Slow and steady, be more wealthy: More start-ups eye private equity funds, bypass VCs Premium

In June 2023, Bengaluru-based occasion-wear brand Koskii raised ₹61 crore in a series A round. What made it stand out was that it wasn’t a funding round led by a venture capital firm, but by Baring Private Equity Partners India.

In June 2023, Bengaluru-based occasion-wear brand Koskii raised ₹61 crore in a series A round. What made it stand out was that it wasn’t a funding round led by a venture capital firm, but by Baring Private Equity Partners India.

Venture Capital (VC) has been the go-to option for most start-ups to raise funds. However, of late, a bunch of new-age companies seem to be approaching alternate options like debt-based financiers and private equity players instead of taking the usual VC route.

While one of the catalysts seems to be the prolonged venture capital funding winter, the brands which bypass VCs also feel that the PE route aligns with their business model given their strong focus on profitability over cash burn.

As per data from Tracxn, between 2021 and till date 321 companies have raised equity funding from PEs in India. None of these companies raised any capital from VCs.

“We are seeing private equity activity, which used to be limited to more mature and late-stage companies, happening across multiple new age companies,” says Abhiroop Medhekar, CEO and co-founder at Velocity, a revenue-based financing (RBF) company.

“These are companies which were bootstrapped initially. They would build for four or five years and then scale it to a level where PEs also found it interesting to come in and participate,” he adds.

A start-up funding trajectory typically starts with seed rounds and angel investments, and then go through multiple rounds of VC funding before it scales to a size that can attract PE players.