There are a number of companies in the U.S. that offer revenue-based financing to SaaS companies, including Capchase, Pipe, Founderpath and Arc. But the options for South Asian companies are far more limited.
A new startup, Efficient Capital Labs (ECL), has emerged to give B2B SaaS companies operating in the South Asia-U.S. corridor more financing options, and it recently raised $7 million in funding led by QED Investors to help it grow.
Kaustav Das teamed up with Manish Arora, a former general manager for PayJoy’s South Asian division, to found New York-based Efficient Capital Labs in early 2022 after working in various risk-related roles over the past two decades. The company provides B2B SaaS companies a percentage of their annual recurring revenue (ARR) as upfront capital that Das says “is 100 percent non-dilutive in nature.” Because ECL funds customers through its balance sheet, Das said its customers “get access to capital at a much cheaper cost and don’t have to face the uncertainty that comes with depending on third-party investors or marketplace dynamics to receive capital against revenue.”
After spending nearly 15 years as a vice president at American Express, where he worked as its chief credit officer of non-card commercial lending, Das also served as the chief risk officer of Kabbage, Petal and Quadpay.
His foray into revenue-based financing started in June of 2020 when he was approached by Miguel Fernandez, CEO and co-founder of Capchase to serve as an advisor to that company. While Das never formally became an advisor to Capchase, he was introduced to companies in India expressing interest in financing.
That got Das thinking. So he went to India in September and October of 2021, and realized the “opportunity was massive.” “SaaS is growing 6x-7x and the cost of capital is still very expensive — even if more available — in India,” Das recalls. “And I realized that most of the SaaS companies had a U.S. entity and bank account but they were not able to access the cheaper capital that is in the U.S. That became the most important pillar of what we are building in Efficient Capital — to bridge the cost of capital gap between geographies.”
Das was able to raise $3.5 million led by 645 Ventures for his company, which allowed him to start hiring and build out his product. He also closed on a $15 million debt facility last November, which he recently updated to a $100 million special purpose vehicle in June. Other institutional backers include The Fund, Lorimer Ventures, Riverside Ventures and Generalist.
He describes Efficient Capital as a revenue-based financing company that focuses on South Asia and Southeast Asia, and is currently focused on U.S.-India and U.S.-Singapore.
“The U.S. component is important,” Das said. “There’s always going to be a dollar-denominated loan to a U.S. entity and a U.S. bank account.”
Efficient Capital is focused on pre-seed, seed and Series A startups, charging a fixed fee of between 9% and 12% of whatever upfront capital it provides. Most of its loans are made on 12-month terms. Anything above, Das believes, becomes more risky as it’s difficult to predict with a longer time horizon.
So far, Efficient Capital counts 43 SaaS companies as customers, and has originated more than $13 million in loans with zero defaults, according to Das.
He claims that his startup is the “only platform that does dual risk assessment in both geographies.”
And that, Das believes, is one of Efficient Capital’s biggest differentiators.
With other platforms, he said, companies don’t have visibility into what happens to the money once it leaves the U.S. bank account.
“For them, it’s just a line item in the bank,” Das told TechCrunch. “For us, we follow the entire course, and have access to the interbank account so we can see the usage of that funds or the reverse of it.”
That means, he said, that Efficient Capital can do KYC (know your customer) in India.
Aaron Holiday, co-founder and managing partner of 645 Ventures, said that given the “steady growth” of SaaS startup formation and growth in India, his firm saw an opportunity for the total addressable market to reach $10 billion within eight years.
“The [ECL] team members operating and domain expertise in risk management combined with B2B SaaS growth in India gave the company a unique advantage at onboarding early customers to test the revenue based lending value proposition in India and internationally,” he wrote via email. “After working with ECL for over a year for pre-launch to launch, it’s clear that they’ve released a product that is resonating and being pulled by the market.”
QED Investors partner Sandeep Patil, who heads the firm’s Asian investments, told TechCrunch that “Indian SaaS companies are known for innovative and specialist software solutions, and their growth in selling to the U.S. represents a new era of entrepreneurship and global collaboration.”
He added: “By providing non-dilutive capital to these companies, ECL empowers the founders to build for the long term and drive innovation and growth.”
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QED leads $7M round into startup that offers financing to SaaS businesses across US-South Asia corridor by Mary Ann Azevedo originally published on TechCrunch