Looking to bring the global trend of revenue-based funding to India, N+1 Capital, launched by investment professionals Rahul Chowdhury and Ashish Singla, has partnered with early stage VC fund LetsVenture for its maiden $100 Mn debt fund.
With over 86 investments in 2020, LetsVenture was one of the most active early stage venture capital firms in India last year, as presented in the latest Inc42 Plus Annual Indian Startup Funding Report.
The N+1 Capital target includes a green-shoe option of $25 Mn. The fund will make its first close of around $19 Mn by February this year, and will subsequently start deploying the capital. The founders told the publication that the fund aims to back over 100 startups during its lifecycle.
Unlike venture debt firms, N+1 would make investment calls based on the revenue outlook, investing between INR 1 Cr to INR 15 Cr ($2 Mn) in startups without any equity involved. N+1 Capital claims to use a data-driven risk assessment technology model, which is accessible for new-age entrepreneurs and minimises human bias in investment decisions.
N+1, which is registered as an alternative investment fund with the Securities and Exchange Board of India (SEBI), will back startups at the growth stage across sectors. It is looking at startups that are at least a year old, with net revenue of INR 50 Lakh and average gross margins of over 30%.
Backed by limited partners such as family offices in the UK, the US, and India, N+1 is looking to provide at least 20% internal rate of return (IRR) to its backers. “Our fund structure is a part of a brand new asset class which grants quick access to capital to entrepreneurs without any personal collateral, equity and board seats, associated with it and also provides limited partners (LP) fixed returns,” said N+1 Capital managing partner Chowdhury.
A form of venture debt, revenue-based funding comes at a premium for startups, but does not typically involve any equity sale for the company. N+1 said it would collect a percentage of the borrowing entity’s monthly revenues, and give steady returns to its limited partners on a quarterly basis. “On the equity side, there can be a ‘herd-mentality’ to investing and through this new asset class, we would want to cover a large pool of entrepreneurs and widen the funnel helping companies with faster fund allocation,” said Singla.
While N+1 is looking to invest in startups across categories, revenue-based financing is catching on in the ecommerce sector as a growth investment model. Part of Inc42’s 30 Startups To Watch in 2020, Bengaluru-based fintech startup Klub has developed a hybrid marketplace for revenue-based financing (RBF) to consumer brands such as Wellversed, Tjori, Pipa Bella, The New Shop, Tagz Foods, Third Wave Coffee Roasters and others.