India’s startup ecosystem has been inundated with billions of dollars in funding this year, but many start-ups are still struggling to raise capital on favorable terms despite a business model that generates steady income streams.
In this context, the duo of entrepreneurs Abhinav Sherwal and Eklavya Gupta, via their fintech startup Recurrence club, want to rewrite the rules by which founders can raise capital to run their business.
Founded in June this year, based in Delhiis a subscription funding platform that allows businesses with recurring revenues to raise cash much faster without diluting their equity.
Abhinav and Eklavya, who have been friends since their IIM Calcutta days, were intrigued by the challenges startup founders faced when trying to raise capital.
A graduate and technologist from IIT Delhi, Abhinav, during his career as a product developer, has seen many startups give discounts on their products to retain customers, which has affected their cash flow and hampered their growth plans. This was more pronounced for startups in the SaaS and B2B space.
“We wanted to solve the cash flow problems of startups despite having a stable form of revenue in terms of subscription,” says Abhinav.
The challenges of fundraising
Typically, startup founders have about three fundraising options, and each comes with a challenge.
In the equity financing category, founders would normally have to divest a large portion of their stake to raise funds, while two other avenues, such as risky debt and income-based financing, come with less favorable conditions.
Also, these can be time consuming which can distract startups from their primary focus on the business.
“We wanted to create a platform where it can provide capital to startups without diluting equity or having these restrictive debt terms,” says Eklavya, who is a finance professional.
How it works?
Recur Club has access to income stream data and other relevant information of a company to create a financial product where the subscription is made through its AI and ML models. Following this, a tradable product is delivered to the financial institutions which provide the capital by purchasing this asset.
“Our AI, ML engine secures the profile of clients to give them rankings and awards,” says Abhinav.
For example, if a particular startup obtains Rs 100 as a subscription turnover per month, which amounts to Rs 1200 per year, he can lift almost 90 percent of that amount all at once to a financial institution with repayment made on a monthly basis or as they receive payment from the customer.
In such a transaction, the founder does not lose any capital to raise the required capital and the financial institution also has the opportunity to participate in the growth story of these new businesses, which is not normally the case.
“Our platform provides access to capital in a non-dilutive model, which is founder-friendly and helps these startups grow in a sustainable manner,” explains Eklavya.
The founders believe they have created a new asset class and offer financial investors access to fixed income securities. The startup is also becoming an exchange for recurring income contracts where investors can view the note and bid for it.
Recur Club’s technology platform facilitates the sourcing of such startups, enables funding and also acts as a debt collector. This whole exercise is done digitally.
Areas of intervention
Recur Club mainly focuses on startups in the SaaS and D2C space, which have a constant stream of income. The platform has already activated more than $ 40 million of tradable products with nearly 30 startups raising capital through them.
According to Abhinav, Recur Club claims to have enabled startups with revenues of $ 100.00 of up to $ 40 million to raise capital.
About 70% of its customers are in the SaaS segment and the rest are in the D2C and managed workstation categories. Investors bidding for these contracts are banks, NBFCs and credit funds.
On the competitive side, especially with the presence of other forms of capital raising such as venture capital finance, venture capital debt or income-based financing, Abhinav says: two days. “
The founders believe that startups active on their platform for a longer period of time have the possibility of raising capital on much more favorable terms, particularly on interest rates. This is because investors are more confident in the longevity and stability of these startups, which allows them to offer more money at lower interest rates.
The addressable market for Recur Club is in the billions of dollars given the need for capital from startups. It faces competition from everyone who funds these startups, whether they are venture capitalists, venture credit companies, revenue-based finance entities, although the founders believe that ‘they have no direct competition.
Recur Club has a team strength of approximately 20 people and has already raised $ 2 million in the pre-seed funding cycle. He earns income through the commission charged for his services.
The fintech startup has also created a community network platform for startup founders by bringing in other ecosystem players, who will provide services such as partnerships, sales, advice and even raise capital from of VCs.
“Recur’s mission is to democratize fundraising,” says Abhinav.