Kunal Shah and founders who fund their faith

0:01 [Music] Today's episode of the nutgraph published on 14th of June 2025 is titled kunal sha and founders who fund their faith. Everyone else sees a dip. Some founders see a discount on their own conviction. You may have your opinion about CRED as a product, but you can hardly accuse it of being a boring company. Anyway, here's the latest and I'm quoting the Ark Webb story titled Kunal Sha invests $19 million in Cred's down round at $3.5 billion valuation. Quote, "Fintech Unicorn Cred is raising $72 million,

0:48 that's rupees 617 crores, from its existing investors after a nearly three-year hiatus, according to filings with the MCA. The funding round will lower Cred's valuation to $3.5 billion, a 45% drop from its previous $6.4 billion valuation in 2022. Singapore's GIC which 3 years ago led a 1,170 cr or 140 million investment in cred is also leading the current round with rupees $354 cr or around $41 million. RTP global and Sophina are also participating. Cred founder Kunal Sha is expected to contribute around $162 crores or $19 million in this internal round which has

1:33 reportedly been finalized and is likely to be announced soon according to the same sources. This will make it one of the founders most significant personal investments in their startup in the ecosystem. End quote. There are two parts here. First, cred has gone through a down round. And second, Kunal Sha's founder has invested more capital in it. More often than not, a lot of attention is paid to the first part and the second is either overlooked or mentioned in passing. I think the latter is far more interesting than the former. Down rounds are somewhat of a taboo in the startup universe for reasons I've never fully understood. While share prices of listed companies can freely move up or down,

2:19 privately funded startups are expected to go only in one direction, up. I've previously argued about the downstream and second order effects of this inequitable expectation and usually the price is paid by the retail investor when the company goes public. I've described this in somewhat morbid terms as quote the great fattening followed by the great slaughter end quote or the for grassification of Indian startups. Consequently, we end up with curves that look like early funding, growth funding, and IPO listing going all the way up and a post IPO selloff where the share price of the company and the valuation collapses followed by a long steady

3:06 plateau when the company's in a public market. So anyway, I'm all for downs. It's fine. It's also bland and frankly boring. The far more interesting part in all this is that over 25% of CRED's new funding has come from its founder Kurala. This isn't how things usually go. Founders typically start by building something, selling a vision, hiring a team, and getting things moving. Then at some point, they head to people with money, usually VCs, and try to convince them to bet on the dream. The VCs look at the pitch, the people, the product, and if it all works out, they shrug, nod, and write a check in exchange for a slice of the upside. But sometimes this is not what happens.

3:53 Instead, the founders decide to do it all by themselves. And these are the founders who have the capital and the will to do what I'm calling faith funding. Faith funding is when founders switch roles and become VCs and invest into their own companies. Like fantasy monarchs who ride back into the battlefield with their hidden vault of gold to defend the castle when the walls are crumbling. These founders protect their stakes and even double down when others retreat. They don't go out and sell their vision to others. They don't ask others to trust them. They fund their own faith themselves. In other words, they don't just lead in the battlefield, they bankroll the war. It's

4:39 not like founders did not do this in the past, but their circumstances have been wildly different and dare I say not ideal. There are several examples of founders who have done this in India for different reasons under strange circumstances and once you read them in tandem, you'll see what I mean. The first kind is when the founder more or less funds and controls their company right from the beginning. If you like you can exclude companies where founders have actively avoided VC money because they want to stay in control. As an example, Sachin Bunel and Na'vi but then you get startups that well nobody really understands. Perhaps it's because it's way too risky even for VC investors and well the founder has access to enormous

5:26 amounts of capital. There are no clear revenue streams. Think of it as a massive hobby project. Just last week, I wrote about one of these. That's Kutim and Bhaveshagarwa. The other kind of faith funding happens when the company's distressed and the founder sees an opportunity to assume greater ownership and there are no easy ways for other investors to object to this seizure. Famously this happened with Baiju almost exactly a year ago on this day when its founder Baiu Raindra wanted to raise money at a 99% cut in valuation essentially putting a gun to the heads of all existing investors of the company to either participate or face a dramatic dilution of their equity. At that time I

6:12 was even somewhat sympathetic toward by Jews even though I was quite amused by how bizarre the whole thing was. Yet another kind of faith funding is the one where the founder does something so bizarre and unprecedented that people just roll with it. Hello Oo and Retesh Aarwal. I could spend an entire edition trying to explain all the strange things that Retagaral has done to inject funds into OEO and I doubt we'll still understand the whole picture. Suffice to say the bottom line is that through a series of complicated loans, share pledges and other things that I've already written about earlier. Retagaral owns nearly 33% of oo and soft bank has another 46% of it. I guess you can see why founders doing

6:58 faith funding was generally seen as an undesirable thing. Faith funding was viewed with suspicion and for good reason. A founder putting money into their company is a sign that they could not convince someone else to do the same. It's fair to say that faith funding was a taboo of sorts. However, strange things happen during a downturn. VCs get more skittish and some founders are seeing this not as a crisis but as an opportunity. Kunal Sha isn't even the first startup founder to do this. A few months back Gorav Kumar, founder and CEO of the fintech company UB also invested 250 crores into the company and sometimes founders don't even have to pay the

7:43 entire money upfront. In October, consumer lending and payment startup Slice raised 72 crores. That's around $8.6 million from its founder and CEO Rajan Bajaj through partly paid up shares. Over the last few months, faith funding hasn't just become palatable, it's become more powerful. The taboo is wiped away and the founders and companies become much more attractive. Like with most things in life, this is all a form of game theory. When everyone has capital, founders doubling down on their own companies is seen with suspicion. On the other hand, when capital is scarce and when founders are actively trying to exit the companies

8:29 they founded, the founder who's doing faith funding looks much more attractive. It's a sign that this founder isn't going anywhere and that they believe in the startup so much that they're willing to buy shares at it at this price, confident of an upside later. And VCs who are mostly creatures of FOMO usually ask themselves, what does this founder know about their business that we don't? And usually that's enough to get past the line. Today's edition of the nutgraph is read by me Pravin Gopal Krishnan. You can find the entire edition on our website that's the ken.com/thenutgraph. Sound and production for today's episode is done by Rajiv Cen and I'll see you

9:16 again with another edition next week.