Startups Opt Out On Equity Dilution Until Market Favors Them
Currently, private equity and venture capital investors are tightening and consolidating their investments in the startup sector. This is a result of many startups are gearing up to get sensitized with the new emerging funding climate and are looking towards debt funding so as to put a stop to equity dilutions. The valuations are already much pressurized and most of the startups prefer to dilute their shares at a later stage as this would fetch higher valuation.
Lendingkart, an Ahmedabad based startup recently raised a debt fund from IMFR Capital in lieu of obtaining funds from a PE or VC- the amount is still undisclosed. Lendingkart is confident that it can obtain funds through equity dilution sometime later when the market is favorable. This firm is backed by Mayfield Fund and Saama Capital.
Another example of this trend catching on is in the Mumbai based startup Faasos. Apparently Faasos has raised a debt fund of $ 3 million from InnoVen Capital. Faasos is of the opinion that most of the companies would opt for this path if they are presented with a choice. “Venture debt resolves two most critical elements — lesser dilution in stake and availability of funds at cheaper cost than equity. Venture debt is a good compliment to equity and it gives an additional cushion to startups and sometimes it also provides a runway between two rounds of equity funding” says RevantBhate, the cofounder of Faasos.
Other startup firms that have raised a debt fund recently include Embibe, PepperTap, FirstCry, Snapdeal, AppsDaily, MobiKwik, Practo, Byju’s Classes and the like.