Info Edge Weathering through Scandals and Portfolio Troubles

Info Edge, a prominent name in the Indian startup ecosystem and the parent company of the popular job portal Naukri.com is now facing a major controversy. The company, known for its bold investments in high-risk, high-growth startups, has been embroiled in a financial scandal.
Info Edge (India) Limited has filed a First Information Report (FIR) against Rahul Yadav, the founder of its portfolio company 4B Networks, along with several others. ​The FIR alleges fraudulent misuse of funds associated with 4B Networks.​
The incident has also spotlighted Info Edge’s investment strategy. While some of its investments have yielded snowballing returns, others, including 4B Networks, have raised serious concerns. Despite its extensive experience, Info Edge’s investment strategy appears to have overlooked a crucial factor when it chose to back 4B Networks. Rahul Yadav, already linked to a previous financial scam, was a red flag that should have prompted more caution. To shed light on given concerns, the article has been drafted to understand the current investment portfolio of Info Edge.

Background of the FIR

Info Edge has invested a total of Rs 288 Crore in 4B networks, through its subsidiary, Allcheckdeals India Pvt. Ltd. for a 59% stake.
Founded in November 2020, the 4B Networks was designed to connect real estate developers and brokers, as well as to assist in loan origination for consumers. However, issues began to surface as 4B Networks allegedly failed to provide Info Edge with required operational and financial details.
The FIR, filed by Info Edge with the Mumbai Police on November 29, 2024, alleges fraudulent activities involving Rahul Yadav and others. Key findings include:

Undisclosed Financial Transactions

• 4B Networks reportedly loaned ₹10 Crore to 4B Realtech Pvt. Ltd., an entity linked to one of Yadav's associates. A portion of this loan was also funneled to Rahul Yadav's wife, Karishma Khokhar, for her Kult App venture.

Dubious Transactions

• Payments were allegedly made to entities closely associated with Yadav, such as RY Advisory, raising concerns about the misappropriation of funds from 4B Networks' investments.

Misappropriation of Funds

• Despite raising ₹288 Crore from Info Edge, Yadav allegedly failed to pay salaries to employees, further fueling allegations of financial misconduct.

Valuation Manipulation

• Reports suggest that Yadav attempted to raise funds from investors in Dubai at a valuation 99% lower than the valuation at which Info Edge had invested in 4B Networks.

The FIR names Rahul Yadav along with Devesh Singh, Pratik Choudhary, and Sanjay Saini, accusing them of fraudulent activities and misuse of 4B Networks’ funds.

Portfolio of Info Edge

Despite these serious allegations surrounding 4B networks, which prompted Info Edge to file FIR, the market has reacted counter intuitively. On the day the FIR was filed, Info Edge's stock price was recorded at INR 8255.30, yet it has seen a notable rise, currently standing at INR 8652.50 as of December 12, 2024.
The jump in stock price after the FIR also raises question that Info Edge's decision to file an FIR against 4B Networks amid serious allegations of financial misconduct could potentially be strategic move to boost investor confidence and supporting its rising stock price.
However, amid the rising stock price, it is concerning to note that more than 50% of its portfolio companies are operating at a loss.

A look at Info Edge’s Investment Portfolio

Over the years, Info Edge has risen as a patron of the Indian startup ecosystem.  Its investment portfolio spans across food delivery, FinTech, SaaS platforms, AgriTech and Legal-tech. While some investments, such as Zomato and Policybazaar.com, have yielded substantial returns, majority of its portfolio remains in red (refer image below).

Figure: Investee Companies of Info Edge (India) Limited

Notable Performers

• Zomato Ltd.: A leader in online food delivery segment, Zomato achieved ₹3,562 Crore in revenue for FY24, marking a 73.25% growth year-on-year and continuing profitability after overcoming previous losses.
• PB Fintech (Policybazaar): Policybazaar.com is an online financial services platform, which offers insurance and financial product comparisons. The business reported a 39% revenue growth in Q3 FY24 to ₹593 Crore, with a positive EBITDA indicating strong financial health.
• Crisp Analytics: Closed FY23 with a revenue of ₹47.5 Crore and a profit of ₹1.36 Crore, showcasing a steady and sustainable trajectory.

Struggling Investments

• Metis Eduventures Pvt. Ltd. (Adda247): Provides online government jobs preparation resources through platforms like bankersadda.com, sscadda.com, and the Adda247 app. The business has recorded heavy losses of ₹296 Crore for FY23 despite promising revenue.
• Agstack Technologies (Gramophone): The company operates a technology-enabled marketplace for agricultural products and services. The business targets efficiency in farm management. However, the reported revenue of the company dropped sharply to ₹98 Crore in FY24 from ₹316 Crore in FY23. The business reported net loss of ₹57.9 Crore.
• Greytip Software: Greytip software offers payroll SaaS solutions for SMEs. In FY23, the company reported annual revenue of ₹74.8 Crore, but suffered losses of ₹32.3 Crore.
• Unbox Robotics: The business develops robotics-based solutions for parcel sorting and order fulfillment in e-commerce and logistics. Faced a staggering decline in net worth by 99.92%, raising serious concerns about its financial viability.
• Skylark Drones Pvt. Ltd.: Skylark Drones provides worksite intelligence and data analytics for industries via drones. This innovative business faced 37.14% decline in its net worth. The business faces high competition and insufficient revenue to offset operational costs.
• String Bio Pvt. Ltd.: The business develops value-added biological products from organic wastes. Notable products on their portfolio are feed protein and carotenoids. Despite a niche market and innovative technology, the company faces profitability hurdles. Out of reported revenue of INR 14.2 Cr, the company lost INR 1.13Cr in FY24.
• BrainSight Technology Pvt. Ltd.: It is an AI-powered neuroinformatics platform offering advanced brain imaging and reporting solutions. In FY24, the revenue of the company was below 1 Cr, and its net worth dropped by 84.85%. the business faces financial instability and limited market penetration issue.

Mixed Outcomes

• Shop Kirana: Witnessed a significant rise in gross revenue to ₹682 Crore in FY23 from ₹452 Crore in FY22, but high operational costs challenge its profitability.
• Llama Logisol: Despite operational activity, substantial losses persist, and a negative EBITDA margin underscores financial instability.

Conclusion

In the Indian startup ecosystem, Info edge has demonstrated a bold, risk-taking approach by backing high-risk, high-growth startups.  While investment in Zomato and Policy Bazaar are a major success, over half of its investments are currently operating at a loss.
The mixed performance of Info Edge’s portfolio reflects a common theme in the startup world: some companies succeed, while others struggle due to mismanagement, as seen with 4B Networks. Given Info Edge’s track record, it is surprising that the company failed to recognize such risks when deciding to invest ₹288 Crore in 4B Networks.
Nevertheless, the situation with 4B Networks does not diminish the importance of sound financial management.
The allegations of financial misconduct by 4B networks, which led to an FIR against Rahul Yadav and others, highlight an important point: while financial losses are a part of startup risks, misappropriation of funds and financial scams are serious crimes. As noted by the co-founder of Info edge, Sanjeev Bikhchandani, such fraudulent activities need better oversight and accountability in managing investments.