At a time when tech startups are struggling to raise equity funding, alternative sources of capital such as venture debt, convertible notes and financing from banks have become a strategy to extend runways and fund crucial opex requirements. However, the funding slowdown is expected to hit early-stage founders the most since getting to the Series A stage is considered crucial for survival. Many founders choose to raise pre-Series A or bridge rounds as a way to shore up investor interest in their business before closing in on a larger multi-million Series A round.
Mumbai-based venture debt marketplace 8vdX is solving this problem by offering early-stage startups with bridge financing to their Series A or B rounds by providing venture debt to meet their goals and extend their runway. Additionally, startup founders can easily and conveniently obtain venture loans through an intuitive interface and choose to repay in their local currency, including the British pound, Singapore dollars and Australian dollars. The firm provides flexible, founder-friendly loans. If the startups are unable to pay back the loan, 8vdX has the option of turning the debt into equity or continuing to be a lender, therefore it does not seek personal guarantees from the founders or force startups to file for bankruptcy.
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Startups can choose to pay interest in the form of equity or a combination of equity and cash. There are no cash flow sweeps from the startup’s bank account, and the 8vdX loan has no impact on the founders’ personal credit history. 8vdX chooses startups for underwriting and funding approval using data-driven underwriting techniques driven by their KPIs’ and growth metrics.
Speaking to FE, 8vdX’s co-founder Ravi Chachra said only 20% of the startups that secure seed funding go on to raise a successful Series A round at a valuation that both founders and investors are comfortable with. However, providing venture debt to companies with minimal revenue is fraught with risks since underwriting such loans could be challenging. 8vdX’s is working around this problem by instead partnering with large accelerators such as YCombinator in the US and funding their portfolios instead.
When 8vdX was first set up in late 2021, it first gave out loans of $150,000 to Y Combinator-admitted start-ups, and the loans were to be returned once the companies graduate or go on to raise institutional funding.
8vdX was also able to garner individual investor interest from India and around the globe, and therefore closed in on a marketplace model connecting investors directly with founders looking for bridge funding.
“If a founder gets admitted into Y Combinator, that means they are most probably going to raise VC funding after graduation. And the average Y Combinator company raises between $1-1.5 million in early-stage funding and almost one-third of them go on to raise Series A and above. We found a way to underwrite early-stage startups by underwriting the entire Y Combinator programme rather than the individual startups,” Chachra added.
8vdX initially started off with more than 35 investors who invested in the first batch of Y Combiantor startups in 2021. The firm is currently in talks with multiple accelerators and VC funds in India and abroad to expand its footprint. “Currently, we have about 112 investors on the platform, and it is growing a little bit every day. We are planning to grow our AUM to $200 million and we’ll be investing that corpus across 100 companies in the next 24 months,” Chachra said.
8vdX marketplace currently has an AUM of $10 million and has funded more than 20 early-stage startups since inception, including 3 from India and 4 from Africa. On Wednesday, the firm announced it is expanding its operations in Singapore, the UK and Australia. The company aims to offer cross-border venture debt to startups through local entities in these geographies.