Venture capital, debt funding surpass 2019 levels

The amount of venture capital and venture debt funding into Indian start-ups in the first eight months of this year has surpassed 2019 levels and has recorded new highs.

According to data from Venture Intelligence, 584 firms garnered a total of $20,084.63 million venture capital funding in the January-August period (up to August 24), as against 495 firms attracting $7233.29 million during the January to August period last year. In 2019, 571 companies cumulatively garnered $8075.28 million during the first eight months of the year, much lesser than this year’s numbers.

Jatin Desai, Managing Partner, Inflexor Ventures, said post the pandemic-related slowdown in venture capital activity in the middle of 2020, there is a strong recovery due to vaccination programmes, pent-up economic activity and reduction in Covid cases. Desai added that factors such as the stronger performance of many start-ups during the pandemic, lots of dry gun powder with VC funds to be deployed, public market performance, and a series of start-up IPOs lined up for this year also helped.

Attractive destination

“What has also helped the cause is the continued lower interest rate environment globally, a bit of FOMO among investors to be part of the start-up ecosystem and very importantly the recent Chinese crackdown on their start-up ecosystem has made India the most attractive investment destination for VC funds outside the US,” Desai added.

Venture capital funding essentially includes Seed to Series F investments in companies that are less than 10 years old, and late-stage tech investments. The firms that attracted the highest amount of venture capital funding this year include Byju’s, Swiggy, Eruditus, Pine Labs, and Zomato.

The figures of venture debt funding also paint a similar picture. In the January – August period (until August 22) this year, 36 firms garnered a total venture debt funding of $288.99 million as against 29 firms attracting a cumulative $77.36 million during the January-August period last year. In 2019, 39 firms garnered a venture debt funding of $136.68 million during the same period, according to data from Venture Intelligence.

Venture debt funding includes investment from firms such as Alteria Capital, Trifecta Capital, Stride Ventures, Blacksoil Capital, Anicut Capital and Innoven Capital. Among the firms that attracted the highest amount of venture debt investment this year are Infra.Market, BharatPe, Cars24, DealShare and Practo.

The bull run accelerated both venture capital and venture debt funding, category leaders in the space turned unicorns with the equity infusion during the period, whereas start-ups that needed growth capital but didn’t want to undergo a new equity round due to various reasons reached out to venture debt, said Ankur Bansal, Co-founder and Director, BlackSoil, on the reason for the surge in venture debt investments in the January-August period this year.

Resilience during Covid

“The ones who had showcased resilience during the pandemic pivoted their business models, and maintained sustainable unit economics received more venture debt cheques. Due to valuation haircuts last year, there was an increased awareness and interest amongst founders about the benefits of venture debt as it became a desirable solution for founders to increase their company’s cash runway without diluting their stake or raising funds at an undesirable valuation,” Bansal noted.

Commenting on the dip in venture debt funding last year, Bansal said both venture capital and venture debt firms were cautious due to which overall deal activity slowed down in the start-up ecosystem, and that unlike venture capital firms, venture debt firms focus more on cash flows and sustainability to have visibility on repayment.

“Since many unsustainable business models across sectors were being tested out with high cash burn during the turmoil, venture debt firms had to take a call on recovery. Underwriting became stricter as positive unit economics, cash runway, pivots undertaken became important. Resilient founders and entrepreneurs who came out strong eventually ended up raising the debt and even a larger equity round in the later part of the year as sentiments improved,” Bansal said.

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