Since the start of 2020, startups in India have been experimenting with a new way of raising funds called revenue-based financing (RBF). Here, the investor gets a regular share of the business’ income until a certain amount, decided in advance, has been paid. This amount is typically several times the investment.
Popular in the US, the revenue-based financing model took off in India during the pandemic as young companies struggled to raise funds. Though it costs startups more to raise funds this way, revenue-based financing continues to gain traction among early-stage, direct-to-consumer brands, e-commerce startups, and small and medium enterprises that have recently gone online. One of the reasons is that it’s easier to raise funds using the RBF route than with other methods—such as bank loans, venture debt, or traditional venture capital.