Amid the ongoing funding slowdown, many startup founders are turning to alternative investment platforms such as Grip Invest, Tyke and Recur Club instead of traditional banks and non-banking financial companies (NBFCs) to raise capital. These platforms offer a variety of financing options such as revenue-based financing, equity crowd funding, lease financing, corporate debt, fixed income and other equity-linked funding instruments.
For instance, Delhi-based Recur Club enables companies with recurring revenues to raise non-dilutive growth capital in a short time. Revenue-based financing allows startups to receive funding in exchange for a percentage of their future revenue.
Recur Club founder Eklavya Gupta told FE that he has witnessed a growth in tech startup founders reaching out to the platform to raise capital. “Currently, we are getting interest from more than 100 startups on a monthly basis. We usually fund around 20-30% of those applications. When we first started in 2021, we only used to have one-third of the demand,” Gupta said.
However, Recur Club’s investment offerings are currently open only to regulated institutions such as NBFCs and banks, and do not allow retail investors yet. For retail investors, platforms like Grip Invest and Tyke have been offering equity and debt-linked funding instruments for a while now.
Mumbai-based Tyke has already facilitated more than 100 funding campaigns which have collectively raised more than `60 crore in capital for startups since its launch in January 2021.
Karan Mehra, founder, Tyke, describes his product as a marketplace where investors can build an alternative investment portfolio with a minimum investment amount of as low as `5,000. At the same time, businesses on Tyke can raise capital either through equity or debt-linked instruments without diluting the cap table.
“The ongoing funding slowdown has pushed a lot of tech startups to realise that they don’t necessarily need access to VC funding or equity funding especially to fund working capital expenses. Some SMEs that work with us have also realised the potential of access to short-term and long-term financing rather than working directly with banks and NBFCs to raise debt,” Mehra added.
However, some of the alternative financing platforms issue securities that are not under the purview of the Securities and Exchange Board of India (Sebi), so pose some risk.
Abhinav Bhalaik, partner, Argus Partners, who works on securities law, said that these funding platforms are at present operating in a regulatory grey area and investors may not be not aware of the risks involved.
“Investment platforms that offer equity and debt-based securities are essentially pooling in cash from multiple investors and these investments may not always be well-securitised. Most of the bond and debt offerings on these platforms are securitised based on the receivables as most software and technology companies do not have any hard assets ,” he said.
To overcome these risks, alternative investment platforms are already establishing workarounds to safeguard investor money. Grip Invest, which offers various types of equity and debt-based funding instruments, works closely with anchor investors of the startup itself to mitigate the risk for retail investors. “Equity-based funding campaigns listed on our platform are always part of the company’s ongoing funding round. In fact, we only list funding opportunities in startups which are being led by a venture capital fund. We believe that there’s a specialised trait required to evaluate companies and we want to make sure that we are giving our retail investors the opportunity to participate alongside such professionals,” Nikhil Aggarwal, founder and CEO at Grip Invest, said.