Revenue-based financing is now in vogue

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With more and more start-ups turning to revenue-based financing (RBF), this fund-raising mode is now in vogue.

The market size for RBF in India is estimated to be about $5-8 billion from over 10,000 new small businesses entering the market every year. At the same time, entrepreneurship efforts are also being recorded from remote cities and towns.

Revenue-based financing, also known as royalty-based financing, is a mode of raising capital from investors in exchange for a percentage of its gross revenue. While investors conduct proper diligence on a company’s revenue-earning potential, this also means that if a firm does not earn any income, then investors don’t get any return.

Being a recent phenomenon in India, there are only a few companies – including Getvantage, Klub and Velocity, among others – providing revenue-based financing in the country.

“We are democratising access to capital. We firmly believe that every kind of business should have access to unbiased capital that is data-driven, not based on who you know, but on the business fundamentals and performance. Technology allows us to take a data-driven approach to analysing businesses,” Bhavik Vasa, Founder and CEO of GetVantage said.

“We are not disrupting; we are simplifying and reshaping the landscape of venture finance. RBF is well-positioned to revitalise the venture finance space that has been stagnating for too long. We’re bringing fintech innovation, deep data-driven decision-making, high-frequency collections, a founder ecosystem, and community engagement,” he added.

Getvantage is backed by Venture Catalysts, LetsVenture and Chiratae Ventures, among others.

Since 2019, GetVantage has financed 40 digital-first businesses such as Rage Coffee, Magic Crate and AutoBrix, after raising capital from investors through its marketplace platform. Over 40 per cent of the businesses funded by GetVantage – with a portfolio ranging across 17 sectors including e-commerce, D2C, SaaS, Edtech, F&B, Retail and health and wellness, among others – were founded by women or first-time entrepreneurs.

“Revenue-based financing is skin-in-the-game, with repayments linked to revenues, founders don’t need to dilute their equity or give personal guarantees,” Ishita Verma, co-founder at Klub said.

Klub is a Singapore-based firm and is backed by 9Unicorns, Surge, Kunal Shah and Tracxn Labs.

Klub has partnered with multiple NBFC partners and more than 1,000 patron investors, enabled over 75 rounds of investments to new-age brands over the last year.

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