Revenue-based financing (RBF) startup Velocity has raised $10.3 Mn in its seed funding round, led by Valar Ventures, the US-based venture capital firm backed by PayPal cofounder Peter Thiel.
Other investors who participated in Velocity’s seed rounds include founding investors Mato Peric and Tom Stafford (DST Global) as well as Presight Capital, Utsav Somani’s iSeed, Oliver Jung (LAO Holdings), Robert Frohwein (Kabbage), Dhruv Arora (Syfe) and Erik Podzuweit & Florian Prucker (Scalable Capital).
The Bengaluru-based startup would use the funds to ramp up its customer base and build financing products focussed on digital businesses.
Velocity was launched in early 2020 by IIT Bombay graduates Abhiroop Medhekar, Atul Khichariya and Saurav Swaroop. The trio had earlier worked together at Taskbob, a managed marketplace for high-quality home services.
Velocity facilitates revenue-based financing up to INR 2 Cr ($280K) with zero equity dilution or collateral. RBF is considered a more flexible alternative to venture capital, venture debt or bank loans. Velocity claims that businesses with digitally trackable revenues can share access to their online data and get funded within a week.
Velocity is currently focused on the fast-growing segment of online marketplace sellers and direct-to-consumer (D2C) businesses in India. Adoption for ecommerce has accelerated post Covid-19 and Velocity claims over 300 businesses have signed up for its RBF product. The company said it funds “crores of marketing and inventory spends” for customers every month.
With this funding, Velocity also announced the launch of its cobranded Visa corporate credit cards in partnership with SBM Bank, focussed around automating digital marketing spends. The company said online businesses typically spend up to 30% of their funds on digital marketing, but primarily end up using a personal credit card for this. Velocity aims to provide a corporate credit card for the digital marketing use case, which allows online businesses to “put their marketing on autopilot”.
The investment in Velocity is Valar Venture’s first bet on an Indian startup. James Fitzgerald, a founding partner at Valar Ventures, said, “As one of the fastest growing economies in the world, India’s digital ecosystem is at an inflection point. We have been impressed with Velocity’s strong customer orientation and aggressive plans to build innovative financing solutions. We believe the Velocity team will empower thousands of entrepreneurs in India and we are excited to be partners with them in that.”
Revenue-Based Financing On The Rise
Revenue-based financing allows startups to raise working or growth capital by pledging a portion of the future ongoing revenue in exchange. This amount will be paid to the investor on a monthly basis or other frequency until a pre-decided multiple of the original investment has been repaid.
The competition in revenue-based financing has increased in the past year in India to meet the growth capital demands of hundreds of emerging D2C brands. Besides Velocity, the likes of Klub, GetVantage and N+1 Capital also offer revenue-based financing.
Bengaluru-based Klub, which has developed a hybrid marketplace for RBF to consumer brands, made it to Inc42’s 30 Startups to Watch in 2020. It has invested in over 25 brands in 2020 alone. Prominent brands include Wellversed, Tjori, Pipa Bella, The New Shop, Tagz Foods, Third Wave Coffee Roasters and others.
Last year, Klub expanded its platform with three varied RBF products suited for brands of different revenue scale — Klub Speed for brands with monthly revenue ranging from INR 2 Lakh – INR 10 Lakh, Klub Blaze for businesses with monthly revenue ranging from INR 5 Lakh – INR 50 Lakh and Klub Gro for larger companies and brands with monthly revenue over INR 50 Lakh.
Mumbai-based fintech startup GetVantage, which has a similar RBF business model, raised $5 Mn from Chiratae Ventures along with Dream Incubator (Japan) and others in October last year. Earlier this year, N+1 Capital, partnered with early stage VC fund LetsVenture for its maiden $100 Mn debt fund for revenue-based growth capital in the range of INR 1 Cr to INR 15 Cr ($2 Mn).