Warren Buffett set to invest Rs. 2,000+ cr in Paytm
If reports are to be believed, Warren Buffett's Berkshire Hathaway are in talks with Paytm parent company, One97 Communications to invest around Rs. 2,200-2,500cr ($300-350mn) in the digital payments company. Reportedly, the discussions have been on since February, and a successful deal would mark Buffett's first investment in India's growing tech start-up ecosystem. Here's what we know about it.
"Berkshire Hathaway is impressed by the scale that Paytm has been able to build in a short period of time. They realize that technology companies go through a cycle of losses before they start generating cash," a person familiar with the development told Economic Times.
People, aware of the developments, told different publications that a deal would likely be announced in the coming weeks. While Berkshire Hathaway has a history of selectively investing in some publicly-held tech companies like IBM and Apple, an investment in Paytm would mark the world-renowned investor's first investment in a privately-held tech company.
In 2011, Buffett set up Berkshire India and partnered with Bajaj Allianz to sell insurance. However, the company exited the partnership two years later, citing excessive and stringent regulation.
Notably, Paytm already has a strong set of investors, including a bunch of globally renowned ones like Japan's SoftBank Group, China's Alibaba Group, Ant Financial, MediaTek, etc. A $300-350mn investment by Buffett's Berkshire Hathaway would push Paytm's valuation to above $10bn, and serve as a strong signal of Buffett's faith in the loss-making, yet growing digital payments company.
Paytm has raised $2bn in funding till now. Insofar as stakes are concerned, Alibaba and Ant Financial together hold around 40-42% of Paytm, and SoftBank Vision Fund, SAIF Partners, and founder Vijay Shekhar Sharma hold 20%, 20-22%, and 16% respectively. Reportedly, Berkshire Hathaway wants 3-4%.
Additionally, Berkshire Hathaway's interest in Paytm makes complete sense considering the rate at which the Indian digital payments market is growing. Digital payments in India currently stand at $200bn, of which mobile payments only account for around $10bn. But, with the market set to grow to about $1 trillion over the next five years, the time is ripe.