Venture debt is taking wings in India for early stages startups especially at a time when there are concerns of a funding winter. Start-up founders are increasingly considering raising venture debt for their Series A and Series B funding rounds. This comes when equity investors are circumspect about valuations.

For instance, leading venture debt player BlackSoil disbursed ₹680 crore in the first six months of FY23 up nearly 2x compared to disbursements in the year-ago period.

High valuations

“There is an ongoing funding slowdown in the Indian startup ecosystem due to adverse geopolitical and macroeconomic situations, coupled with high valuations of Indian startups. This continues to spook equity investors, and at the same time, founders are unwilling to raise funds at lower valuations. Ultimately, these companies are turning to venture debt to fulfil this temporary funding gap as there is more understanding of the product and the multiple benefits it offers is evident,” said Ankur Bansal, Co-Founder and Director, BlackSoil. He added that start-ups are expected to continue to opt for venture debt as a viable financial alternative even once the “equity winter is behind us.

Vinod Murali, Managing Partner and Co-founder, Alteria Capital, which runs the largest venture debt fund in the country, stated that venture debt as an asset class is becoming mainstream in India. “ Almost every founder is evaluating venture debt as part of their funding rounds. It is getting larger and even more focused in terms of end use and is a lot more relevant these days for companies across stages and sectors. When fear is high, founders want capital in all forms for additional buffer and that is visible today,” he added.

Last year, Alteria raised ₹1,820 crore towards its second venture debt fund and has already deployed 90 per cent of this fund but has the ability to recycle capital for new transactions. Ishpreet Singh Gandhi, Founder and Managing Partner, Stride Ventures, said that over the last three years venture debt has increasingly emerged as an attractive asset class in India.

Coming of age

”Hemant Krishna, Partner, Lakshmikumaran and Sridharan Attorneys pointed out that venture debt in India has now come of age. “A remarkable trend we are seeing is a healthy cross-pollination between venture capital and venture debt. Quite a few venture capital firms are raising dedicated venture debt funds. Traditional venture debt firms now have a better appetite for equity,” he added.

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