Debt financing is the preferred route for new age startups – News

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Many companies that were previously funded at high equity valuations are now turning to venture capital debt for the first time.



Reuters file photo

By HP Ranina

Published: Sat, Jun 18, 2022, 3:53 PM

Last update: Sat, Jun 18, 2022, 3:56 PM

Question: The younger generation of NRIs want to establish a base in India and plan to venture into startups. However, most venture capital funds are reluctant to equity financing. What is the reason for this?

In recent months, there is a visible preference for debt financing for new age startups. Current macro conditions have led to equity financing drying up in recent months. Entrepreneurs who thought they were going to raise equity were left behind.

Data from research firms clearly indicates that venture capitalists will only invest debt in a new startup. Venture capital debt is generally suitable for a startup that needs money to meet its working capital needs. After their initial success, equity funds are easy to raise. Consequently, several new business models have begun to leverage subprime debt as the preferred form of financing. In fact, the biotech industry is now virtually funded by venture debt rather than equity. Many companies that were previously funded at high equity valuations are now turning to venture capital debt for the first time. Some companies that have postponed their IPO are looking for venture capital debt to fill the gap.

I had booked an apartment with a builder and entered into an agreement which was registered with the relevant authorities. Subsequently, the builder was slow to meet its obligations. Some disputes arose and a meeting was called by the builder with the owners of the apartments. Some discussion took place at the meeting and the builder claims that the written agreement is modified to that extent. Is he legally right?

If an agreement with the builder states that possession of the constructed property would be given on a particular date, that date would be binding on the builder and would not be extended simply because there is a verbal agreement or arrangement at a later time. with the purchasers of the property. In a recent decision, the Bombay High Court held that a written agreement between a builder and a buyer would not be superseded by a subsequent oral agreement. The High Court upheld the Court of Appeal’s order which ordered the reimbursement of the amount paid as an advance for the construction of the property by the buyer. Therefore, if the builder has agreed to hand over the completed property, accompanied by a certificate of completion from the municipal authorities, by a given date, any delay in doing so would constitute a breach of contract on the part of the builder. A buyer is entitled to reimbursement and compensation under Section 18 of the Building Regulations Act in the event of the builder’s failure to give possession of the apartment on the date stated in the contract.

I have worked in restaurants in the Gulf for several years. Based on my experience, I want to open a restaurant in one of the smallest towns in India. Is there room for fine dining in these cities?

The restaurant and e-catering industry has grown by leaps and bounds in the non-metro cities of India. This happened during the pandemic period when senior staff members were forced out of their jobs in metros like Mumbai, Delhi, Bangalore, etc. They returned to their small towns and villages and, while at home, launched online catering services.

This has led to a demand for gastronomy. Additionally, people living in Tier I/Tier II cities have been found to have the same purchasing power as those living in metros. Continental cuisine, Southeast Asian specialties and Middle Eastern cuisine have become staple dishes.

Most investors who have a chain of restaurants in various cities of India have found that their outlets in non-metro cities are more profitable than outlets in metros. This is due to the growing demand for new restaurants in small towns as well as the fact that expenses in terms of rent, labor, food costs, etc. are much lower in non-metropolitan cities, leading to higher profitability. . Hence, with your experience in the restaurant business, you should be successful in setting up a restaurant in one of the smallest towns in India.

HP Ranina is a practicing lawyer, specializing in tax management and foreign exchange laws of India.

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