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Seven-year-old unicorn Open struggles to match deeds to reputation

Entrackr · 8m

Neo-banking platform Open turned unicorn after a $50 million funding led by IIFL along with the participation of Tiger Global in May 2023. Despite the eminent status and significant funding, the scale and bottom line of the seven-year-old firm remained questionable as its enterprise value to revenue multiple stood at 260X until March 2023 (FY23). Open’s revenue from operations saw a modest 25% growth to Rs 30 crore in FY23 from Rs 24 crore in FY22, its consolidated financial statements filed with the Registrar of Companies (RoC) show. For context, Open recorded Rs 40 crore in revenue during FY22. The difference in revenue numbers for FY22 can be attributed to the change in accounting standards and revenue booking methods. Founded in 2017, Open offers banking, payments, and accounting solutions to small and medium businesses. Subscription sales through the company’s software and commission earned from customer transactions were the two main revenue streams for the company. It also made Rs 23 crore from interest on deposits and current investments (non-operating) taking total revenue to Rs 53 crore in FY23. For the neo-bank startup, its employee benefits constituted 50% of the overall expenditure. This cost grew 33% to Rs 149 crore in FY22 from Rs 112 crore in FY22 which also includes Rs 40 crore as ESOP cost (non-cash). The firm’s information technology, advertising, legal, payment gateway, card issuing, and other overheads catalyzed its overall expenditure to Rs 296 crore in FY23 from Rs 217 crore in FY22. See TheKredible for the complete expense breakup. Caveat: We have excluded the cost of change in fair value of compulsorily convertible cumulative participating preference shares for FY22 due to its non-cash nature. The modest scale and increased expenditure led Open’s losses to increase by 37.5% to Rs 242 crore in FY23 as compared to Rs 176 crore in FY22. Its ROCE and EBITDA margin stood at -50% and -394% respectively. FY22-FY23 FY22 FY23 EBITDA Margin -568% -394.3% Expense/₹ of Op Revenue ₹9.04 ₹9.87 ROCE -41% -50% Open’s total current assets stood at 332 crore including the cash and bank balance of Rs 311 crore till March 2023. On a unit level, it spent Rs 9.87 to earn a rupee in FY23. Open has raised over $180 million to date. According to the startup data intelligence platform TheKredible, Beenext is the largest external stakeholder at the moment with 11.72% followed by Tiger Global and Unicorn India Ventures. If readers wonder just what investors saw to pump in the funds into the firm to lift it to Unicorn valuations, then they are not alone, as even we struggle to understand the narrative that sold so well. The challenge of commercial success targeting India’s MSME sector has been well documented, thanks to the failure of multiple startups that were richly valued, only to fall by the wayside. At this stage, it’s safe to say that other than lending, practically nothing has worked, beyond the listing model of Indiamart and the likes. Considering Open raised its last funding as recently as 2023, well after it was established that the MSME sector is a graveyard for fee based efforts to ‘help’ them, one really has to wonder what Open offered to manage such amazing investor buy-in. Either way, we should know soon enough, as the clock ticks away for the firm to shake out its secret sauce.