Company Profile: Tap Invest (Fixed Income Opportunities Platform)
Tap Invest (formerly known as Leaf Round) is one of the fastest growing fintech platforms focusing on Fixed Income investments. Starting out purely as a Direct Asset Leasing platform around two years back it has today ventured into selling Invoice Discounting and bonds. Nishchay Nath, founder of Tap Invest realised early on that a lot of HNIs in India were making a good amount of wealth via stable debt based instruments, whereas the retail investors were still fixed on largely Fixed Deposits (FDs) schemes which were the only stable debt based products that they could rely on. Yet, these investments were mostly unable to even beat inflation post taxation.
With words of advice and suggestions from friends, family, and colleagues Nishchay decided to start his first venture Leaf Round ( Known as Tap Invest today) a fintech platform that allowed investors to invest directly into the direct product leasing space with different counterparties which were reliant on hard physical asset to run their business without giving away their equity to raise this capital. At that point, Leaf Round enabled them to raise non-dilutive equity capital via investors by offering them it at an attractive IRR.
For people who prefer listening to podcasts more than reading articles, here is our detailed interaction with Nishchay Nath.
Another thing that I would like to highlight before we start the article, is that all Tap Invest offerings as of this article's date are unregulated products in the fixed income space. As per Nishchay, Invoice Discounting drives 90% of the volumes on their platform, 7-8% is for Direct Asset Leasing and rest for other fixed income products.
Corporate Structure & Founders
Tap Invest is the registered trademark of Purple Petal Invest Private Limited and as per MCA records was incorporated in July 2021. As mentioned before, the brand name previously was Leaf Round and changed into Tap Invest.
As per latest MCA Filings, both husband - wife duo are the directors of the company:
Tap Invest & Tap Capital are both parts of the same business, but in my opinion, its their attempt to segregate two business units distinctively i.e. Tap Invest bringing in investors for innovative alternative products and Tap Capital bringing in companies who want to raise non-dilute equity capital.
Speaking about Nishchay, he is also a director in another Pvt Ltd Company related to computer software (its their family business) and a designated partner in 3 LLPs which were earlier created to do LLP based leasing deals but didn't see the light of the day due to foreseeable regulatory concerns.
Tap Invest's Business Model
Tap Invest primarily deals in below three products, we have written about two of these in depth and for the third one there is already too much content available on the internet.
Direct Asset Leasing
Let's understand this with an example, let's say a company like RaceEnergy which is into manufacturing swappable battery infrastructure for 3-wheeler rickshaws in southern India raises ₹50 Cr in Venture Capital Funding. They can either choose to deploy this capital in manufacturing batteries and deploying them in swapping stations across various cities become a Capex heavy model.
Race Energy can manufacture the batteries, ask an investor to buy them and then also create a leasing agreement with the same investor with the promise to pay monthly rentals for the life of the lease and also a promise to buyback the asset at depreciated value at the end of the lease. This lets them use their VC Funding in more strategic areas like R&D, Marketing, etc and doesn't put a strain on their balance sheet.
TapInvest is a platform which exactly enables the above kind of scenarios for companies. Connecting a potential investor and a company to fulfill non-dilutive equity capital requirements at an attractive IRR rate. Tap Invest would charge its own fees in between depending on deal size, terms, etc.
There are multiple advantages and disadvantages to doing Direct Leasing, you can read our detailed piece here:
This is the darling product of the overall alternatives industry due to its shorter tenure, higher IRR return. Even Tap Invest which was not into invoice discounting at all has started to do 90% of its overall business in this product.
Let's understand this with a quick example, suppose a Men's skincare company like The Men Essentials sells its products to Reliance Mart. Given the significant scale of Reliance, they can choose to make their suppliers wait for 60-90 days before releasing their payment. The supplying company then struggles for cash flow to pay its employees, rents, etc. So they can choose to come to Tap Invest and then list their invoices which they want to be discounted. So for e.g. if they were due to receive ₹1000 from Yash Enterprises in 90 days, the investor on Tap Invest would offer ₹960 upfront and then pocket the whole ₹1000 once its received from Yash Enterprises.
As per Nishchay, Tap Invest decides a range in which the companies can raise money on their platform but are free to price themselves in that range, for example, one brand may sometimes raise at 13%, sometimes at 13.5% depending on the demand and the how urgently do they need to raise capital. I have personally not seen any deal listed above 14% on the platform.
To read about Invoice Discounting in more detail, you can read the below article:
Tap Invest also sources bonds from external market participants and act as a distributor of these bonds via its portal for its existing set of customers. They are not in the business of structuring these bonds themselves yet but rather sourcing the most attractive opportunity available out there and selling it.
They earn a spread in selling these bonds, for example, they may acquire the bonds at 16-16.5% but choose to sell it a 15-15.5% and pocket the extra 0.5% as fees. As per Nishchay, this only contributes 2-3% of the overall investment volume on their platform.
Can Defaults Happen?
A BIG YES! Like any other alternatives, defaults are an absolute possibility in all the products Tap Invest sells. In fact, if an actual default happens, recovery of capital in these products can be more difficult as these are unregulated and do not fall under the purview of SEBI at this stage.
