Start-ups are increasingly focused on revenue-based finance. With traditional money still out of reach for many and venture capital funds drying up, revenue-based funding has grown in popularity, according to a credible study.

“Revenue-based financing, also known as royalty-based financing, is a method of raising capital for a business from investors who receive a percentage of the enterprise's ongoing gross revenues in exchange for the money they invested,” as per Investopedia. In simple words, investors get a share of the business’s gross revenue in return for their investment.

Platforms such as GetVantage, Velocity, and Klub, founded between 2019 and 2020, are stepping in to remedy the market's working cash need. GetVantage, Velocity, and Klub are all platforms that prioritize revenue-based financials.

A Redseer research titled 'The India Digital SME Credit Report 2023' published in August 2023 anticipated that this shortfall would exceed $150 billion. Similarly, the survey found that just about 30% of the present $220 billion credit demand from digital SMEs is being met.

Karun Arya, chief growth officer of GetVantage has told that the revenue-based lending product, which increased in 2022-23, will see a consolidated interest rate in 2024.

According to a credible report,  start-ups are becoming increasingly aware of other financing possibilities such as venture debt. Furthermore, as per to Investopedia, start-ups without an established track record of revenue production use venture debt to raise funding. "Unlike traditional forms of debt financing, venture debt is typically provided by specialized lenders who are willing to take on a higher level of risk in exchange for the potential for higher returns," the website states.

With revenue financing on the upswing, it's unclear how it will affect Indian start-ups. However, the recent study points out that revenue financing, unlike bank loans, offers a greater rate of return.