Mumbai: Mid-market private equity firms, including TVS Capital Funds, A91 Partners and Faering Capital, are in advanced talks to invest $80-100 million in three-year-old online insurance startup Digit at a valuation of $800-900 million, according to three sources familiar with the development.
This will be the first external round for the startup, launched by insurance industry veteran Kamesh Goyal along with Canadian billionaire Prem Watsa’s Fairfax Holdings, who have invested over $140 million since 2017 across multiple rounds.
The interest in Digit, which has emerged as the fastest-growing general insurance player in the country, is expected to do a business of $250-280 million in premiums this year. “The transaction is waiting for regulatory approval and it is almost finalised,” said one of the sources mentioned earlier. Interestingly, senior and top mid-management are understood to be putting in $4-6 million in Digit, according to the second source mentioned earlier.
Emailed queries sent to Digit, A91, TVS Capital and Faering did not elicit a response till the time of going to press.
The transaction is interesting as most of the PE funding sector has been done by larger firms focusing on buyout deals in recent years. The fund-raise will also allow Digit raise growth capital, while also meeting the FDI cap of 49% as all three firms are considered domestic investors.
Excluding premium from crop insurance, Digit has seen a 100% growth rate. In 2018-19, its first full year of operations, the company recorded a premium income of $172 million. Although the company adopts a multichannel distribution strategy that includes agents, corporate agents and banks, the interaction and process is completely paperless. It has recently signed up with Karur Vysya Bank for distribution and is expected to partner CSB Bank, where Watsa has a strategic stake. Digit co-founder Goyal has nearly three decades of experience in the insurance space, which includes heading Bajaj Allianz’s insurance operations in India before moving to Allianz’s global headquarters in Munich. Watsa, on the other hand, runs big insurance and reinsurance businesses in Canada and the US. His firm Fairfax, which entered Indian insurance in 2001 by forming a JV with ICICI Bank, recently completely exited that investment to focus on Digit, according to regulations.
In the online insurance space, Digit competes with players like Acko, which is backed by investors like Flipkart’s Binny Bansal and Infosys’ co-founder Narayana Murthy’s Catamaran Ventures, besides venture firms like SAIF Partners and Accel India. It recently raised capital from Ascent Capital and is said to be valued close to $300 million. Digit has been able to build a significant lead in the market even though it is not expected to be a winner-takes-all industry. While Acko did premiums of about Rs 42 crore in September 2019, Digit did about Rs 233 crore, according to the industry regulator IRDAI’s website. But as compared to Acko, which has focused on travel and auto insurance, Digit has focused on a broader segment of the market also offering health, home, and mobile insurance.