VCs Wane, Alternatives Gain: Velocity Deploys over INR 600 Cr to Empower D2C and Ecommerce Firms

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Refer to Figure 1. This rapid growth in D2C and ecommerce is set against a backdrop of declining Venture Capital (VC) funding. Encouraged by the online surge caused during Covid-19, VC funding increased in the years 2019 all the way to 2021, and reached an all-time high at H2 CY2021.

Since then, it has seen a sharp decline of more than 80% that has brought it to a mere USD 3.8Bn in H1 of 2023. Refer to Figure 2. While funding through venture capital has its advantages, it is also time-consuming and demanding due to the long decision-making process.

For the D2C and ecommerce sector that undergoes significant seasonal changes, VC financing may not be ideal due to its limited availability and equity-diluting model. Additionally, securing funding often involves restrictive terms and covenants, adding complexity to the process.

All these factors, along with a slowdown in VC investments, are driving more entrepreneurs towards alternative financing models which are known to be relatively more transparent, fast and flexible.

As traditional funding sources recede, alternate financing models, especially revenue-based financing, have emerged to fill the void with prominent players including Velocity, Klub, Recur, GetVantage, and others. In the last six months, these alternate financiers have collectively deployed over INR 500 Crore to support ecommerce brands in preparation for the upcoming festive season.

Refer to Figure 3. Market estimates indicate that this influx of capital is set to fuel a surge in eCommerce growth. Notably, Velocity has played a significant role in this financial backing, contributing a substantial INR 220 Crore over the last six months, with the remaining capital sourced from other key players in the