Asset Leasing: A Great Way to Invest with Smart Startups

In the ever-evolving world of startups, asset leasing has emerged as a promising method for businesses to raise capital. For investors, this offers high-yield opportunities. In this blog, I will share my experience & opinions about the concept of asset leasing, its advantages, and potential risks, while highlighting startups utilizing this model.

What is Asset Leasing?

Asset leasing is essentially a form of debt for a business. Investors, instead of owning equity, purchase & own assets such as electric vehicles (EVs), vending machines, or EV batteries. The company operates these assets, generates revenue, and repays investors on a monthly basis. Returns on investment typically range from 15% to 25%, with tenures varying between 1 to 10 years, depending on the business & asset type.

How Asset Leasing Works

1. Investment by Retail Investors: Investors purchase assets or fractions of assets through platforms, starting with amounts as low as ₹50,000.
2. Startup Operation: The startup uses these assets for revenue generation—for example, operating EVs as taxis.
3. Monthly Repayments: Startups repay investors in monthly installments, including both principal and interest.

Why Startups Prefer Asset Leasing

1. Cost-Effective Capital: Asset leasing provides startups with cheaper capital compared to bank loans, venture debt, or equity financing.
2. Fast Growth while preserving Equity: This enables startups to reach significant revenue milestones, such as ₹10–50 crore annually & save meaningful equity for larger rounds like Series A.
3. Networking Advantage: This model offers one of the biggest benefits of Angel Investments – Wider Network & fosters word-of-mouth promotion among retail investors.

Why Investors Prefer Asset Leasing

1. Lucrative High Returns: IRRs ranging from 15-30%.
2. Reduced Risk Visibility: Monthly repayments ensure partial capital recovery in the adverse situation of the startup failing.
3. Steady Cash Flow: Investors receive regular income, which can be reinvested in a systematic manner (SIP) or utilized for personal expenses.

Disadvantages of Asset Leasing

1. No Compounding: Unlike stocks, asset leasing investments do not compound; the effective annual return (CAGR) is much lower than IRR. (IRR of 25% usually translates to 12% CAGR. It can be compared to the difference between an FD 0f 9% and a Loan of 9%. Net amount is quite different in both).
2. Cash Management: Monthly repayments can accumulate as idle cash if not reinvested.
3. High Risk: These are startup investments, inherently riskier compared to traditional options like stocks or bonds.

Popular Startups Leveraging Asset Leasing

1. BluSmart (Taxi): Investors fund electric taxis. I have invested in this via 3rd party (Grip Invest). BluSmart has reportedly raised over ₹100 crore via their Asset Leasing Program called Assure.
2. Daalchini (Vending Machine): My estimate would be that Daalchini has raised over ₹40–45 crore. I have invested in this twice.
3. Race Energy (EV Batteries): Specializing in EV batteries, Race Energy has raised ₹8 crore and offers tenures from 3 to 5 years, and IRRs from 17 -30%. 
4. Machaxi (Sport Centers): Investors fund sports facilities such as badminton courts, pickleball courts, swimming pools etc. These are long-term projects with tenures up to 10 years. I have invested in this.
5. Celsius (Refrigerated Trucks): Celcius provides end-to-end supply chain solutions, including transport, warehousing, last-mile, and hyperlocal delivery services across the cold chain network.
6. Zypp Mobility: an EV-as-a-service platform offering electric vehicle rentals along with delivery services through its e-scooter fleet for gig workers.

Franchise-Owned Models: A Growing Trend

Some startups offer Franchise-Owned, Franchise-Operated (FOFO) models alongside asset leasing (which is similar to FOCO model). While FOFO requires operational involvement, it can deliver returns much higher compared to passive asset leasing investments (FOCO). Some startups offering these are

1. Daalchini: Daalchini offers both FOCO and FOFO model. (I have invested in FOCO, as I find FOFO operationally heavy)
2. Elefant: A unique concept offering premium toy libraries operated by women entrepreneurs. Investors earn through revenue-sharing models. 
3. BatterySmart: Battery Smart provides advanced lithium-ion batteries & swapping stations for electric two and three-wheelers. Investor partner invest & operate their battery swap stations. 

Tips for Prospective Investors

1. Conduct Due Diligence: Research the startup’s business model, financial health, and market potential.
2. Plan for Cash Flow: Have a clear strategy for reinvesting or utilizing monthly repayments.
3. Diversify Investments: Spread your investments across multiple startups and sectors to mitigate risk.
4. Understand the Risks: Startup investments are super risky; be prepared for potential losses.

Conclusion

Asset leasing is a dynamic investment avenue, offering retail investors the opportunity to participate in the growth of innovative startups while earning attractive returns. However, it’s essential to approach this investment with caution, conducting thorough research and aligning it with your financial goals.

Are you exploring asset leasing or have questions about this investment model? Share your thoughts in the comments or reach out for more insights. If you found this blog helpful, don’t forget to share it with others interested in innovative investment opportunities!

DISCLAIMER: This blog is not an investment recommendation. Its purpose is not to promote or demote any company or investment. Its purpose to share personal experience in unbiased form so other fellow investors can learn & take better informed decision for themselves. I am not a registered financial professional. For any investment advise, please take help from a registered Financial Professional.