- October 21, 2021
- Posted by: CFA Society India
- Category:In Conversation With
Industry Expert- Ishita Verma
(Co-founder and COO, Klub)
Interviewed By- Susarla Srividhya Venkatesan, CFA
(Member, Public Awareness Committee, CFA Society India)
New alternative funding routes are gaining prominence as founders look for start-up-friendly financial products, away from the traditional methods of equity dilution and debt covenants – financial products that can in some way be linked to their company’s growth. One such funding mechanism that is gaining traction in India, specifically among the B2C brands, is Revenue-based financing.
Revenue-based financing helps businesses raise funds from investors, who receive a percentage of the investee companies’ revenue in exchange for the amount invested. This results in a lower-risk funding model which helps entrepreneurs raise capital without sacrificing equity and gives comfort to investors in the form of revenue-linked capital returns.
To get a deeper insight into Revenue based financing, we reached out to an industry expert and our guest, Ms. Ishita Verma:
Ishita Verma is the Co-Founder and COO at Klub. Klub is a leading revenue-based financing platform in India providing flexible growth capital to businesses, with zero equity dilution or personal guarantees. It extends this financing to digital-first companies as well as small and medium enterprises across domains of e-commerce, direct-to-consumer, and Edtech. Klub is backed by some of the leading investors including Sequoia Capital India’s Surge Platform, 9Unicorns, Alter Global, and GMO Venture Partners.
We are pleased to share our engaging conversation with her:
Srividhya: Can you tell us about your journey in the fintech industry? What inspired you to start Klub?
Ishita: My interest in finance started early, I did my undergraduate studies in Economics and went on to major in finance during my MBA at IIM Bangalore. Since finishing my education, I’ve had various stints across investment banking, equity markets, and investing. Through my years of experience, I came across great businesses finding it difficult to access capital, in spite of having solid products, a loyal customer base and increasing revenues. Without easy access to financing, these businesses are unable to unlock growth opportunities that help to achieve scale. I’ve seen closely how game changing access to capital can be – from microfinance to early stage financing – and wanted to build a platform that would unlock growth capital for new-age digital economy entrepreneurs.
Srividhya: From being traditionally a cash-driven economy, India is today one of the fastest-growing fintech markets globally. What makes India a great fintech destination?
Ishita: Three factors: A robust regulatory framework for banking and payments, rising digital adoption with 500mn of our population now online and a growing tribe of innovator-entrepreneurs solving fundamental gaps in access to financial services.
From our perspective, over the last few years, there have been fundamental shifts in how India banks and transacts: radical shift towards digital payments adoption, first during demonetisation and over the last 1.5 yrs owing to Covid, and boosted by the UPI framework. Ease of online transactions have created a butterfly effect in blossoming digital commerce, and we are witnessing an exponential growth of digital-first SMEs. Our mission is to solve for capital gaps that are throttling growth of these digital ventures.
Srividhya: Revenue-based financing helps companies raise funds without diluting their capital. Why is revenue-based financing a good fit for Indian start-ups, specifically the D2C brands? How does revenue-based financing support a brand’s growth?
Ishita: Revenue Based Financing is an innovative financial product that takes a revenue share as returns instead of equity dilution or fixed EMIs. It is primarily used to service high ROI recurring spends like marketing, inventory, capex, and working capital.
For e-commerce brands or digital first brands, these can be a key revenue driver: investing in marketing increases sales and brand reach, and timely inventory financing can ensure inventory is always stocked up while managing cash flows.
Since revenue based financing allows for flexibility of repayments, it suits brands where there is some seasonality in their revenues or there is cyclicality around inventory and marketing campaigns. In lean months, they pay less and when business is doing well, they pay more – making this a skin-in-the-game investment option.
This works beautifully for D2C brands, e-commerce businesses, SaaS businesses, and subscription economy businesses.
Revenue based financing not just provides capital for growth drivers, but also scales with the brand; as a brand grows, we provide repeat capital to fuel further.
Srividhya: Revenue-based financing is a relatively new model in India. How big is this segment globally? How do you see this segment grow in India in the next 2-3 years?
Ishita: Digital first businesses are currently experiencing a golden age and digital first brands hold a $10 trillion market opportunity. All of these factors have contributed to the global surge in popularity of RBF over the past several years. As per industry pundits, the global revenue-based financing market is projected to hit USD 42 billion by 2027. With mature markets seeing this scale, we see India as a large contributor and propellor of this growth in revolutionizing the way businesses raise capital.
Srividhya: What are the key requirements for companies to be added to your platform? How do you evaluate the credit risk?
Ishita: Simply put – revenue based financing is for any company generating revenues. Klub’s products are optimized to support businesses at every stage starting all the way from monthly revenues in the range of INR 2 lakhs all the way up to INR 30 Cr. Our risk approach is completely data driven in nature, we request companies to share some basic documentation and assess overall business health on the basis of revenue channels, spends, utilization of resources. With third party integrations across a diverse set of platforms, we ensure that data can be shared at the click of a button to ensure fast, easy, secure and seamless processing of applications.
Srividhya: Klub has recently announced a US$ 20mn fundraise from investors. How will these funds fuel your future growth plans?
Ishita: We’ve been fortunate enough to have our existing investors as well as some global leaders in fintech investments place their faith in us and Klub. We plan to utilize the capital to expand our team, accelerate development of our tech and data platform, and expand product offerings and market segments to make Klub the fastest way to raise capital.
Srividhya: What advice would you like to give to other budding fintech entrepreneurs?
Ishita: The access to financing still remains largely informal and there is a large addressable market to cater to. What is needed is first-principles innovation: identifying a real gap in the market, and going after it with passion and conviction.
About Ishita Verma
Ishita Verma, the Co-founder & COO at Klub, shapes the internal strategy, operations, growth and product and tech at Klub. She brings 11 years of professional experience in investment advisory, investment banking and fund management. Prior to Klub, Ishita was the Vice President at Snyder Group UAE (a UAE based precious metal conglomerate) where she was responsible for advisory in fund structuring, fund launch setup and guiding investment operations. Prior to this, she led the financial inclusion practice at Unitus Capital, Asia’s largest impact focused investment bank with a track record of advising on investments of $3 bn in capital. She has also worked with Kotak Institutional Equities, where she advised hedge funds, private equity funds and mutual funds across Hong Kong, Singapore, London and India with $7+ bn AUM on their India investment strategy. She is an MBA from the Indian Institute of Management, Bangalore, India, focusing on finance; and has an Honors degree in Economics from the Lady Shri Ram College, Delhi University.
About Susarla Srividhya Venkatesan, CFA
Srividhya is a Chartered Accountant and CFA Charterholder. She has 15 years of experience in Investment Banking. She has worked on several transactions including IPOs, QIPs and Private Equity Placement across sectors. She is the Co-Founder of Scube Financial Services LLP, a new age Investment Banking cum Financial Advisory Firm, based out of Mumbai.