Indian fintech firms to benefit from QED Investors' $925M global fund

Indian fintech firms are likely see a notable flow of capital from the latest $925-million fund closed by US-based QED Investors. 

This comes at a time when the disclosed funding value of venture capital (VC) deals in India fell 77.8% year-on-year (YoY) to $2.7 billion in the first four months of 2023, according to GlobalData, a London-based data and analytics company. The VC deal volume also witnessed a decline, falling 49.5% YoY to 356 during January-April 2023.

The fintech-focussed global VC, based in Alexandria, Virginia, recently announced an “oversubscribed” $650-million early-stage fund, its eighth, and a $275 million growth-stage fund. 

While the VC firm remains neutral on geographies and would back fintech firms based on merit, it is looking to deploy a significant share in the Asian market, particularly Southeast Asia (SEA) and India.

“India and SEA are two geographies of deep interest for us. That’s where we see a substantial part of capital getting deployed,” said Sandeep Patil, Partner, Head of Asia at QED Investors. 

Patil joined the global investment firm in 2020 to lead its Asia operations. Since then, the firm has made investments worth $150 million (seed to Series C) across six fintech startups—Jupiter, OneCard, Refyne, Upswing, Financepeer, and Mudrex.  

QED Investors recently closed its seventh investment in an SME-based lending startup, the details of which are yet to be disclosed. 

“We will continue to deploy capital at a similar rate, and (India) will be one of the substantial geographies of investment for us,” said Patil.

For the existing portfolio, the firm will continue to invest as per requirements. 

“Once we have the conviction, we back the founders all the way. They have strong backing from us and we will continue to invest in the companies as they need funds,” said the partner, adding that the company's portfolio startups are well capitalised as of now.  

Founded by Nigel Morris of Capital One Financial Services, QED has backed about 200 startups across 14 countries—of which 28 have emerged as unicorns. It has assets under management worth $4.8 billion.

Some of its notable investments are AvidXchange, Credit Karma, Current, GreenSky, Flywire, Mission Lane, Remitly, and SoFi in the US; ClearScore, Wagestream, and Klarna in Europe; and Bitso, Creditas, Kavak, Loft, Konfio, Nubank, and QuintoAndar in Latin America.

QED claims to be a multi-series investor, looking to infuse capital across pre-seed, seed, Series A, Series B, and growth-stage, with cheque sizes from below $1 million to up to $50 million. 

Areas of interest

QED is looking to place bets on startups in the areas of lending (including lending for B2B and SMEs), B2B payments, and insurance.

The VC firm is closely evaluating startups with a full stack in-house business model, offering end-to-end solutions and financial services, such as credit, collection, and payments.

Embedded finance is another area of interest to the investor. Companies engaged in this space are finance ecosystem enablers or plug-and-play platforms that help consumer tech players offer financial services, as they take care of tech stack, security infrastructure, banking partnerships and compliance.

Regulations are important  

Regulations are important to the VC firm to gain the customer’s implicit trust.

The last 12 months saw a lot of fintech firms reevaluating their business models—some even halted their services altogether—to adhere to the central bank’s regulations, particularly around prepaid payment instruments and digital lending.

“Whether you have regulated yourself or not, you have to respect the regulation of the land and build a business that conforms to what the regulator is trying to accomplish," said Patil.

“A lot of VCs, especially in this kind of technology sector, think of regulation as a bad thing. But as former operators, we don't think that way. The moment you are a regulated entity and have RBI’s badge of honour, it means someone has looked at your operations closely and ensured that everything is sound and safe.”