Business-to-Business (B2B) e-commerce platform Udaan is all set to raise $150 million through debt financing. The platform will infuse this fund through convertible notes, The Economic Times reported. 

What is Debt Financing 

Debt Financing is a process where a company sells its fixed-income products such as bonds, bills, or notes to generate capital. It is the opposite of equity financing, where a company sells its equity to raise funds. 

For the second time this year, the Bengaluru-based B2B startup is ready to infuse capital through debt financing. Earlier, Udaan raised $200 million through convertible notes in January, 20222, ET reported. 

Multiple startups are keeping faith in debt financing instead of sharing their equities with investors. For instance, PharmEasy, an online pharmacy marketplace is also seeking to infuse $100 million through convertible notes. This suggests, that startups have found their way to move forward from equity-based funding to debt financing.

Why Debt Financing

One of the main reasons behind keeping faith in debt funding is the absence of desired valuations from equity financing. Hence, to tide over the economic whiplash, startups are taking a major shift towards debt financing to hoist funds. For Udaan, no valuation will be ascribed as of now to infuse the capital. 

A Fall In Funding 

Startups in India are witnessing a sharp fall in funding. Data shows venture funding for startups fell to $2.7 billion for the September quarter of 2022, in comparison with $12 billion in 2021. Several late-stage founders are not expecting big-ticket funding to revive before the next financial year, the report added. 

Taking these conditions into consideration, debt financing is becoming an alternative for the founders. “Convertible notes (are) a good option for entrepreneurs (with) confidence to pull off an (equity) round in the next one year or so and discount the notes in that funding round” Ashwin Damera, cofounder at edtech startup Eruditus told ET.