N+1 Capital, which wants to pioneer the Revenue Based Financing model for startups in India, is in talks to raise a $100 million debut debt fund, its executives said. Under this model, N+1 will lend a certain amount to startups, and in return takes a fixed percentage of the startup’s revenue every month.
N+1 is working with angel investment platform LetsVenture to raise the fund, and last week received approval from markets regulator SEBI to raise the fund. The fund will be run by Rahul Chowdhury and Ashish Singla. While Chowdhury is an active angel investor with previous entrepreneurial stints, Singla used to head Max Ventures, the investment arm of the insurance group Max.
In India, startups so far raise money in two ways- either by selling shares to venture capital investors, or by raising venture debt- where funds provide debt in exchange for warrants in the company- which can be exercised as shares later on.
“VCs generally want to back the rocketship companies. And a very small proportion of companies will be a rocketship. But the rest of them are still worth funding, and that is where we come in. You don't need to dilute for us, and we only need stable growth,” Chowdhury, Managing Partner - N+1, told Moneycontrol.
N+1 will look for startups which have a revenue of at least Rs 50 lakhs a month, and have positive gross margins.
N+1 plans to cut a first cheque of about Rs 15 crore per company, and top it up further if the company manages to grow consistently. It wants to build a portfolio of 150 companies over the next two-three years.
It plans to raise the fund in the next three-four months, and is planning a first close of $40 million in the next month or so. A first close allows a fund to start investing, while it parallely continues raising the rest of the fund.
While conversations are still ongoing, Limited Partners (LPs) or investors in the fund will be high net worth individuals from India, the US and UK, in addition to a few institutions. About half the fund is expected to be raised from abroad, Chowdhury said.
“The traditional world of investing is all about the people one knows, warm introductions and recommendations. While human relationships are great and necessary, they can be vulnerable to bias. While there has been significant innovation on the fundraising side, the investment business model still works like it always did. N+1 is trying to bridge this gap. We have a data driven risk assessment technology model that makes the product accessible for new age entrepreneurs and minimises human bias in decision making,” said Ashish Singla, Managing Partner, N+1 Capital.