SUMMARY
With $25 Mn in a greenshoe option, N+1 Capital will further mark its final close to institutional investors besides HNIs and family offices in December 2022
The investment vehicle offers INR 8 Cr to INR 15 Cr loans to companies taking back the money coupon-style, on monthly revenues
N+1’s idea is to provide OPEX to firms, where equity and debt capital work as the CAPEX
Revenue-based growth capital firm N+1 Capital has announced that it will close its maiden fund for HNIs and family offices by September 2022. N+1 Capital has a target corpus of $100 Mn ($75 Mn + $25 Mn in a greenshoe option) and the fund will mark a final close for institutional investors in December 2022.
Founded in 2021 by Ashish Singla and Rahul Chowdhury, N+1 Capital offers an alternative method of raising capital for entrepreneurs. With N+1 Capital, companies do not have to dilute their stakes with traditional methods of venture fundraising and still take small cheque loans (a feature hardly available from venture debt investors or bank loans).
In the past 12 months, the investment firm has already raised 60% of the fund. From the maiden fund, Chowdhury told Inc42, that the firm has already invested INR 265 Cr into 30+ companies, over the past four quarters. It has made revenue-based, non-dilutive investments in startups including Mivi, MoEVing, StanPlus, Provet Pharma, Clensta Tech and Teamonk Global Foods.
As N+1 raises additional funds, it plans to deploy an INR 100 Cr every quarter across 8-12 companies. It will sign cheques of INR 8 Cr to INR 15 Cr in investee companies that have regular cash flows, and revenue of at least INR 15 Cr. The startups with the highest revenue in N+1 Capital’s portfolio currently have a turnaround of INR 240 Cr.
With the new investment asset class, N+1’s idea is to provide OPEX (operational expenditure or working capital) to firms, where equity and debt capital work as the CAPEX.
N+1 Capital provides annualised returns of around 20% every quarter. While it has already paid back interest income to the LPs for three quarters, N+1 Capital will be giving its fourth quarter return on June 30, 2022.
How Does N+1 Capital Work
N+1 Capital, an alternate to debt fundraising, competes in the AIF market with the likes of Kred, Get Vantage and BHive, among others. The investment tech market is poised to grow to $14.3 Bn by 2025. But N+1 is not like many of the said competitors, explains Chowdhury.
Major revenue-based financing companies write cheques based on the subscription amount, creating repayment contracts based on the number of consumers. For N+1, the investment game is solely based on revenue. The Delhi NCR-based startup looks to back companies with sustainable and regular revenue, spanning at least every quarter, if not every month.
The brick and mortar investment vehicle, as Chowdhury puts it, is a sector agnostic investor, barring real estate, since small cheque sizes are of no use to such platforms. Most favoured sectors include B2B and SaaS companies with recurring revenues – as the company looks at steadily growing companies.
“We’re not relying on companies that are growing at 2,000%. We love businesses with 25% growth. Say a business is growing between 25-100%, we love those businesses, because they are steady and have low variance in their business,” Chowdhury stated.
Besides the cash flow, the startup runs the companies through 27+ parameters including their age (companies over three years of age), customer retention, low debt to equity ratio, gross margin numbers (over 25%) and even something as simple as the promoters’ CIBIL score and their education.
After providing the capital, N+1 Capital creates monthly repayment coupons comprising the principal and interest (ranging anywhere from 2% to 5%). On the other hand, if the investee has a higher revenue in any particular month, the fund gets a larger share and vice versa. The funds are given to selected companies for 12-24 months.
