After two years of muted celebrations due to COVID-19, businesses had an exciting festive season in the last quarter and over the new year. In fact, Eat Better, one of the younger but exciting and fast-growing healthy snack brands has seen 6x growth YoY as demand has exploded. Consumers too are excited to shop for themselves. ecommerce giants are riding this wave by offering deep discounts during specific shopping days and festivals, leveraging the increased spending power of consumers.
Restriction-free start to the year
While consumers are thrilled to experience an ever-increasing range of D2C products across categories and sectors, thousands of ecommerce and digital-first brands are reshaping the mindshare of consumers with higher quality products, more engaging marketing, and world-class customer experiences.
2023 brings with it the hope of a consistent pandemic-free world, providing unprecedented opportunities for many D2C brands. In fact just the D2C segment in India is predicted to grow at a CAGR of 40 percent – from $12 billion in FY22 to $60 billion in FY27, according to a report by Shiprocket and CII.
Today’s consumers seek curated and seamless shopping experiences, faster deliveries, and hassle-free customer support. To capitalise on these opportunities, digital-first brands will need access to quick working capital.
Most brands are looking at different ways to double down on marketing to reach more customers, increase inventory to meet bigger sales targets, grow product lines, and expand to new markets. Very often, traditional funding sources just aren’t up to the challenge in terms of being agile, flexible, and accessible. It makes little sense for founders to dilute ownership or put up collateral against their own businesses to fund growth using traditional capital sources. But there are options.
How Revenue-Based Financing is addressing the gap
Innovative alternative financing solutions are empowering founders to invest 2X-3X of their monthly revenue on digital marketing in growing inventory while retaining equity and not giving up board seats.
Tech-driven Revenue-Based Financing (RBF) can help entrepreneurs do all that, in a quick and hassle-free manner. RBF is an alt-VC option for business owners that address funding and accessibility gaps faced by them. It is a more founder-friendly model where investors provide short-term working capital to businesses. No interest. No warrants. No equity-dilution. No bias. No collateral. The businesses repayment is flexible and structured basis a small percentage of future revenues. As long as the business is generating revenue and has strong gross margins to cover repayments, RBF is the ‘go-to’ option for the brands.
In fact, it’s been incredible to see hundreds of our portfolio brands like Eat Better supercharge their businesses because of the ease with which they can access working capital quickly via platforms like GetVantage to focus on growth by doubling down on areas like marketing and inventory.
In today’s online environment, digital-marketing is one of the biggest cost centres for brands. Through RBF, businesses can easily access growth capital to invest in areas like marketing, logistics, and sales. For many founders, this proves to be a better path to sustainable growth vis-a-vis diluting equity while raising funds from VCs. Alternatively, it can empower founders to grow on their own terms and put them in the driver’s seat during negotiations with VCs for subsequent equity rounds, at stronger valuations.
RBF: Empowering founders
With RBF, the interest of the investor is deeply aligned with the interest of the company they fund, as an increased revenue will mean a shorter repayment term. Also, businesses can use the sales uptick during festive times to repay the investment faster. However, RBF also allows businesses to tide over rough months as the payback is proportional to the revenue generated, unlike a bank loan where a fixed amount has to be paid back monthly regardless of the fluctuations in sales and revenues..
RBF has leveled the playing field for founders in terms of fundraising by democratising access to working capital, regardless of their background or track record. Funding decisions, too, are data-driven which eradicates human bias and can support a greater diversity of businesses and entrepreneurs. With a strong focus on business fundamentals and less on who you know, RBF platforms are becoming invaluable partners to founders today. In fact, we’re proud that over 40 percent of the founders in our portfolio today are women and first-time founders.
RBF enables founders to prioritise value creation so they can make business decisions and set targets without blindly chasing bigger valuations. Besides, business-owners should be allowed to focus on revenues instead of constantly having to be distracted by fundraising.
A new measure of success
It is still the early days for India’s fast-growing digital economy with plenty of room for new brands, new-user growth, exciting partnerships, and the emergence of new categories and business models as D2C and ecommerce become mainstays. As new businesses reshape the landscape of consumerism in India, one thing is clear, modern businesses will require modern financing solutions. With the growing economic uncertainty driven by gloomy macroeconomic headwinds, founders around the world and in India are beginning to understand the importance of capital access and efficiency when “growth at all costs” is made to take a back seat and profitability becomes a priority.
In fact, D2C brands are poised to play an important role in the growth of digital commerce in the country, powered by alternative financing options like Revenue-Based Financing. According to Avendus Capital, the market size of D2C brands in India is expected to reach USD 100 billion by 2025. Fuelled by the D2C space, a key driver for RBF, the RBF opportunity in India is estimated at around $5-8 billion, with a potential to reach $40-50 billion over the next few years.
Alt-VC or alt-Fi models like RBF push revenues to not become not just a new asset class but also a new measure of success. As more entrepreneurs look to harness this unprecedented opportunity, RBF empowers them to focus on creating long-term value instead of a bump in valuation.
To better understand this model and how it’s helping founders access your copy of the Ultimate Guide to Revenue-Based Financing here.
