It was in the first week of February that Vijay Shekhar Sharma, who was at Paytm’s technology development office in Toronto, got a call from Mark Schwartz, Goldman Sachs Asia chairman and an independent director on his company’s board.
Schwartz told him he had just met Todd Combs, one of the top investment managers at Warren Buffett’s Berkshire Hathaway, and that Combs was keen to know more about Paytm. “Are you in this part of the world anytime soon?” Schwartz asked Sharma. The Paytm CEO did not skip a beat. A meeting was fixed in Omaha on Valentine’s Day, February 14.
Sharma brought along Schwartz and another board member, SAIF Partners’ Ravi Adusumalli. Adusumalli’s firm has been an investor in Paytm for over a decade, from when it was a mobile valued-added services company. Sharma describes Adusumalli as “as much a cofounder” of Paytm as him. Schwartz, who is also vice chairman of Goldman Sachs, was critical in building the trust between Paytm and Berkshire.
The meeting lasted about two hours. The four discussed what was happening in India, how payment networks across the world work, how mobile was winning in China and India, and how mobile-led payment networks will become bigger than traditional networks. But no presentation was made and no laptop was opened during the conversation.
“We also told him that we are an old company, and how we transitioned from a telecom operator-led company to a consumer-focused company,” Sharma told ET about the meeting. “We also told him about how the (core) team has remained the same… Our company has always believed that it is people whom you trust and who are hardworking who pull off things, not the domain experts.”
Combs asked Sharma to send all the annual reports of Paytm-owner One97 Communications to him. A few weeks later, in March, Combs called back.
This time, he had specific questions about the landscape, competitors, risks and challenges, and even profitability. This was followed by another call, after which the investment size and valuation were finalized.
Paytm’s numbers must have been compelling: For the next 12 months, the company’s target is to double its gross transaction value to $100 billion on an annualised basis. It is also looking to double its merchant base to 16 million.
The deal has caught many by surprise, as until a few years ago Berkshire had stayed away from technology companies. This changed with its huge bet on Apple, a highly profitable and listed company. While Berkshire did try to invest in Uber earlier this year, it has stayed away from private technology companies or Unicorns, which typically spend investor capital to gain market share at the cost of profitability.
Many feel Berkshire’s Paytm investment is a different kind of a bet.
“This is not a bet on cash flows but on growth. Money transfer is a critical network business and as India grows, Paytm will grow faster than the market,” said Anand Lunia, managing partner at venture capital firm India Quotient. Berkshire is familiar with this model as it is a shareholder in payment companies like American Express, Mastercard, and Visa besides banks like Wells Fargo, Bank of America and Goldman Sachs.