including data from the institution. What is that and how does that help? You're saying the marks of a student, like the academic performance or what? Just fee-related data. For example, if a fee module is in place, then in the previous year, when did the customer pay, what time, how much amount? That tells you the customer's appetite too.
01:12:04
Speaker
pay the fees. If there's a history of timely payment, then you know that the credit risk is low. OK. OK. OK. OK. Got it.
Startup Success Tips
01:12:12
Speaker
Amazing. So OK. My final question to you, you know, what's your advice to founders who are starting up? The biggest advice I've always said, perseverance. Stay in it. Stay in the game. There will be pivots. You as a founder has to believe in what you're doing and what impact you're creating. So if you are passionate about what you do,
01:12:32
Speaker
that model will succeed. But you have to be passionate and you have to have the perseverance to stay in it. That's very important for every founder. If I had to be a single advice, that would be on priority one for me. Because I've seen this in the past. A lot of people say out of 100 startups, 99 fail and 98 fail. But a lot of them don't know that out of the 19, many people fail in the first year itself.
01:12:54
Speaker
because they just try selling the food. They don't want to take it ahead, right? And people typically startups who have been in the space for like three, four, five years, you will see most of them will make it big because they've stayed put, they've learned a lot from the market, maybe in the harder way, but they have. So being in the game is a very important aspect of being a founder. So that perseverance has to be
Hiring for Growth
01:13:17
Speaker
there. What about org building? You know, what's your headcount today?
01:13:23
Speaker
Right now we have less than 200 people, just around 150 kind of a mark, right? But building is very difficult to be honest, and there is no hard and fast rule about it. It always goes by need of the hour. What I would suggest to founders, and I've also learned it the harder way as well. You know, try and have someone, whoever you're hiring, do not haphazardly hire. You probably can go a bit slow, right? And if you really want to go fast, you can do it on contract staff as well.
01:13:51
Speaker
But if you're hiring someone, take someone who is an asset to the company. That's point one. Even if you go down to zero ref, that person should be an asset to the company. Second one, always try and hire someone who is better than you. Don't try to hire someone who will just listen to your orders.
01:14:09
Speaker
take people who can be better than you. These two are very important. So just get your right person at the right place and try to keep as lean off chat as possible. What do you mean by this? Like in terms of hierarchy, like telling people you are below him. Is that what you mean?
Managing Startup Dynamics
01:14:26
Speaker
Not like exactly below him, but typically what happens for early stage companies as well, right? When you're building your company, you don't have enough funds to hire experienced folk. And as you grow, you have hired experienced folks as well. But the earlier staff doesn't find it easy to report to an experienced folk, right? So as you're building your company with more funds that you have,
01:14:49
Speaker
Now, you may have junior people, but junior, you don't want to hurt the junior people, or you may have a senior people reporting to a junior people, a junior person, right? That becomes a very different graph, because see, it's not a lot of money I have on day one and I build a company. Initially, you'll have a lot of people who are passionate and support you. And sometimes seniors join and they report to junior staff.
01:15:10
Speaker
who has worked with you for a longer time. Those dynamics are not very easy. So when you're developing an op chart, an op chart always evolves every year for a startup. You don't have to really look for making everyone in the op chart happy per se, because obviously there would be some risk. But it's better you take it than delay it, because internal noises increase a lot if you don't have the right op chart in place.
Listener Engagement
01:15:35
Speaker
And that brings us to the end of this conversation. I want to ask you for a favor now. Did you like listening to this show? I'd love to hear your feedback about it. Do you have your own startup ideas? I'd love to hear them. Do you have questions for any of the guests that you heard about in this show? I'd love to get your questions and pass them on to the guests. Write to me at adatthepodium.in. That's adatthepodium.in.