Revenue-linked financiers bet big on SaaS companies

economictimes.indiatimes.com:

Revenue-based financiers are increasingly seeing an opportunity in cash-flow based lending in India’s early-stage software startups segment, as equity funding gets expensive and the bar for investment gets higher.

Over the past month, revenue-based financiers such as GetVantage and Velocity have set aside a dedicated corpus of Rs 250 crore and Rs 300 crore, respectively, to meet the growing demand for this kind of debt financing in the software-as-a-service (SaaS) industry.

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Revenue-based financing is non-dilutive and non-collateral-based lending where a company raises funds from the financing entity in exchange for a percentage of its gross revenue.

This comes at a time when revenue multiples for valuations have been adjusted and the bar for early-stage investments have risen, leading to a challenging and expensive equity market.

However, 50-70% of the demand for these financiers is coming from bootstrapped software startups that have found product-market fit and are looking for capital to scale their go-to-market (GTM) functions. This includes funding increasing infrastructure cloud costs, digital marketing and other functions.

For revenue-based financiers--which in the past were heavily focused on segments such as ecommerce and direct-to-consumer brands--the predictability and recurring nature of revenues of SaaS businesses, along with the growth are key factors to sharpen focus on this sector.


“For far too long, equity investors have been