Alphabet’s CapitalG leads $27.5 million round in India’s Aye Finance

CapitalG, the growth equity arm of Alphabet, is doubling down on its bet on Aye Finance, an Indian startup that operates a digital lending platform for small businesses.

On Wednesday, the Gurgaon-based startup said it had raised $27.5 million in its Series E financing round led by CapitalG, which has also led one of its previous rounds. Existing investors LGT Lightstone, Falcon Edge Capital, A91 Partners and MAJ Invest also participated in the round, which brings the six-year-old Indian startup’s to-date equity funding to $91 million. According to a regulatory filing, Aye Finance is now valued at over $250 million.

Aye Finance caters to small businesses that need working capital but find it challenging or impossible to secure that from traditional lenders, such as banks. The startup said it had disbursed nearly $400 million to these businesses over the years.

Cutting checks to small businesses that banks won’t issue funds to is risky. Aye Finance, like scores of startups in South Asia such as Lendingkart, Capital Float, Indifi Technologies and InCred, says it utilizes statistical models and predictive analytics to determine the credit worthiness of borrowers.

The startup said it has helped more than 200,000 unorganized businesses to move to the formal lending ecosystem.

Sumiran Das, a partner at CapitalG and who also sits on Aye Finance’s board, said the startup’s use of “data science with physical presence in the field” and its underwriting methodology has positioned it to lead the market and tap the unaddressed demographic.

Sanjay Sharma, managing director at Aye Finance, said that the fact they have been able to close a major financing round at the height of a global pandemic “reinforces the value that our investors see in Aye Finance.”

“Difficult times are a true test of a good lender and we have already started showing significant improvements in the customer repayments in the past months,” he said, adding that Aye Finance has been able to secure more money than it needed to so that it has some financial cushion to steer through the pandemic.

The startup, which suspended disbursing capital to businesses in March, said it plans to resume lending small amounts of money to businesses starting next month to help them restart their operations. New Delhi announced a nationwide lockdown in late March, which forced most businesses to half their operations.