Why BluSmart chose a leasing model and the challenges of raising capital

Ride aggregator BluSmart chose a leasing model for its fleet as convincing individual drivers to invest in expensive electric vehicles (EVs) and manage loans was a tough task, said co-founder Puneet K Goyal.

It was more practical to work with development financial institutions that understand infrastructure, energy, mobility, and ride-hailing, said Goyal, at a panel discussion at TechSparks 2023, YourStory’s flagship tech-startup event in Bengaluru. 

Unlike competitors such as Ola and Uber, BluSmart doesn’t ask individual drivers to buy EVs and instead leases EVs from manufacturers. 

“I can get ten institutions to fund 100,000 cars. It’s easy. And institutions understand depreciation with a capital D. Drivers don’t understand what depreciation is,” said Goyal. 

BluSmart also realised that drivers may not set up charging stations and hence built large charging superhubs. Currently, the company has 1.2 million sq ft of EV charging infrastructure across 33 such superhubs.

“Charging is the bedrock and the founding tenet on which we are really building BluSmart,” said BluSmart’s founder. 

However, with the responsibilities of managing fleet and charging infrastructure, there arises the challenge of capital. 

Investors’ point of view 

Being asset-heavy can be challenging due to the requirement of large capital and the long gestation period before achieving profitability. Hence, venture capitalists (VCs) tend to look at asset-light models, said Apoorva Sharma, Managing Partner at Stride Ventures. 

VCs prefer to invest in areas such as battery management systems, data analytics, and battery swapping technologies, as they align more closely with their RoI expectations and investment strategies, she said. 

However, there are other sources of capital–such as sovereign wealth funds, pension funds, impact funds, and global private equity firms–that find asset-heavy businesses in the EV industry appealing due to the large total addressable market and the expected growth in EV adoption, said Sharma.

Sharma pointed out that VCs are more inclined to invest in companies that go beyond mere assembly of parts and prioritise innovation and research and development. She also said that established players such as Hero Electric, Aether, Mahindra, and Tata dominate the market as they have earned consumer trust, possess significant R&D capabilities, and invest in quality certifications.

Embracing debt

Debt is a vital source of capital for asset-heavy and capex-intensive businesses in the EV industry, which requires working capital and substantial investment in charging infrastructure. 

Sharma highlighted the diverse sources of debt available to EV businesses, including development financial institutions, impact funds, venture debt, non-banking financial companies, and even traditional bank debt. 

“There are various impact funds who have entered this space in a big manner,” she said. 

In May this year, BluSmart raised $42 million in equity and debt funding from existing investors in its Series A2 round, thus bringing the Series A total to $85 million. 

The round included $37 million in equity and the remaining amount in debt, funded by investors including Trifecta Capital, Alteria Capital, and Stride Ventures. 

Sharma also presented the advantages of being a debt player in the EV industry due to the presence of tangible assets. 

She explained that, in the past, the lack of a secondary market for EV financing made it challenging for investors to assess asset value and underwrite loans. 

However, the emergence of a secondary market and data-driven approaches are now improving investors' ability to underwrite loans for charging infrastructure operators and fleet owners and making debt financing more accessible, she said.