When it comes to the democratization of Alternative Investments in India, Grip Invest is the first name that comes to mind. Having been an investor for more than 1.5 years on the platform we have witnessed tremendous growth by Grip Invest without compromising on the quality. Today the platform boasts of close to INR 150 Cr assets and more than 100,000 Investors!
We got an opportunity to interview the man behind the success – Nikhil Aggarwal
We asked him about the reasons for establishing the company, their business model, and how he sees the future of investment.
How did the idea of starting Grip Invest come to you?
At Grip, there were two insights that got us going
- Individual investors have very limited investment options – all our friends and family were just investing in stocks or bank deposits. We knew other products existed and that there was an appetite for them but they just were not available to individual investors. Especially in the fixed income space, investors looking to make an investment of up to INR 1 lakh only have two investment options – fixed deposits and RBI bonds. Neither of these investment options however allow investors to generate real inflation-adjusted returns.
- Technology is making companies adopt an asset-light business model – The largest transport provider will not own vehicles (Ola, Uber); the largest furnishing company will not own furniture (Furlenco, Rentomojo); even Amazon Web Services, the cloud server of the world will never need to own the servers. All these business models are a layer of technology where the physical asset – cars, furniture, servers will be owned by someone else. This meant that leasing would be incredibly in demand.
Grip started by allowing investors to invest amounts starting at INR 20,000 to co-invest to purchase and lease such physical assets to companies.
Who are the Grip Invest founders? Can you throw some light on the professional experience of the team?
I am originally from Delhi. Most of my family are in professional service. My father is in finance and his career gave him opportunities to work for some of the largest Indian conglomerates as well as MNCs. We ended up moving cities frequently and my brother and I ended up doing our schooling across 3 cities and 7 schools. I completed my graduation in Economics from Delhi University and my MBA from the Faculty of Management Studies.
I started my career as a Management Trainee with HSBC in Mumbai in 2009. In 2010, I joined Morgan Stanley’s Investment Banking Team and worked on about 20 transactions in capital markets and M&A especially in technology, auto, and real estate verticals. In 2016, I co-founded Chalo, one of India’s largest mobility start-ups and the largest private operator of city buses in India. Chalo facilitates close to 45 million passenger trips a month. In 2019 I stepped out of my operating role at Chalo and joined the World Bank as a transport consultant focussing on policy for public transport and electric vehicles.
While working at the World Bank was incredibly satisfying as it gave you a very large canvas to operate with, I realized that I was still eager to build. In June 2020, we started Grip. I continue to consult with the World Bank on a part-time basis.
My co-founder, Vivek Gulati, used to report to me at my previous start-up, Chalo. Aashish who is our Chief Product Officer used to also work with Vivek and me at Chalo.
Over the last 6 years, Vivek has been part of multiple early-stage ventures with responsibilities in business development, business expansion, and operations. During his tenure at OYO, Vivek grew from handling business development in NCR to being a micro-market CEO to then heading OYO’s business expansion across 70 cities. Vivek’s role included sales, business strategy, revenue management, and scaling all tier-2 city businesses from 0 to $100Mn/year. Subsequently, as part of the business development team in Chalo, he brought these skill-sets to scale-up partnerships with private and government bus operators across India. In 2016, Vivek also co-founded and ran Frubox, a health food venture doing a 300+ daily delivery of fresh food. Vivek has a B.Tech degree in Chemical Engineering from the Malaviya National Institute of Technology.
Aashish Jindal: Over the last 5 years, he has taken up responsibilities in product management, program management, and new product launches. Having worked with large corporations such as ICICI Lombard as well as start-ups, Pepperfry, Chalo, he understands how to execute and implement things in a fast and efficient way. Having worked in both technology and operational roles have helped him succeed in his last role where he grew ARR from $0.2Mn to $5Mn in 5 months. He has a B.Tech degree from IIT Roorkee.
What is the average profile of a Grip Invest investor? Is Grip Invest good-suited for all kinds of investors?
Our product is currently available for resident and non-resident Indians. We have a registered user base of 100,000 from 42 countries and 322 cities. Users are typically in the age group of 25-40, with a salary of 20+ lakhs, very digitally savvy, and based in tier 1 cities.
How Grip Invest is different from P2P lending platforms in terms of risk and rewards?
P2P lending has the following key characteristics
– Loan to individuals hence individual credit risk
– Unsecured loans
Grip’s investment opportunities have the following characteristics
- Leasing to companies hence corporate credit risk
- Leasing of physical assets which act as security for the investor
Do the Grip Invest founders or Grip Invest team personally invest in the deals listed on the platform?
Yes, the founders of Grip invest in every deal that is listed on the platform. The broader Grip team is also a frequent user and investor on Grip. Overall the Grip team would have invested 1% of the total transaction value done.
How do you make sure the risks are minimized and that the assets you offer at the marketplace are safe for investors?
