Indian mid-sized enterprises have an incredible opportunity to graduate to the fast lane, by leveraging favourable macroeconomic conditions and demonstrating strong execution capabilitiesHowever, many of these companies face significant barriers to accessing the right kind of capital, preventing them from leveraging their full potential or entering new target segments.
The Challenge of Accessing Capital
For companies in the mid lane, financing options are typically limited to two routes:
- Traditional Financing via Banks/NBFCs:
While reliable, these sources often fall short of meeting capital requirements, particularly for businesses that need scalable funding solutions to fuel their ambitions.
- Venture Capital:
While venture capital can offer significant funding, it is not always the best fit for mid-lane businesses.
- Pressure for Exponential Growth:
Venture capital often comes with an expectation of rapid scaling, which may push businesses to prioritize growth at all costs. This pressure can lead to unsustainable strategies that undermine long-term stability, particularly for mid-stage businesses focused on steady, incremental progress.
- Loss of Strategic Autonomy: Taking on VC funding often means relinquishing a degree of control over business decisions. Investors may prioritize short-term returns or specific exit strategies that don’t align with the founders' vision or the business’s natural growth trajectory.
A Better Alternative: Structured Debt Products
This is where structured debt financing emerges as a game-changer. Unlike traditional or equity-based financing, structured debt products align with the unique needs of mid-lane companies by:
- Evaluating Recent Performance:
Underwriting is based on real-time metrics, often considering performance as recent as the previous month.
- Quantified Risk and Reward:
These products take a short-term bet on the business and its founders, with a typical horizon of less than two years, creating a partnership that balances growth potential and risk.
- Enhancing Growth Through Better Cash Flow Management:
Structured products empower businesses with tailored solutions that align funding with operational needs, offering greater control over cash flows while driving sustainable growth.
- Catalyzing Lane Changes:
By providing the capital needed to execute ambitious business plans, structured debt enables mid-lane companies to jump to the fast lane, where they can access a more favourable cost of capital.
The New Financing Mindset
Unlike a few years ago, both banks and VCs now demand profitability from mid-sized businesses. This shift has forced founders to rethink their financing strategies, leading to:
- A surge in SME IPOs, with businesses targeting revenues of ₹100–200 crore for public offerings—milestones that previously seemed unattainable without first reaching a unicorn status or at least a sizable business.
- A conscious decision by founders to focus on sustainable growth, ensuring their bottom line remains healthy and their brand equity intact.
Finding the Right Mix
The conversation is no longer about choosing just one financing avenue but about picking the right mix at the right stage. For many mid-lane companies, this means stepping back and asking:
- Does diluting ownership make sense at this stage?
- Are there alternative modes of financing that align better with our current needs?
- Can a combination of financing options provide optimal growth while preserving long-term value?
By leveraging structured debt, founders can achieve their growth ambitions without compromising control or long-term profitability. It’s a strategic way to bridge the gap between the mid and fast lanes, unlocking growth while maintaining a sustainable and scalable business model.
