20-Sep-2018 23:43:55

Berkshire Hathaway Paytm Digital India

After becoming the go-to payments platform in the wake of India's demonetization, Paytm has received yet another boost from Berkshire Hathaway, which has reportedly acquired a 4% stake for about $350 million. India's largest digital payments platform described the deal as "an endorsement from the world's most respected investor”.

Although Warren Buffett himself was not directly involved in the Paytm deal, the legendary investor had earlier said that India has "incredible" potential. With the addition of investment manager Todd Combs to Paytm's board of directors, Berkshire Hathaway is joining a renowned group of foreign investors that also includes Japan's Softbank and China's Alibaba. Warren Buffett’s Berkshire Hathaway has invested in One97 Communications, the parent firm of Paytm. Coming in the wake of Walmart’s investment in Flipkart, this is a ringing endorsement of the start-up ecosystem in India. Established start-ups in the country should now no longer have trouble raising money from just about anyone.

The Paytm deal follows just weeks after Walmart had completed its acquisition of a 77% stake in India's biggest e-commerce platform, Flipkart, for $16 billion. That deal enables the U.S.-based retail giant to gain access to India's e-commerce market, which is expected to grow to $150 billion by 2022, according to consultancy firm PwC India and industry trade body Nasscom.

The recent deal activity has been described as a "coming of age" of India's fast-growing start-up ecosystem and has sparked much discussion over the benefits of strategic investments. Many entrepreneurs see the investments as encouraging signs that more global players will be ready to take part in late-stage financing for the country's start-ups, particularly for digital services companies like Paytm. This investment reaffirms Paytm’s position as the company to watch in the payments space. Buffett, a die-hard value investor, is known to shun risk, although he can often be contrarian, and his firm follows the same investment philosophy (Berkshire Hathaway has said that Buffett wasn’t directly involved in the Paytm deal). Buffett has invested in technology firms, even start-ups, but his bets, if they can be called that, are far less risky than those of traditional venture capital investors — which isn’t surprising because Berkshire Hathaway isn’t a venture capital firm. Given this, the firm’s investment in Paytm is an endorsement of the latter’s business model.

Berkshire Hathaway's investment in Paytm is significant not only for the capital, but for strategic reasons, too. Aside from being a formidable player in India's fintech sector, Paytm has been expanding into other areas as well that range from e-wallets and online banking to shopping, messaging and cloud-based data storage.

Many investors and start-ups believe that original products and services, like Paytm, will continue to attract more capital, especially from overseas investors seeking new and interesting business models. India's ShopX, a B2B e-commerce platform, recently closed an investment of $35 million from Hong Kong's Fung Strategic Holdings, the private investment arm of Hong Kong's Victor and William Fung. The billionaire brothers are leaders in supply chain management for retail and consumer goods, with operations in more than 40 countries. A growing breed of Indian entrepreneurs believes that it's essential to attract investors who can elevate their businesses to the next level with not only capital but knowledge and a long-term vision. ShopX cofounder Amit Sharma recalls the time he made a list of three individuals in India who he wanted to have as investors. One of them was Infosys cofounder Nandan Nilekani, who eventually signed on with ShopX by making an $18 million investment in the company.

However, the Buffett investment in Paytm is bad news for traditional banks and finance companies. Fin-tech, it was always known, would disrupt banks and finance companies, rendering their business models unviable and the firms themselves uncompetitive. Banks and finance companies have invested billions in technology in the hope that by digitising their businesses, they can avoid becoming irrelevant in the new world. But it’s increasingly becoming clear that the march of fin-tech firms such as, Paytm, is pretty much unstoppable.