On October 27, the Reserve Bank of India had allowed start-ups to borrow up to $3 million or around Rs 20 crore a year either in rupees or any convertible foreign currency.
Indian start-ups might look at raising funds through the more liberalised external commercial borrowing route to spend on marketing, setting up offices in the US and Europe, and expanding their business. This would also give them access to debt money, a crucial factor at a time when they’re stabilising and growing their business.
“Start-ups in India are now finally maturing to be 'real' companies. Funds in any case are very vital for start-ups. The option works well in a case like ours where it is hardware product. It is utmost helpful for start-ups that are focused on sustainable growth and profitability like us,” said Rajshekar Jenne, co-founder and chief operating officer of OpenApp.
On October 27, the Reserve Bank of India had allowed start-ups to borrow up to $3 million or around Rs 20 crore a year either in rupees or any convertible foreign currency. The move is also in line with India’s move towards a business-friendly country, particularly promoting start-ups to raise adequate money during their early years.
Deepesh Agarwal, co-founder and CEO of Moveinsync, says when they tried to raise money initially, they had to turn down a lot of debt offers as RBI norms then did not allow debt.
“We had to either turn down the offer or try and convert it to equity, which may or may not work out. Hence, an initiative like this is very useful and beneficial for start-ups. And, $3 million is fairly enough for a start-up to go ahead. Any form of more capital being available from outside is useful for start-ups,” said Agarwal.
Start-ups also feel that borrowing from lenders outside of India can help them scale globally as well.
Abhishek Kumar, co-founder of Giftxoxo, says that it’s a great opportunity for start-ups that want to scale globally. “It is easier for start-ups to raise money from lenders outside. The policy also opens a lot more channels or source of debt for start-ups.”
Shashank Rishyasringa, co-founder of Capital Float, says that any widening of available pool of funds for start-ups is good; for certain types of start-ups, debt can be quite an attractive way to fund the business particularly between rounds or if the start-up is already cashflow-positive.
- On Oct 27, RBI had allowed start-ups to borrow up to Rs 20 crore a year or any convertible foreign currency
- Start-ups also feel that borrowing from lenders outside of India can help them scale globally as well
- Small manufacturing start-ups and small service start-ups which find it tough to raise venture capital are more likely to use the new policy, says Shashank Rishyasringa, co-founder of Capital Float
“Suppose a start-up is series A funded and wants to extent its cash before it raises series B Venture debt can be a good option for start-ups to hit certain key business milestones before raising a dilutive equity round. The second use case is for start-ups that tend to be profitable from a much earlier stage and tend to be cashflow-positive,” Rishyasringa said.
According to him, small manufacturing start-ups and small service start-ups which find it tough to raise venture capital are more likely to use the new policy.
“They’ll look at debt as they’ve orders and running business. They already have cash coming in. We’re always a believer that a well-structured debt option can be a good alternative to equity capital for certain kinds of start-ups. The ECB round will be one more potential option to fit into this company,” he added.
Amuleek Singh, co-founder of Chai Point, also favours more options for start-ups to raise funds. However, one has to see if the start-up is in a position to take up debt or not.
“Take, for instance, technology start-ups. A technology start-up is typically not at a point of being a sustainable start-up; it is building something new. So, lenders might not see the start-up as a sustainable entity to lend to.”
