Furlenco nets $30 million. Here’s the secret to its unusual mix of debt and equity

Photo credit: Furlenco.

India’s furniture rental startup Furlenco has announced that it raised a fresh funding round of US$30 million. Out of that, US$15 million is from equity and US$15 million is pure debt. That’s unusual, especially for a tech startup in India.

The debt that Furlenco raised will go into making new furniture. The equity will go into designing new furniture, technology, and expansion into new cities. So much will go into “being the best design company in the country,” says Sid Talwar, co-founder and partner of Lightbox, the VC fund backing Furlenco.

The reason Furlenco has gone for this mixed funding is its business model.

Furlenco has a vision of being the Ikea of India, explains its founder and CEO, Ajith Mohan Karimpana. What that means in plain terms is that it doesn’t want to be just another aggregator. It designs its own furniture to make people want to rent it.

Some of it are the usual tables, chairs, and beds designed for urban India. Some others are innovations to serve new needs.

For example, Bounce is a sofa-cum-bed-cum-cushions which can be configured in multiple ways. The insight that led to the design of Bounce, explains Ajith, came from talking to young people with well-paying jobs, working for companies like Flipkart and Amazon. They’re happy to buy high-end phones every year or two but not furniture which is a “settled thing” to do. Typically, they have shared accommodation and hate cluttering up the place with furniture that gets in the way of parties. Instead of beds, they prefer using mattresses they can roll up during the day.

Bounce is designed with such a user in mind. “It’s a shared accommodation kind of product,” says Ajith. “It’s a hit. Everyday 10-20 pieces get ordered.”

The need for debt

Furlenco founder and CEO Ajith Mohan Karimpana. Photo credit: Furlenco.

Such a business model, where Furlenco designs and makes its own furniture, comes with challenges. It makes Furlenco more asset-heavy than an aggregator. Funding that fixed asset in a scalable way with equity would become untenable. Hence the need for debt.

But debt doesn’t come easy for a startup. It has to first show it has traction as well as financial discipline and good unit economics.

Three-quarters of the initial funding round of US$6 million from Lightbox went into the fixed assets, says Ajith. But now with the business on sound footing it is able to raise debt and channel all the equity funding into technology, design, and expansion.

The equity funding part was standard, led by Lightbox with participation from Axis Capital of Hong Kong and some high networth individuals (HNIs).

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