Trading Startup Dhan in Talks to Secure $100 Million, Aiming for $1.5 Billion Valuation

Raise Financial Services, the company behind the investing and trading app Dhan, is in the early stages of seeking around $100 million in new funding. This investment could boost the company's valuation to between 1.2 USD and 1.5 billion USD, potentially earning it a spot in the prestigious unicorn club, according to sources familiar with the matter.

Although discussions are still in their preliminary phase, Avendus, an investment banking firm, has been selected to manage the fundraising process. Dhan, launched by former Paytm Money CEO Pravin Jadhav in January 2021, competes with major players like Zerodha, Groww, and Angel One.

This fundraising effort comes as the Indian stock market reaches new highs, driven by strong retail participation, even as concerns about increased activity in futures and options (F&O) have been raised by the government and market regulators.

India's Unicorn Drought

This year, India has seen the emergence of only three unicorns: Porter, Krutrim, and Perfios. This limited number highlights a significant shift in investor sentiment following the excitement of 2021.

Despite the cautious approach, it's clear that investors are still active but are now more discerning about where they place their capital. Only a select few new-age companies, such as Zepto and Meesho, have managed to secure substantial funding in 2023.

For Dhan, the upcoming funding round represents the largest since its launch in 2021. The company's valuation is expected to jump from around $150 million to between 1.2 USD and 1.5 billion USD.

The new capital will be used to support business growth and compete more effectively in the market. While Dhan currently offers investing and wealth management services, it is also expanding into financing, payments, and insurance to capture a larger share of the market.

The funding round is anticipated to attract both new investors and existing supporters, though formal negotiations have not yet started. Current investors in Dhan include Beenext, Mirae Asset Venture Investments, 3one4 Capital, and Rocketship.vc.

Confidence in High Valuation for Raise Financial Services

When questioned about the confidence behind the high valuation of Raise Financial Services, a second source revealed that the three-year-old startup is currently operating at a revenue run rate of 100 million USD (around Rs 830 crore) with a robust net profit margin of 40%. Given these strong financial metrics, reaching the targeted valuation of 1.2 USD to 1.5 billion USD seems within reach.

With its current revenue run rate, Raise aims for a revenue multiple of approximately 12-15X. In comparison, Angel One, a publicly listed competitor, reported sales of about 500 million USD for FY24 and has a market capitalization of 2.3 billion USD, resulting in a revenue multiple of roughly 4.5X. Raise also faces competition from other discount brokers such as Groww, Zerodha, and Upstox.

The Return of Pravin Jadhav

Before founding Dhan, Pravin Jadhav made his mark by scaling Paytm Money, the brokerage arm of the fintech giant. However, he parted ways with Paytm Money under less-than-amicable circumstances in March 2020, following a wave of senior exits. Since then, Paytm Money has lost market share and recently underwent leadership changes in a bid to revive its business.

Jadhav’s departure was reportedly due to disputes over compensation, including stock options and salary. His relationship with Paytm Money has since soured, with Jadhav openly criticizing his former employer on social media. For instance, on July 28, 2022, he took to X (formerly Twitter) to call out Paytm Money for allegedly attempting to poach his team from Raise Financial Services. He suggested that Paytm Money should focus on improving its existing offerings rather than targeting his team and customers.

Jadhav's comments included a pointed remark on June 2, 2021, referencing the company's challenges and its competitors' successes. He compared Paytm Money’s performance to that of rivals like Groww, Upstox, Angel One, and Zerodha, using the phrase "Raise the Bar" as a nod to his current venture.

Since January 2024, Paytm Money's active user base has been on the decline, dropping from 800,000 to 770,000 by June, according to National Stock Exchange (NSE) data. In contrast, Dhan has seen its active user base grow from 380,000 to 610,000 over the same period.

Dhan, now three years old, operates in the competitive discount broking sector dominated by players like Groww and Zerodha, who have established large user bases. Despite intense competition, Dhan has achieved a remarkable 330% year-over-year growth.

To maintain its relevance and boost revenue, trading platforms are diversifying their offerings. For example, Groww has expanded into long-term investments, lending, and UPI payments. Angel One is developing a fintech super app, while Zerodha has entered the asset management company (AMC) business.

Dhan is also broadening its service offerings, recently adding mutual fund investment options and planning to enter lending, payments, and insurance sectors to capture a larger market share.

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