Funding your D2C brand through Revenue-based Financing (RBF) offers a host of benefits, including easy accessibility and full control over the functioning of the organisation.
Direct-to-customer (D2C) model of doing business is increasingly becoming popular among new age entrepreneurs. According to Avendus Capital, the D2C sector in India alone is on track to be a US$ 100 bn market by 2025. While most of them have bootstrapped, the next phase of growth and expansion requires more investment to harness new opportunities. Founders of these early and growth stage digital brands are thirsty for more fair, fast, and flexible funding options.
Over the last 18 months, RBF has quickly emerged as a preferred option for entrepreneurs globally. While there are other prominent methods that can be used for raising money such as angel investing, venture capital, and crowdfunding, none quite match the speed and flexibility that RBF provides. As the name suggests, RBF is a method of raising capital based on revenue performance. In a nutshell, businesses obtain credit by pledging a specific percentage of future ongoing gross income in exchange for the money invested.
We give you a low down on why you should also consider this route of raising the money for your D2C brand:
1) Easy access: First and foremost, the easy and convenient accessibility to RBF can be considered one of the significant reasons for D2C brands to adopt this method of financing. Unlike venture capitalists and institutional financiers who continue to remain inaccessible to most startups in the D2C segment, the RBF players are always ready to help and even offer customised plans for brands to fund their needs according to their specific requirements. The inaccessibility of VC investors also explains the fact that out of 75,000 e-commerce stores that operate in the Indian market, only 0.5% have taken the route of VC financing.
2) Total control: Unlike VC, which takes some equity control in lieu of funding, RBF doesn’t alter the power structure in D2C brands. There’s no dilution of equity in the RBF model and this feeling of being in control not only makes execution easy but also keeps the motivations of founders intact to take business to next level of growth and expansion. Also, given the niche customer segments these D2C brands serve, it becomes extremely critical for these startups to function with full freedom and control. If these brands lack complete control, they will lose their agility and won’t remain competitive to serve their target market with the same fervor and gaiety.
3) No collateral: Banks and financial institutions lend the money against the collateral and the rule applies to both retail and institutional customers. As founders of most D2C brands have established their business through bootstrapping, it’s natural for them to face difficulty in providing collateral for accessing the funds. Thankfully, no such requirement is there in the case of RBF as a good and steady stream of revenue is all you need to access the money to take your D2C brand to the next level of growth and expansion.
4) Flexible options: Unlike VC funds and institutional investors, RBF understands the specific and unique funding requirements of D2C brands. The product development cycle of D2C is quite cost-intensive and these brands also accumulate high overhead costs to offer a holistic value proposition to customers. Keeping these special necessities in mind, RBF offers flexible financing options such as extra support for new product development, scaling up the business, and customer acquisition. This flexibility is completely absent in the case of large institutional investors who are only concerned with the fastest returns on their investments.
RBF funding is growing in popularity owing to its host of benefits for D2C brands. It’s easily available, flexible in nature, doesn’t demand any collateral, and importantly not lead to the dilution of the control that founders have on their brands. The icing on the cake for founders is they can focus on growth instead of fundraising.
Note: The article was originally published on https://timesofindia.indiatimes.com/blogs/voices/revenue-based-financing-route-why-its-the-best-bet-for-d2c-startups/
