Amazon ramps up fintech play with investment in Smallcase

Amazon Inc. has been bolstering its fintech play in India, one of its largest markets after the US, as it ramps up its investment in financial technology firms in the region.

Capital markets-focused fintech, smallcase, on Tuesday said it has raised $40 million as a part of its Series C round led by Faering Capital, at a valuation of around $200 million. Amazon also participated along with Premji Invest, as new investors in the company. Existing investors, including the likes of Sequoia Capital India, Blume Ventures, Beenext, DSP Group, Arkam Ventures, among others also invested in the round.

According to the statement, Amazon has invested through its newly incorporated $250 million, Smbhav Venture Fund, which it announced in April.

This year, Amazon has invested $10 million in invoice-led financing platform, M1 Exchange which caters to small and medium enterprises (SMEs). Back in 2018, the e-commerce major had invested $12 million in insurtech startup, Acko, and joined hands with the company, last year to offer auto insurance to its user base.

“The deal has been explored from a pure funding perspective at present. On aspects of partnering for commercial distribution (of our products) through Amazon’s platform is future opportunity and a separate conversation. Nothing has been decided yet,” said Vasanth Kamath, founder and chief executive officer, smallcase in an interaction with Mint.

Amazon has invested close to $5 million as a part of this fundraise, individuals aware of the discussion told Mint.

The round brings the total capital raised by smallcase to over $60 million with Faering Capital’s Shroff joining the company’s board.

According to the company, the funds raised from the round will be used to continue building the platform, as well as for diversification into newer financial instruments including mutual funds, bonds and global equities.

“In April this year, we launched a $250 million Amazon Smbhav Venture Fund (ASVF) to invest in early-stage tech start-ups. As part of this fund, we are excited to partner with smallcase in their journey to offer innovative consumer investment products. By increasing product selection and convenience, this will provide an additional channel for consumers to participate in the equity markets,” said an Amazon spokesperson.

The six-year-old startup works with capital market participants (including brokerages, advisors and digital wealth platforms) to offer simple and transparent investment products called ‘smallcases’. These are model (or ready-made) portfolios of stocks and exchange-traded funds (ETFs) that are created and managed by registered financial advisors, both individuals and entities. The final investment transactions are routed through registered brokerage partners on the platform.

“At present, smallcase witnesses close to ₹1500 crore, being invested in stocks and ETFs through the platform on a monthly basis. We are now looking to offer a diversified portfolio to our users, while simultaneously working on integrations to launch mutual funds, bonds and global equities. Our mutual fund product should be ready for launch by the end of this year,” said Kamath to Mint.

Since its Series B fundraise worth $14 million in September 2020, smallcase has doubled its user base to 3 million. The startup is also investing in setting up an offline distribution network and has acquired a network of 150 on-ground direct agents.

Currently, smallcase works with more than 130 investment advisers which create these ‘smallcases’. It also works with 12 brokerages to execute the trade, as well as over 250 channel partners to distribute these smallcases.

“Globally, we have seen a trend of increased retail participation in equity markets and in India smallcase is pioneering digital access for retail investors through their innovative products and channel partnerships. We are excited to lead the Series C round and partner with the entire smallcase team for their next phase of growth,” said Shroff, co-founder and managing director, Faering Capital.

“For large e-commerce majors, reach is important, and they continue expanding by following a partnership-model. For fintechs it is the e-commerce’s large reach which is lucrative. By nature, fintech commands the regulatory oversight of several regulators, which large e-commerce firms may try to avoid, and choose to either partner or invest in this category, rather than building these verticals out” said Asim Parashar, partner, PwC in India.

Amazon has also been aggressively investing in its payments arm, Amazon Pay in India. Amazon Pay has secured more than ₹5,280 crore in funding, since inception in 2016, Mint reported earlier. Since January 2020, Amazon has poured in close to ₹2280 crore in Amazon Pay across three funding tranches.

"Fintech is hard to ignore (for e-commerce majors) considering 29% of first-time Indian borrowers are coming through these channels. Almost 50% of all digital payments in India is driven by UPI and other wallet-like digital instruments,” Shashank Verma, manager, Kearney, a management consultancy.