Awesome Saturday representing Artha Group at AIC-NMIMS Incubation Centre, at an event hosted by Global Startups Club, to talk to an amazing set of founders + potential founders on Debt & Equity, which one's are right for startups and how to balance this.
Alongside wonderful panelists, Dr. Sonali Kirde, MD and Sriram Ganesh Sastrigal, hosted by Prince Sharma, we dived into a few key topics:
1. How do you know when to use Debt vs Equity? : This goes slightly deep into corporate finance, which EVERY founder should familiarize themselves with.
Rules of Thumb - Treat equity like it costs 36% IRR. Any project that is going to generate cashflow soon, but less than 36% IRR, should be funded by debt.
There's an important thing to remember about debt here. A 14% per annum loan translates to ~15% IRR cost. Factoring in a 2.5% upfront fee (processing etc), it becomes 18.8%
So you need to ensure that any use of debt generates more than this on an annualized basis to cover the principal + interest payment, as well as generate profits over and above.
2. Where can startups get debt? : There are a whole bunch of new players who are making this much easier. At the top of the pyramid, DBS Bank is aggressively targeting startups in India, offering easy-to-access unsecured overdraft facilities. Talk to Tushna Choksey! Over and above, GetVantage, talk to Karun Arya. Stride Ventures , Velocity (talk to Kanika M.), Trifecta Capital and a whole lot more offer revenue based financing, term loans, etc
The important part is all these players are looking at structuring startup friendly instruments, not the traditional paper pusher bankers who want to see 3 years of profits and large FDs in the bank.
Great evening overall!
#venturecapital #funding #debt #fundraising #startups