Building a Solid Foundation: The Role of Debt Capital in Startup Growth
Every sector has a traditional operating mechanism, and the need to build a solid foundation for growth necessitates utilizing debt capital along with equity. The use cases for debt may vary depending on the sector in question, but debt is now available for most major startup segments.

Agritech
In Agritech, debt can be used for funding farmers, monetizing warehouse receipts, financing Agri inputs, and monetizing Agri output. Certain categories of exposure in this space can be categorized under priority sector lending depending on the beneficiary. The space has several well-funded startups, including a few unicorns, reflecting consistent support from equity investors.
B2B Platforms
One of the key considerations for any B2B business is efficiency in the supply chain. In this segment, debt can be used to manage incremental working capital requirements. Options include vendor financing, sales invoice discounting, revolving demand loans, and interest-only credit facilities. The space has witnessed the birth of several unicorns, with a few even exploring the creation of an NBFC arm to deepen value creation across the ecosystem.
D2C Businesses
India is currently seeing a surge in D2C brands across various categories such as Apparel, Travel Accessories, Personal Care, and Healthy Snacking . D2C brands need consistent debt support to manage inventory holding periods, MOQs & lead times from contract manufacturers, import various inputs, and manage the vendor base effectively. With most D2C brand customers paying for products upfront, debt facilities are critical in managing the supply side overall.
Domestic Logistics
Inter-city and intra-city logistic providers cater to large e-commerce players, traditional large corporates, and emerging brands on one end and fleet owners on the other. They increase the efficiency of vehicle deployment and deliveries using technology. More evolved startups in the space have expanded the product suite to warehousing and 3PL under one roof. For companies in this segment, apart from venture debt, sales invoice financing, driver financing, and leasing can create significant stakeholder value.
Freight Forwarding & Logistics
Startup incumbents in this space can use various debt structures such as export factoring, purchase financing, and eventually offer trade finance options to their SME clients.
Used Car Platforms
This is a segment with three unicorns and a listed startup in the Indian context. The businesses rely on debt to finance their dealer/distribution network, buy used car inventory, and manage other working capital requirements like investments in spare parts. Consumers also avail debt to purchase vehicles. Efficient debt management can be remarkably effective in expanding business and improving margins.
EV Businesses
The Electric Vehicle space is an important sector supported by policies like subsidies for end consumers and categorizing direct exposure taken by financing institutions under priority sector lending. The space has seen startup incumbents in three broad categories: battery technology, electric vehicle OEMs, and those creating charging infrastructures. Support from lending institutions will play a crucial role in the evolution of this space, with most incumbents in pre-production/launch stage. Debt is required for setting up factories/assembly lines, spare parts, charging infrastructure setup, financing vendors, and purchasing finished products by end customers. This sector will witness a substantial number of unicorns and decacorns over the next decade.
SaaS-Based Businesses
SaaS-based businesses can be viewed as businesses with annuity inflows ranging from 18 to 36 months, depending on the underlying contracts. Debt financing institutions can discount the fixed inflows (both INR and FCY) of the next 12 to 24 months, providing immediate cash injection into the business. Traditional debt options like CC/OD are also available. Further, startup incumbents in this space have the option of revenue-based financing to meet their working capital requirements.
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