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Rarely do we see a new entrant in the startup space make a splash amongst two verticals. Seems that BridgeUp has managed to do just that amongst two of the largest and fastest growing sectors in India – Fintech and SaaS. It seems quite simple for the uninitiated - If a company gets paid monthly by its customers, give the same company 12 months’ worth of revenue by marginally discounting its annual value. So now the company gets all their contracts prepaid annually at a discount far lower than the one they would be “forced" to provide to their end customers.
BridgeUp, as the name suggests, seems to have bridged up the space not only between lender and borrower but also between companies and their cash flows. Ask a SaaS founder the importance of upfront cash flows and they leap from their chairs. Ask an investor if they want access to a new fixed income investment opportunity, uncorrelated to public equity markets whose underlying asset is not only predictable but also secure, they leap even further. BridgeUp seems to have a lot of people leaping.
Businesses the world over are switching their revenue models to a subscription based, or a recurring revenue model. Recurring revenue makes a company’s revenues more predictable, extends the lifetime value of a customer and ultimately makes their business more valuable. BridgeUp provides such businesses with access to non-dilutive capital by giving them the annual value of their periodic revenues.
We asked Manoj Shenoy, CEO, IIFL Asset Management what his thoughts on BridgeUp are – “For years, legacy financial institutions have struggled to successfully invest in startups since they do not have the risk appetite or mechanism to assess new-age technologies or their revenue models. BridgeUp breaks down the risk of both venture capital and debt by stripping the revenue from an invoice and allowing the revenue itself to be treated as an asset. This, in turn, becomes a much safer bet due to the predictability and growth of recurring revenue streams."
In the world of alternative fundraising opportunities in India – BridgeUp is not the first but it’s not to be confused with Revenue Based Financing. “It’s apples to oranges really. The only thing BridgeUp has in common with Revenue Based financing is that they are both non-dilutive in nature. Just about everything else from the business model to the TG (Target Group) to the marketplace structure is different'' - Zeus Dhanbhura, Co-founder and CEO of BridgeUp.
What is Revenue Based Financing?
Revenue based financing is a loan provided by the RBF company itself which is repaid by pledging 5-10% of the borrower’s future monthly revenues till the loan plus interest is repaid. This return period could be 6 months or 16 months. It all depends on the borrower’s future revenues. The cost of capital to the borrower at the time of accepting the loan is uncertain since the future revenues and loan term are unknown. This works for early stage e-commerce companies in India.
RBF Companies raise debt facilities themselves so they can provide loans to businesses. Having a cost of capital themselves, they cannot service business owners below a certain IRR (Internal Rate of Return) and are essentially re-selling debt.
How is BridgeUp’s Model Different?
BridgeUp’s model is a pure-play marketplace model where they are not the lenders themselves, but instead connect companies to lenders on their platform. “We align ourselves with the needs of the companies on our platform by creating competition amongst the lenders to provide the best deal for the companies. The lower the cost of capital, the better it is for us since we do not make money on the discounting. Instead we charge a transaction fee on the absolute amount received by each company when they choose to trade their recurring revenues" – says Zeus.
BridgeUp’s structuring is pretty simple. They give you 12 months worth of your monthly payments and you pay back as your customers pay you. “Were simply up-fronting companies’ capital requirements. There is no interest rate as such. We help buy-out your future revenues annually and you return that as your end customer pays you.. You know exactly what you are going to be repaying from day 1 - there are no hidden costs," says Zeus
Simply put - the more the companies choose to trade, the happier BridgeUp is. Through this model, BridgeUp which is more akin to subscription based financing, attracts more mature stage companies with recurring revenues like SaaS, Services, OTT platforms, etc. which are in need of growth capital. “SaaS and other recurring revenue companies are high growth companies with predictable revenue streams who want a fixed cost of capital from Day 1 instead of variable cost structures where they end up paying more as they grow. Also, they appreciate that we at BridgeUp are making sure we get them the most competitive bids on their revenues instead of offering a fixed price" – Zeus.
Seems like others agree: Praanesh Bhuvaneswar, Co-founder & CEO at Qoruz, a leading search engine for influencers sums it up – "Historically, high-growth software companies in their earliest stages have had to turn to venture capital and occasionally venture debt to fund their growth. These traditional sources of capital leave startups with expensive and offline solutions that limit their ownership, control, operating flexibility, and ultimately growth. BridgeUp provides founders with a digitally native tool to fund growth without dilution, tapping into future recurring revenue to pay for operating expenses today."
To learn more, click here or stay updated by connecting with BridgeUp on LinkedIn and Twitter.
Disclaimer: This is a company release. No HT journalist is involved in creation of this content.
