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The venture debt strategy appears to be gaining some traction, with four funds that were launched in 2023 already reaching interim close, according to APAC Q2 2023: Preqin Quarterly Update.
According to Preqin, four funds—Nuvama Asset Management (Edelweiss Crossover Yield Opportunities Fund), Kotak Private Credit Fund, Stride Ventures III, and LC Venture Debt Fund—are inching towards interim closure.
According to Venture Intelligence, nearly 13 venture debt deals took place in the first half of 2023 and raised $ 174 million. Online Services provider Stashfin, which provides consumer loans, raised $100 million from InnoVen Capital and Trifecta Capital.
Though venture debt is still in its nascent stage, companies have been hard-pressed for such funds amid the extended funding winter in the Indian start-up ecosystem.
There is a strong demand for debt, particularly in growth/late-stage companies, in the backdrop of a weak equity funding environment. Ashish Sharma, Managing Partner, InnoVen Capital, said.
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“We expect that venture debt funding this year will exceed $1 billion. Many growth/late-stage companies are delaying their next fundraise till they get their financial architecture in line with what the market expects today. Many of them are looking at debt or a combination of an internal round with debt to extend their runway, while they execute towards the path to profitability. We are also seeing strong demand for special use cases like acquisition finance, as stronger companies look to acquire attractive assets (at great prices) and these deals are typically funded with a combination of debt and equity,” he said.
“Venture debt has emerged as an appealing alternative, effectively bridging the financial void for entrepreneurs as they navigate the trajectory toward their subsequent funding round. The present juncture is witnessesing an unprecedented demand for debt financing, surmounting prior thresholds within the past 3-4 years,” Apoorva Sharma, managing partner, Stride Ventures, said.
Stride announced the Stride Venture III fund with a corpus of $200 million. The company already closed $100 million in the first phase.
On investors response to the venture debt category, Sharma said, “Venture debt yields recurrent, tangible, and foreseeable returns, akin to fixed-income investments. Thus, various classes of investors, including domestic investment offices, family treasuries, and analogous entities, have been showing great enthusiasm.”
Funding to Indian start-ups tanked about 77 per cent in the first seven months of 2023 compared to the same period last year.
Indian start-ups recorded $4.4 billion in private equity and venture capital (PE/VC) funding in the January-July period, down from $19.3 billion a year ago, according to data shared by Venture Intelligence. Start-ups in India secured only 344 funding deals in this period against 821 in the first seven months of 2022, data show.
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