Liberalized ECB norms promote funding of Indian startups

Posted on November 24, 2016

Recently liberalized external commercial borrowing (ECB) norms are encouraging Indian startups to raise more funding to spend on marketing, setting up offices in the US and Europe and expanding their business. The liberal ECB norms will also give them access to debt money, which is essential for startups to grow and stabilize their business. “Start-ups in India are now finally maturing to be ‘real’ companies. Funds in any case are very vital for start-ups. The option works well in a case like ours where it is hardware product. It is utmost helpful for start-ups that are focused on sustainable growth and profitability like us”, said Rajshekar Jenne, co-founder and chief operating officer (COO) of OpenApp.

On October 27^th, 2016 the Reserve Bank of India (RBI) had allowed start-ups to borrow up to $3 million or around Rs 20 crores a year either in rupees or any convertible foreign currency. The move is also in tune with India’s aim of becoming a business – friendly country, particularly in the domain of promoting start-ups to raise adequate money during their early years. Deepesh Agarwal, co-founder and CEO of Moveinsync, said when they tried to raise money initially, they had to refuse a lot of debt offers as RBI norms then did not allow debt that time. “We had to either turn down the offer or try and convert it to equity, which may or may not work out. Hence, an initiative like this is very useful and beneficial for start-ups and, $3 million (Rs. 20 crores) is fairly large enough for a start-up to go ahead. Any form of more capital being available from outside is useful for start-ups”, said Deepesh Agarwal. Start-ups in India also feel that borrowing from lenders outside of India can help them scale globally as well. Abhishek Kumar, co-founder of Giftxoxo, says that it’s a great opportunity for start-ups that want to scale globally. “It is easier for start-ups to raise money from lenders outside. The policy also opens a lot more channels or source of debt for start-ups”, he said. Read more on Startups

According to him, small manufacturing start-ups and small service start-ups which find it tough to raise venture capital are more likely to benefit from the new policy. “They’ll look at debt as they’ve orders and running business. They already have cash coming in. We’re always a believer that a well-structured debt option can be a good alternative to equity capital for certain kinds of start-ups. The ECB round will be one more potential option to fit into this company”, he added. Amuleek Singh, co-founder of Chai Point, also supports the idea of more options for start-ups to raise funds. However, one has to check whether the start-up is in a position to take up debt or not. “Take, for instance, technology start-ups. A technology start-up is typically not at a point of being a sustainable start-up; it is building something new. So, lenders might not see the start-up as a sustainable entity to lend to”.

There are many innovative startups in India which are selling useful products or services. SEBI relaxing ECB norms is a very heartening sign. This will give Indian startups the option to borrow upto Rs. 20 crores from foreign or external lenders. They will find that money useful to establish and expand their business especially if they are in the seed stage. External debts will be as useful as pre – series round of funding for a startup. Funds and debts are essential for any startup to grow and establish their business. The liberal ECB norms will give more options for Indian startups to secure funds or debts, with which they can grow and establish their businesses and can make a big positive difference to the Indian economy. It is in tune with PM Modi’s ‘Stand Up India Start Up India’ scheme. Read more on Startup News