Tap Invest recently had one of its Asset Leasing deals by Exampur default. Below is the first communication that was shared by Tap team.
They later shared in January that they expect the delays to be cleared soon as Exampur has performed well in December, but if it was otherwise, Tap Invest would have invoke the clause in the agreement to recover the assets and sell them in secondary market. But the recovery of assets sometimes is not so straightforward which we have seen from the Grip Invest Bigspoon default. And the sad state of legal affairs/delays in India makes it more challenging to invoke agreements.
Speaking to Nishchay on this default, he did mention that they have taken Bank Guarantee to some extent and around 10% of leased amount as cash collateral to ringfence the invested money but no method is 100% perfect and they are still open to suggestions on how to make the structure more secure and still deliver higher returns.
We have also seen one more big default by altGraaf/Jiraaf with counterparty Arzooo to the tune of ₹15 Crores in the invoice discounting space where investors are looking at almost 100% of their capital lost. Regardless of any superior due diligence Tap may do, the risk still exists.
As per Nishchay, Tap Invest focuses on developing a robust credit risk assessment process, but in case default delay happens, they have following controls/provisions:
They have a provisional pool of money from their own revenues which they use to pay investors if invoice discounting deals are delayed by 3-4 days.
We have region specific collection agencies like normal banks do.
We have digital methods like On-Demand NACHs by which we are able to trigger collections from the company by end of the day.
We are working to setup security deposits with companies which can let's say cover 5%-10% of invoice value if defaults happen.
Other Questions we asked the Founders
We asked the following questions in our podcast with Nishchay (available here), but mentioning them here as well for our reading audience, please expand the question to see the answer.
What is due diligence process before onboarding company on Tap Invest Platform?
How frequently do these company share their performance data with you and is it mandatory for them?
Do you plan to show underlying invoices and post dated cheques for invoice discounting deals like some other platforms do?
Who is present in Tap's Investment Committee that makes decisions on risk limits, company onboarding, etc?
Are you planning to apply for an OBPP License?
Things we like about Tap Invest
First and foremost which I have previously shared in our community as well is transparency of return % in their asset leasing deals. They clearly show the IRR, ROI and CAGR for every deal giving a good idea to the investor on what they will make.
Good UI/UX, simple to use and navigate around the platform and make your investments.
They always have some form of opportunity live on their platform not turning away any potential investor.
The minimum investment amount of asset leasing deals is ₹20,000 and ₹10,000 (first time user) for invoice discounting deals, small enough to make new investors atleast try and experiment.
Things we don't like about Tap Invest
There is no performance history of how their partner companies have performed in the past available on the portal. You cannot see how much business the company has already done via Tap and whether all repayments were done in a timely manner or not. Most of the other platforms show this and its very important numbers in my opinion.
For Invoice Discounting deals, money is deducted from your wallet before signing the agreement. For any reason you don't want to sign the agreement, you have to contact their support team to request refund of money who are reluctant to do so. I believe the workflow should be opposite i.e. sign the agreement first and then deduct money.
They also don't show the overall business they have done and their live default percentage which may not give a sense to the potential investor on how big the platform is.
In the Asset Leasing model, although the maintenance of the asset lies with the company, the agreement clearly mentions, it will be the responsibility of the investor. As per Tap Invest founder Soumya, this is just to make the agreement legally airtight but it still is risky if the agreement goes to court.
There is no option for the investor to receive repayments directly into their bank accounts, one has to withdraw money manually from Tap Wallet. Speaking to their product team, I know they are working to enable this option but the progress has been slow.
Overall Tap Invest is one the good platforms in the unregulated space offering good risk adjusted returns. But I won't sugarcoat it, if its your first time trying out alternative investment options, I wouldn't recommend you Tap Invest unless you are happy to take high risks. There are some other regulated products available out there, you should get comfortable with them first and then move on to Tap Invest.
In my opinion, founders are knowledgeable, know what they are doing and building the business sustainably by keeping some margins for themselves as well. But this is a business of doing volumes and given the recent default panics in the invoice discounting space, I am sure Tap Invest is also facing the heat. We will have to wait and watch what other exciting products do they come up with.
If you found this article helpful and if you are not registered on Tap Invest, do support our work by signing up with the code ALTINVESTOR on Tap Invest. We will earn certain commissions on every investment you make at no cost to you.
If you have any questions on Tap Invest, do ask in our Whatsapp Community (you can join from button at start of article) where most of Tap Invest team is a member, they will be surely happy to help answer them.
If you liked this piece, do share this on social media or relevant Whatsapp groups, it helps us reach more relevant people!
Please note that this is an opinion blog and not official research advice. I am not a registered RIA in India. This blog aims to promote informed decision-making and does not discourage you from investing in any deals.
We plan to come up with more blogs discussing different types of instruments available in the world of startup investing, write on due diligence for some platforms, and also existing and upcoming alt investment deals in the Indian market. If you want to stay updated on the latest blogs, please subscribe to our newsletter so you get notified automatically.
Lastly, if you like our work, please feel free to sponsor us via Hashnode Sponsors.