BENGALURU: Amid funding winter, there has been a rise in venture debt funds in the Indian start-up ecosystem. As per Boston Consulting Group, since 2019, the Indian Venture Debt market has grown at 22% CAGR with almost $1 billion invested in CY22.
Anil Joshi, Managing Partner, Unicorn India Ventures, said the current investment situation has put many start-ups in a fix on fundraising, mainly due to valuation issues and higher previous rounds, making it difficult for founders to raise an up-round in the absence of a desirable performance Matrix.
“In such situations, debt funds have emerged as an alternate source of capital for revenue-generating start-ups as they offer flexibility on not fixing the enterprise value and at the same time providing liquidity at interest. The current debt round offers an opportunity to all start-ups which are able to raise debt funds to delay the funding round and use the much-needed cash to build optimal operations leading to better investment rounds in future,” he added.
Reports suggest four funds including Kotak Private Credit Fund and Stride Ventures III are reaching interim closure. In May this year, Stride Ventures announced the close of its third venture debt at about $100 million. Alternate financing platform Trifecta Capital launched its first venture debt fund in India in 2015, and has provided over $500 million of venture debt to over 150 start-ups across its three funds.
Somdutta Singh, founder and CEO, Assiduus Global Inc, Angel LP Investor, in several funds, said embracing the venture debt strategy amid the funding winter is akin to navigating a double-edged sword.
“When it comes to start-ups and entrepreneurship, venture debt strategy does emerge as a potential lifeline, offering a crucial infusion of liquidity that allows start-ups to navigate the financial tempest. Venture debt does provide the necessary resources to weather challenges and sustain growth ambitions.”
However, as with any powerful tool, venture debt comes with its own set of risks and complexities. The increased financial leverage that accompanies venture debt can potentially encumber start-ups with debt obligations that might inhibit their agility and creative freedom.
9 debt fund deals closed in first half of this year
Reports suggest four funds including Kotak Private Credit Fund and Stride Ventures III are reaching interim closure. In the first half of this year, nine debt fund deals were closed against five deals in same period last year. In May this year, Stride Ventures announced close of its third venture debt at about $100 mn