Peter Thiel’s Valar Ventures doubled his bet on Velocity, which operates a revenue-based financing platform for e-commerce and direct-to-consumer businesses in India, just months after first backing the startup based in Bangalore.
One-and-a-half-year-old Velocity said on Wednesday it raised $ 20 million in its Series A funding round. Valar Ventures, who led Velocity’s ranking round earlier this year, also led the series. A, both said on Wednesday. Presight Capital, AngelList India at iSeed head of Utsav Somani, Maninder Gulati of Oyo, Zac Prince of BlockFi and Philippe De Mota of Hedosophia also participated in the round, which carries the all-time increase in the $ 30 million startup.
Velocity is trying to create a reliable alternative to venture capital and traditional bank debt for e-commerce and direct-to-consumer brands in India. Rather than charging interest on the loans it sanctions, Velocity charges low standard fees and businesses pay them back based on their income.
Abhiroop Medhekar, co-founder and CEO of Velocity, told TechCrunch in an interview last week that the length of the payback period varies depending on the revenue a business generates.
“If the income of the partner company ends up increasing, it benefits us because the loan repayment period is shorter. If there is a drop in income, we also take that risk with the company. We say it’s perfectly normal for them to take longer if the business isn’t doing as well, ”he said.
Velocity integrates its platform with the suppliers of the partner company and is able to tell how the company is doing. The startup uses more than 50 parameters to assess whether it can grant a loan to a business and credits the amount within 5 days.
Direct-to-consumer and e-commerce businesses, both of which are capital-intensive initiatives, typically need to raise large amounts of capital to run their operations. Until recently, businesses relied on either regular lenders or venture companies for funding, but the nature of their business has made both of these options less viable. According to a recent estimate, less than 0.5% of over 75,000 independent e-commerce stores on platforms such as WooCommerce and Shopify in India were equity-funded.
When Velocity partners with a business, “it also has a skin in the game. And that’s why we see so many loyal customers. 78% of the companies that have worked with us come back to ask us for more loans in the future, ”said Medhekar.
Citing its own figures, Velocity said brands that have historically raised capital through Velocity increased their revenues 1.5 times within six months of funding. Some of its clients include PowerGummies, Green Soul, WallMantra, BellaVita, Smoor Chocolates, and CrossBeats.
Velocity has accumulated 175 customers and made a total of approximately 250 investments to date.
Medhekar, who previously worked as an investor at Elevation Capital, said integrations across multiple vendors and systems give Velocity full visibility into the bottom line of its partner companies. To his surprise, he said, even the founders of these companies lacked such clarity.
“As the founder, my data is scattered across Amazon, Shopify, Facebook, Google, and other services and I may not be able to put all of it together for insight,” he said.
To address this issue, Velocity recently launched a free product called Velocity Insight that helps its partner businesses receive a daily WhatsApp report every morning. “It is in our interest that our partners also develop. We have found that this actionable information helps companies inform their decisions, ”he said.
The product has made inroads with many companies in recent months, and many non-customers are also signing up to the platform to receive information, the startup said. Velocity may introduce a paid service for its non-customers and it is looking to expand its information offerings by adding more metrics and benchmarks, Medhekar said.
The speed itself has increased tenfold in recent months, said Andrew McCormack of Valar Ventures. “Despite this exponential growth, the quality of their portfolio remains solid. We were impressed with their strong customer focus, their technology product DNA and their ambitious growth plans. We are delighted to support their bold vision of empowering thousands of entrepreneurs in India, ”he said.
The startup, which is partnering with NBFCs to fund loans, said it aims to deploy more than $ 134 million to more than 1,000 e-commerce and direct-to-consumer businesses over the next year. “Our long-term vision is to empower companies in the new era through multiple financing products. The reason we started with revenue based funding is because we think access to finance is the biggest gap for them. As we spend more time, we have identified several other areas where we want to expand, ”said Medhekar.
Divij Bajaj, Founder of PowerGummies, a Velocity customer, said: “We chose to raise capital through Velocity because of their speed and convenience. We were able to securely connect our online sales and marketing data to the Velocity platform with just a few clicks and were funded within a week. Their terms were better than the other alternatives and we were able to keep our equity in a growing company. “