Not all funding comes with dilution. Some comes with discipline.

A founder I spoke with recently said:

Another founder issued listed NCDs at year four.

Most early-stage founders assume bonds are for big corporates.

But for capital-efficient startups with revenue and reputation, corporate debt—especially bonds—can be a clean, scalable option.

Let’s walk through when bond financing makes sense, how to structure it, and what founders need to watch out for.

Step 1: Understand What Bond Financing Really Is

Corporate bonds (including NCDs) are structured debt instruments.

You raise capital from institutions or HNIs, and commit to:

• Fixed interest (coupon) payments

• Repayment of principal at maturity

• Compliance with listed or unlisted regulatory terms

This isn’t bank lending. It’s private placement of structured debt—with more flexibility and potential scale.

It’s not equity, so you:

• Keep control

• Avoid dilution

• Gain long-term debt on founder-friendly terms

• 
  

Step 2: Know If You’re Ready to Raise Through Bonds

Bond financing isn’t for every startup. You need:

• Profitable or near-profitable operations

• Predictable revenue or contracted cash flows

• Clean financials and creditworthiness

• Compliance readiness (for listed bonds)

Good candidates include:

• SaaS businesses with steady MRR

• D2C brands with positive unit economics

• Lenders and NBFCs needing working capital

• Infra-lite startups with contractual revenue

Ask yourself:

If yes, bonds might serve you better than a term sheet.

Step 3: Understand the Types of Bonds Startups Use

Unlisted NCDs (Non-Convertible Debentures):

• Privately placed with investors

• Flexible terms, minimal public disclosure

• Common for family offices, HNIs

Listed NCDs:

• Regulated by SEBI

• Wider investor access, better credibility

• Requires audited books and disclosures

Convertible Debentures:

• Starts as debt, can convert to equity under certain conditions

• Hybrid approach—gives downside protection to investors

Each comes with trade-offs in terms of compliance, cost, and control.

Choose based on your scale, maturity, and investor type.

Step 4: Build a Bond That Works for Everyone

Before you pitch investors, define your terms:

• Tenure: 2–5 years typical

• Coupon rate: Market range for startups is ~10–14%

• Payment frequency: Monthly, quarterly, or bullet at maturity

• Security: Can be unsecured or backed by receivables/assets

• Redemption terms: Early exit clauses, buybacks, or step-ups

Hire a seasoned legal + financial advisor to structure and register the issue.

This isn’t DIY. It’s precision paperwork.

Step 5: Use Bonds for the Right Purpose

Use bond financing to:

• Smooth working capital cycles

• Pre-fund inventory or receivables

• Finance CAPEX or expansion without equity dilution

• Bridge to next equity round (without flat/down-round pressure)

Avoid using bond proceeds for:

• Burning cash on risky bets

• Unproven growth models

• Delayed monetization plans

Debt is a promise—not a pitch.

Treat it like one.

TL;DR – Too Long; Didn’t Read

• Bond financing gives startups access to structured debt without dilution.

• You need profitability, predictability, and credit discipline to qualify.

• Choose between unlisted NCDs, listed bonds, or convertibles based on your maturity.

• Get the structure right—tenure, interest, repayment—before you pitch.

• Use debt for stability and scale—not desperation or delays.

Bonds aren’t just for giants.

They’re for startups ready to behave like businesses—not burn machines.

If you’re growing sustainably,

raising through bonds might just be your smartest funding round yet.