Unicorns raising debt rounds. Funding crunch boosts demand for alternative financing, venture debt routes

Bengaluru, October 5 Amid funding crunch, there has been an uptake in alternative funding models like recurring revenue financing and venture debt. 

While recurring revenue financing platform Recur Club saw almost 19x jump in deal flow in last 12 months, venture debt firms have seen almost 100 per cent jump in their quantum of deployment this year as compared to last year.(Recurring revenue financing enables companies to convert their monthly recurring revenue to upfront growth capital.)

Stride Ventures said in the first three quarters of 2022, Stride saw an almost 100 per cent increase in the quantum of deployment as compared to the first three quarters of 2021. Similarly, Blacksoil has disbursed more than ₹680 crore in 6 months of FY23, which is a YoY growth of about 2x in comparison to 6 months FY22 and around 3x growth in comparison to 6 months FY21. 

Adding to this, Eklavya Gupta, Founder & Co-CEO, Recur Club said, “the dynamics in the macroeconomic scenario globally with liquidity squeeze has led to increase in demand for products like Recur Club. In the last 12 months we have seen a growth of 19x in the deal flow and a month-on-month growth of 50 per cent in the last 6 months.” 

Talking about the drivers of this trend, Apoorva Sharma, Partner at Stride Venture told Businessline that in addition to funding crunch, founders are now also deferring their primary capital raise because they are not getting the desired valuations in the current macroeconomic environment. “In order to avoid dilution to a certain extent, if possible, the companies are deferring their primary capital raise and substituting the interim capital requirement with debt,” she added. 

Further, even late-stage companies which had not previously considered taking debt or whose business model did not have inherent requirements like working capital needs to absorb debt are now amenable to having debt conversations. 

Sameer Mansukhani, Partner at Innoven Capital also said, “This year, we are seeing higher deal flow from late stage companies, some of whom didn’t take debt last year because they closed multiple equity rounds. Some of these companies grew rapidly last year and got rich valuations. Now the market has slowed and they are exploring alternative sources of capital like venture debt.”

The increased mix of unicorn and late stage companies has led to higher cheque sizes by venture debt firms. There are more deals above $10 million in the last 18 months. Mansukhani also noted that in the case of larger debt raises, there are multiple firms contributing to the debt rounds.

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