To cut costs, free up cash, startups take to renting2 min read . Updated: 21 Feb 2019, 11:47 PM IST
- Rental model gaining traction as expenses are down by almost 40%, say some firms
- Apple’s high-end laptops and phones far outdo the demand for any other kind of products among startups
Bengaluru: Startups have been increasingly taking everything, including laptops, phones, furniture, projectors and air conditioners, on rent from B2B rental firms, such as RentSher and SabRentKaro, to keep their capex under check and free up cash for operating expenses. Most startups rented only high-end laptops even as recently as 2016. However, with expenses coming down by almost 40% for some startups, there is preference for a rental model, said rental firms and their startup clients.
Rental firms also, consequently, aim to increase their revenue contributions from startups.
“The wave of ordering laptops on rent started with traditional IT firms. However, in the last few years, startups have turned to this trend as well. We are currently working with around 250 startups, including ones such as Zomato," said Harsh Dhand, founder and chief executive officer (CEO), RentSher.
Admittedly, Apple’s high-end laptops and phones far outdo demand for any other kind of products among startups. At RentSher, for example, one out of every two rental requirements are for Apple products. However, since mid-2018, startups started renting other products too.
Bengaluru-based RentSher gets 35-40% of its revenue from startups and IT equipment. SabRentKaro, a rental startup based in Hyderabad, earns 35-40% of its revenue from serving B2C customers.
Of the remaining 60-65%, roughly 30% comes from startups, the company said.
“We were able to show chief financial officers that instead of spending their money in non-core areas, they can operationalize their entire outlay, which will reduce the capital pressure on the organization and make the return on investment much shorter and faster. So, a company can reach profitability much faster," said Raj Sivaraju, founder, SabRentKaro.
RentSher and SabRentKaro count several startups operating across segments from education (Cuemath) to logistics and cab hailing platforms (Uber) to food-tech (Zomato) as clients.
The potential to increase revenue contribution from startups exists, but it comes with its own challenges.
Renting to startups is risky considering that most have limited cash flow. “We make sure that we undertake thorough verification and we also don’t lend to startups that don’t have a strong social media presence. We also have banned cash payments and only encourage online payments," said RentSher’s Dhand.
This is because RentSher, SabRentKaro, Rentx, Rentmacha, and Rentickle are startups themselves. “We look at the stability of the vendor, at the cost effectiveness, and the quality of the products over time," said Sujith Kumar S., administration manager of edutech startup ClassKlap. Despite this, ClassKlap has reduced its spends on maintenance, hardware, spare parts and manpower to maintain this equipment by 40%. The company has been using the rental model for three years.
Road trip planning startup ScoutMyTrip also says the model has been working for the company. “You need a lot of capital to buy equipment in one go. That means you have to have either raised a lot of capital, or you have to be a big company and we are neither at this point," said Vineet Rajan, co-founder, ScoutMyTrip.