For small firms in India, particularly up-and-coming players in the digital space, getting access to funding is a painful process. Until recently, their access to loans from private banks was limited, and bringing in equity funding from venture capital firms (VCs) and other investors is expensive and complicated.
It was a problem of tremendous scale begging for a digital solution in a country with unique challenges. All of these issues attracted the attention of Bhavik Vasa, CEO of a revenue-based financing company called GetVantage. As he told PYMNTS’ Karen Webster in a recent conversation, he knew the cash-access problem in India needed a different model compared to other parts of the world.
“I mean the venture capital model took off really from Silicon Valley for tech businesses,” Vasa said. “But that doesn’t necessarily mean that that model fits all parts of the world, and for all kinds of business. We believe that is the story of India.”
Vasa’s knowledge of the problem of the Indian digital entrepreneur is not theoretical. As a successful serial entrepreneur working in FinTech “before it was a buzzword,” the problems of securing growth capital is something he encountered firsthand when working on his It’s Cash start-up some years ago. What became obvious to him was that the digital start-ups needed an alternative path to the working and growth capital they needed.
Part lender, part business optimization partner, GetVantage’s revenue-based financing (RBF) model is designed to be that alternative. In many ways, the product resembles a classic loan product. The borrowing merchant, without having to agree to any warrants, convertibles or collateral, gives GetVantage access to their live, real-time data on their cash flows in and outs. Its risk models do the heavy lifting and either extend an offer for funds or pass.
Repayments are made as a small percentage of daily revenues instead of a large lump sum at the end of the tenure of the loan or at the end of every month.
That’s the lender part.
The business optimization part is as important. Vasa told Webster that GetVantage’s “capital plus intelligence, efficiency and support” works across its portfolio of businesses to reduce the costs of digital services and performance marketing tools and ad agency access. Negotiated deals with vendors save individual companies money and improve their margins. Turning these operational efficiencies into cash, Vasa said is a win for both that merchant and GetVantage.
“We’re not just a lending business,” Vas said. “If you do well as a business, that’s great for us, their partner and their funder, because I’m able to recover the funds that much faster. “
Vasa said that the demand for GetVantage’s service, and others like it, is growing more rapidly than ever as existing firms are digitizing rapidly and new players are entering the market. GetVantage has seen its firm grow by four times in the last year alone.
“I think this is clearly going to be a shift. What is considered alternative financing today is going to be mainstream. There is no doubt in my mind, not because we are doing this, but because FinTech has, in the last decade, advanced incredibly. And I think as more and more of our economy moves digital and online, this is going to be the way funding and financing has to happen in the future.”
What businesses need, particularly in a developing economy like India, is a box of tools as they are working to build out in their early days. Some of the firms GetVantage works with have already raised equity capital before, some go on to raise it later and some are family-owned operations that are never going to raise equity funds at all if they can possibly avoid it. All of that makes sense, he said, because at the end of the day, businesses will need a mix of capital to get off the ground. This is why, ultimately, he believes, RBF isn’t going to disrupt the world of financing start-ups, nor is its intention to do so.
“I simply say we are not disrupting anything, just simplifying finance,” Vasa said. “And that’s what revenue-based funding is: a model, which is taking off globally, that allows financing to happen very simply and very easily.”
Selected by EFXA