We undertake the following activities for our users:
- Each deal that gets listed on Grip goes through our internal credit review process. This consists of (a) financial review of the company (last 3-year performance, review of liabilities, working capital cycle, growth opportunities, etc), (b) reference check on founders and evaluation of their profiles, and (c) review of the asset being purchased and the quality of the OEM. Our focus is to check the probability of assets sustaining through the life of the lease as well as the lessee having the ability to sustain its business and meet its financial obligations to our users.
- To enhance the credit quality we also take the following additional security from the lessee – (a) 5-15% cash security deposit, (b) post-dated cheques or e-NACH for repayments, (c) if applicable, escrow mechanism for receiving returns
- The repayments from the lessee are structured in a monthly format. Typically 3-4% of the invested value is received as returns every month. In 12 months, an investor hence receives 40-50% of their capital back. These accelerated repayments reduce the capital outstanding and hence the risk from an investors perspective
- Our credit team also monitors the investment over the tenure including ensuring timely payment of lease rental and in adverse situations re-sale/ re-lease of the assets
- Lastly to manage the collection and monetization of the assets in an event of default we have partnered with several logistics, e-commerce platforms, OEMs, and leasing companies to recover and re-sell or re-lease the asset. Since we also have 60+ lessees we have the ability to re-deploy the assets within our ecosystem.
Why do companies prefer leasing over-borrowing?
Generally speaking, companies use leasing as an alternative option to taking a loan to purchase an asset for a variety of reasons. In fact in countries in Europe and North America, leasing and hire purchases to account for 20-40% of total investments annually while India is at a few percentage points at best.
These reasons are:
- Desire to maintain an asset-light business
- Inability to make the upfront payment of 20-30% of the asset value required to take a loan
- Desire to match the timing of inflow and outflow or revenue and interest/ lease payments
- Ability to achieve a lower cost via lease vs. loan. This depends on the financial profile of the lessee, tax, and depreciation rates that vary case by case.
- Inability to take bank finance due to need to provide additional collateral or have a certain financial profile as a borrower
- The flexibility of being able to replace the asset before end-of-life, especially applicable for electronics
- Desire to avoid hassle or purchasing, maintaining and then selling the asset
What are the developments in the leasing finance ecosystem you expect in the next 3 years?
We expect leasing to become a much more accepted form of growth capital in the next few years. One of the key challenges for the sector is the treatment of GST and we hope that the government will take some steps to reduce the implications of GST on lease income. This will really help the sector grow.
If someone is interested in diversifying his portfolio and taking exposure to Grip Invest. How much exposure should he take?
We always recommend starting with a small amount. As the minimum transaction size is 20,000 a person can start with that to experience the platform. They can also choose deals with the following aspects to reduce risk
- Shorter-term deals like 2 years
- Deals that involve leasing assets like vehicles that have a better resale value
- Deals that involve leasing to more than 1 company or what are known as combo deals results in further diversification
Can you throw some light on the taxation aspect? Does the investor need to file ITR 3 compulsorily since he becomes a member of the LLP?
Each leasing transaction is done via a separate Limited Liability Partnership (LLP). The investor becomes a partner of the LLP and receives returns in the form of profit. Under the Income Tax Act, the profit received from an LLP is tax-exempt in the hands of the investor and hence there is no tax to be paid at the investor’s end. All taxation is done at the LLP end itself. The investor does have to file ITR 3 to disclose this profit.
What makes Grip Invest different from its competitors?
There are several platforms offering new forms of investment and we consider them to be our key competitors. These include companies like KredX, Klubworks, and Wint Wealth. Globally, YieldStreet in the US has been a path leader in this product with 250,000 investors and $1.3 billion in capital invested.
We are differentiated from our competitors on account of
- None of them offer leasing as a product. Most of the products offered are unsecured
- We are able to provide a lower min investment size
- Lots of innovation on the features on our website that provide for a great investment experience. For example, we have recently launched the auto-invest feature that allows investors to compound their profits by easily re-investing their monthly returns earned from deals on Grip
What are the next big changes we can expect from Grip Invest in the forthcoming future?
We are focused on offering asset-backed, corporate credit, fixed income offerings. We will look to add 1-2 more such projects over the next 12 months. Our business goal is to reach an AUM of 1,000 Cr by Sept 22.
We are also working to introduce a new structure for enabling investments. This will be a SEBI-approved instrument and will help investors build more trust in investing via Grip.
In terms of our ultimate goal – when people think about where to open an FD, it’s HDFC Bank; when they think about stock investing its Zerodha; when investors think about making new age investments, they should think about Grip.
Any final words of advice to Random Dimes readers who follow alternative investments in India and abroad?
The most important advice is to get started in alternative investments. Unlike our parent’s generation where wealth was made from either (a) real-estate or (b) public equity as companies went public very early in their life (Eg – Reliance Industries going public vs. PayTM going public), our generation doesn’t have the same options for wealth creation. Opportunities today are largely in the private space and that’s what alternative investments are enabling access to. It is important to start, even if small to start building a portfolio.