Funding freeze, while Debt is still brimming hot 🔥

Funding freeze, while Debt is still brimming hot 🔥
Debt funding by klub during funding winter

There has been a lot of discussion in the last few days about a freeze in equity funding across sectors in India. In fact, many of India’s largest VC investors alerted their portfolio founders of an expected public market downturn. These investors also recommended founders “extend their runway” in order to withstand this slope. Startups are now resorting to layoffs & shutdowns after cash burns.

Many founders have chalked out sustainable growth plans after India saw 40+ startups become unicorns in 2021. Alarmist media coverage aside, things are not all bad. As our economy emerges from the indelible impressions of the pandemic, another downturn in the public markets can pave way for alternative financing methods like Revenue Based Financing, Asset financing/leasing, Working capital financing, etc. Instead of resting the whole business on a single source of capital from venture capitalists & angel investors, this is the best time to employ debt instruments for sustainable growth.

Source: Economic Times, 26 May 2022

Yes, there is a silver lining after all

Newer modes of raising capital come with new metrics to chase, because all capital instruments cost something, if not equity. While VC investors may motivate startups to chase profitability, a sustainable way to be profitable is by leveraging revenues for upfront capital. YourStory recently wrote about us enabling the digital economy through our contemporary funding model. Entrepreneurs always keep an eye on the long road & while public markets are dipping in this economic climate, debt financing through RBF can be perfect for startups in the early & growth stages looking for capital.

Debt financing providers in India are now curating funding plans based on the requirements of digital brands, asset/capex heavy businesses, SaaS platforms, EdTech companies, cloud kitchens, etc. and that has enabled thousands of Indian entrepreneurs to scale their businesses in a founder-friendly manner. Personalised offerings are supporting startups to tackle their operational hiccups without diluting their ownership or depending on personal guarantees, like:

  • Supply Chain Financing/Invoice Discounting to help D2C merchants manage inventory & supplier costs
  • Revenue Based Financing for startups (across all stages) to fund their expansion plans through monthly revenues
  • Buy Now Pay Later or Working Capital Financing for young brands tackling credit cycle gaps or to finance their purchases on B2B marketplaces like Amazon or Flipkart
  • Asset Financing/Leasing for fast-growing asset/cap-ex heavy startups to help them with operational assets

And this list is not exhaustive because more & more fintech brands like us are creating customised funding solutions to suit the evolving needs of startups. Predictable monthly revenues can unlock growth capital for brands irrespective of their industry through instruments like RBF, invoice discounting, asset financing, etc. The best part about employing these alternative sources of capital is their acute fitment for a vast variety of use cases for all startups. While companies with predictable inflows can go for Revenue-Based Financing, companies with asset/capex heavy businesses can turn to leasing partners to fuel their operational asset needs. So a "funding freeze" might be an alarm that went off too soon.

Brands such as Bewakoof, BluSmart, and SMOOR Chocolates have exhibited phenomenal growth post-pandemic after raising funds through RBF. SMOOR Chocolates clocked 100X growth in their online revenues & EV cab service BluSmart is all set to double its fleet this year. Capital platforms work with hundreds of founders across industry segments & stages (early, growth or late) seeking flexible growth capital for offline expansion or product diversification. With monthly revenues (thanks to a loyal consumer base) and more firepower to build brand identity (thanks to flexible growth capital), startups raising repeat funding rounds with RBF have risen by over 100% in the past year. And those are just our numbers!

As more and more cautionary articles about the public economy dip showcase the problem, we certainly cannot take our eyes off of the opportunities that lie ahead for Indian startups. Instead of fixating on the turbulence of the public markets, founders need to look beyond the conventional way of fundraising and start dipping their feet into financing alternatives such as Revenue-Based Financing.

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