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Revenue-based financing or equity, which should an Indian D2C brand take?
Revenue-based financing suits money that comes back within months, such as stock for a season you've already sold through or ad spend on a channel whose payback you know. Equity suits money that has to prove something first, such as whether customers repeat, a new category or a team.
A flat fee isn't an interest rate. The same 6% fee costs about 16% a year if you repay over nine months, and about 30% a year if you repay in five. Most of what founders read about RBF is written by the people selling it, so here is the arithmetic.
How RBF works in India
A lender advances money against your online revenue and takes a fixed fee instead of interest. You repay out of a share of your revenue each month, or in fixed instalments, until the advance and the fee are cleared. You give up no equity.
Velocity, one of the larger Indian providers, says on its own FAQ that it charges a fixed fee of 5 to 8%. Its example is a ₹40 lakh advance at a 6% fee, repaid at 10% of revenue until ₹42.4 lakh has been paid back. D2C brands do use it. Beauty tools brand Beauté Secrets took ₹1.6 crore from Velocity in October 2024 to expand on quick commerce and add products.
Turn the fee into an annual cost
Our arithmetic, using Velocity's example of ₹40 lakh, a 6% fee and repayment at 10% of revenue.
| Monthly revenue | Months to repay | Annual cost |
|---|---|---|
| ₹25 lakh | About 17 | About 8% |
| ₹50 lakh | About 9 | About 16% |
| ₹1 crore | About 5 | About 30% |
The fee is fixed, so the faster you repay, the higher the annual cost. A brand that grows quickly pays the most. Lenders also set a maximum term, so the slow case at the top may not be on offer. Ask for the term in writing, and work out the annual cost at the revenue you actually expect.
Compare it with equity
Equity has no repayment, but its cost doesn't end. Sell 20% of the company for ₹6.5 crore, the median seed round in our count, and if the company is later worth ₹300 crore, that 20% is worth ₹60 crore before later rounds dilute it. That's the price of the money if things go well.
So the comparison is never one rate against another. It's whether the money comes back in months from revenue you can already see. If it does, paying 15 to 30% a year for a few months usually costs far less than a slice of the company forever. If it doesn't, RBF just turns an equity question into a cash squeeze.
When RBF is the wrong tool
- Revenue that doesn't repeat. Repayments come out of every month's sales. If growth depends on buying new customers each month, repayments eat the budget that was meant to buy them.
- Negative first-order margin with slow payback. Funding ads with RBF only works if the customers pay back before the lender does.
- Long projects. A new category, a factory or a team takes longer to pay back than a typical advance runs.
- Stacked advances. Several lenders each taking a share of the same revenue leaves little to run the business on.
What a seed fund reads into it
This part is our view. A fund doesn't mind RBF that financed stock that sold. It will ask what the money was for, what is still owed, and how much of each month's revenue is already promised to a lender. If new equity would mostly go to clearing advances, the fund is paying off your lender, and it will price that in.
One investor put the principle plainly. Inflexor Ventures' Murali Krishna said in March 2025 that "VC funding should drive expansion, not cover product losses". The quote and source are on What Indian investors actually say about D2C metrics.
What this can't tell you
- Terms are set brand by brand. We've used one lender's published example. Your fee, revenue share and term will differ, and terms change.
- The annual cost assumes steady revenue. A bad month slows repayment and lowers the annual cost, and a sale spike raises it.
- Check who is lending. Ask whether the lender, or the partner it lends through, is registered with the RBI, and read the agreement for personal guarantees and what happens if revenue falls.
What we read into it
Use RBF for money you can already see coming back, and equity for what still has to be proved. If you can't say which one a rupee is for, it's probably the second.
We help founders work out what each rupee is for and then raise. If we ran your venture diagnostics, the raise starts after a one-quarter cooling-off period. If not, we start right after our own investability review.
Questions
FAQ
Is revenue-based financing cheaper than equity?
For money that comes back within months, usually yes. A 6% fee repaid over nine months costs about 16% a year, while equity costs a share of the company's future value. For money that has to prove something first, equity is usually the better fit.
What does RBF cost in India?
Velocity publishes a fixed fee of 5 to 8%. The annual cost depends on how fast you repay. In our example, the same 6% fee works out to about 8% to 30% a year depending on monthly revenue.
Can I use RBF for marketing?
Only if you know the payback. If customers repay their acquisition cost before the advance is due, it can work. If they don't, the repayments eat next month's ad budget.
Does RBF hurt my seed round?
Not if it financed stock or spend that paid back. A fund will check how much is still owed and how much of your revenue is committed to repayments.