India has appeared as the third largest fintech ecosystem in the world. In the past two years, the Indian eCommerce industry has proven to be one of the fastest-growing industries. The sector has grown and is massively propelled by the rise of internet penetration, digitization of payments, and more. According to experts, the Indian market might develop at a CAGR of 18.9% and reach 400 billion dollars, with the direct-to-consumer (DTC) segment to reach 302.4 billion dollars by 2030.
Although these businesses are growing, sometimes a situation arises where they face operational or financial problems like cash flow problems. It can be a common roadblock for these brands to manage their cash flow problems as lending money from banks or venture capitalists (VCs) is quite difficult with their limited credit history/scale.
Bank loans require a business to be profitable, and seek collateral, and personal guarantees towards the loan. While these traditional funding institutions are reluctant to provide funding because they find the investment to be risky. On the other hand, venture capitalists or angel investors require equity dilution, so ultimately, an ownership stake in a company is transferred to investors.
RBF : A Powerful Lending Option
Nowadays, RBF is becoming new-age financing for traditional startups. It can be a powerful lending option as it solves two major problems ( credit history and staking equity) by providing sustainable solutions of
- It provides holistic credit valuations of a startup based on the growth potential.
- It provides a flexible repayment system that does not take rightful ownership from the founder.
If you are interested in raising capital through the RBF model, it is important to understand the concept of how they lend money to the business. So let’s have a look at what RBF cares about when they evaluate potential deals.
- Size of Revenue – Usually, RBF does not specify a maximum limit. However, a business must have substantial revenue to share as investors are getting a percentage of the revenue earned by a business. The decision also varies by analyzing various factors like brand position, brand value, sector, and so many.
- Revenue Growth- For an RBF to perform well, revenue needs to be growing at a rate of at least 15 percent year over year.
- Revenue Quality- All revenue created is not equal so RBF firms evaluate its quality by applying standard SaaS revenue metrics to the revenue of the business and cohort metrics to the underlying customers delivering it.
- Quality of Operations – Beyond revenue, RBF investors without compromising the business need to believe in the viability of the company and its ability to share revenue. This comes down to how an entrepreneur operates and grows the business.
Revenue-based financing is a growth capital that is available to meet the requirements of the business related to sales and marketing initiatives, expansion of operational units, and more. It allows businesses to access funds during their growth stage to build traction without any equity dilution. It allows startups to witness organic growth and sustainable profitability in their venture.
Now, as you know RBF is a powerful lending option, so it’s time to partner with the right revenue-based financier such as VedFin. A business can get its term sheet now and get funded in less than a week with a 100% online process.