Indian startup founders are now turning to debt as a viable option, which also helps in bridging funding gaps, while also avoiding excessive equity dilution.
Eklavya Gupta, CEO and Co-Founder of Recur Club said that capital is something that every startup needs, to manage various kinds of operational expenses and the situation may not be worth it for them to collect equity capital.
According to an earlier report by Lighthouse Canton, venture debt has risen as a key financing tool for India’s startup ecosystem, with the finance option steadily growing, “mirroring the early days of venture capital.
“Equity is not everyone’s cup of cake. And hence, you get multiple options to go in. Traditional debt lenders would not fund these folks, because there are multiple assets. Hence, it is better to be asset-led, which calls for the question of alternate lenders coming into the picture,” said Gupta.
Recur Club is one of India’s leading debt-based financing platforms, that is helping startups and brands scale with non-dilutive capital. The platform has currently deployed more than INR 300 crore, with an additional INR 2,000 crore funding commitment this year.
Gupta also told Entrepreneur India that through the fund, the firm will focus on SaaS, D2C, tech services, and logistics as core sectors.
Speaking on alternate financing helping companies move beyond VC dependency, Gupta feels debt is a much quicker option, with startups typically taking 9-12 months to raise a round of equity capital.
“Speed is very important for a startup, and the speed at which they get capital becomes very important for them. And hence, you know, agility speed, being fast-tracked, enabling them to grow, becomes very important. A lot of startups die because they don’t get capital on time. So, I think that is why agility, and speed at which you get that capital matters a lot,” said Gupta.
The Lighthouse Canton report stated that 40 per cent of the founders now prefer venture debt because of its dilutive nature and over 30 per cent prefer its scheduling flexibility being a significant factor.
Gupta also elaborated on debt financing’s feasibility to include options like smart debt, which can consider a startup’s requirement, working capital cycle, and payback periods
“Both structuring, ability or availability become very important from a smart debt point of view,” said Gupta.