Emerging Entrepreneurs

Creating a digital market for enterprise debt

N Ramakrishnan | Updated on April 13, 2020

Gaurav Kumar, Founder and Managing Director, Vivriti Capital   -  N. Ramakrishnan

Vivriti Capital brings together lenders and borrowers

Camp Nou. Santiago Bernabeu. Anfield. White Hart Lane. San Siro. Wembley. You walk into Vivriti Capital’s office in a well-ventilated multi-storeyed office complex on the arterial Anna Salai in Chennai and notice these names on what look like conference rooms. Yes, they are, says Gaurav Kumar, Founder & Managing Director, Vivriti Capital, a tech-enabled platform that allows businesses to raise debt from lenders.

All the conference rooms in the Chennai office, says Gaurav, a football buff, are named after football stadiums. In Vivriti’s Mumbai office, the rooms are named after cricket stadia, adds Gaurav, as we settle down at Camp Nou – Barcelona Football Club’s home ground – for a conversation about Vivriti and its founders. The company’s boardroom is named Old Trafford, Manchester United’s home ground.

Gaurav and Vineet Sukumar had worked extensively on the debt capital market side while they were colleagues at IFMR Capital. Their challenge at IFMR Capital, which later rebranded as Northern Arc Capital, was lack of access to debt capital markets for a number of asset classes such as microfinance, SME finance and affordable housing finance. Having scaled up the business, Gaurav says he and Vineet realised that the need was for debt capital markets to go online, because there was no price discovery happening. The market was largely over the counter. “Our own reflection was that the debt capital market is today where the equity market was 20 years ago,” says Gaurav.

Secret behind the success

Both of them quit Northern Arc in 2017 to set up Vivriti – which means progress or development – as a large digital debt capital markets platform. At that time, enterprises needing to borrow had to shop around comparing offers of various lenders and decide which suited them best. “The way we went about setting this up was to ensure that there is significant skin in the game and we were not setting this up only as a platform,” says Gaurav.

For any provider of capital, he adds, to trust your platform, either you need to have superior risk management for them to put their capital through your platform or you need to have significant acquisition muscle. Many in the retail finance space invest significantly on acquisition, even at the risk of being non-profitable. Vivriti’s founders decided not to follow that route.

Vivriti Capital, which is a marketplace for enterprise finance, has three parts to the platform – CredAvenue, an NBFC and an alternate investment manager. CredAvenue is the online marketplace that brings together lenders and enterprises looking to borrow.

The NBFC, which has raised about ₹660 crore in equity capital in two rounds of funding, will also be a lender on the platform. Vivriti Asset Manager will manage the funds of those who don’t want to be on the marketplace, but would like to participate in the debt market.

According to Gaurav, Vivriti Capital contributes 6-7 per cent of the debt on the platform and the balance comes from investors which are looking at transactions and are ready to participate on a daily basis. CredAvenue would have done nearly ₹30,000 crore of deal flow at the end of last financial year. The borrowers on the platform include NBFCs and housing finance companies, and those from sectors such as food and beverage, healthcare, pharma, dairy and logistics.

The turnover of these customers is between ₹100 crore and ₹1,000 crore. For these customers, the cost of borrowing is lower because the platform provides a whole lot of data to the lenders that enables them to understand the risks better. The borrowers also get access to a range of new products that were not available to them.

Constant credit update

CredAvenue, says Gaurav, is not just a transactional platform. It keeps the lenders constantly updated of their portfolio. People are largely interested in transactions and once a transaction concludes, they lose interest. It is too late by the time they get to know if there is a problem in the company they had given money to or the sector itself is going through turmoil. CredAvenue is different in that it provides a constant credit update on the portfolio to the lenders even if they have stopped lending on the platform, till the last rupee they had given is paid back. “It is not just to do with the transaction. That is our biggest strength. That would not be possible if we were not building this on a strong tech spine,” says Gaurav.

This is a purely tech play, says Gaurav. Technology cannot fully solve the end-to-end underwriting issue, but it helps in execution. It is solving for the lenders to have a credit and portfolio view on the client. The company has a fairly large feet-on-street risk team to monitor and cover the customers. They visit the customers during due diligence, interact with the management to get a clear picture of the business and the industry, and triangulate a lot of data points that the system throws up.

Thanks to this monitoring and the parameters that have been built into the platform, it flags issues whenever there is a deterioration in a borrower’s key parameters. “The immediate reflex reaction of the platform is monitoring, in person discussion, management call, audit, branch visit, portfolio audit and, in the worst case situation, forensic audit,” says Gaurav.

Profile of customers

Whenever a borrower makes known its requirement of funds, a teaser profile of the customer is posted on the platform for the lenders. Interested lenders can get a better idea of the profile of the borrower on request. And, then it is up to the borrower to decide which lender it should go with. The entire conversation happens on the platform. Vivriti gets its income from the borrowers on its platform, as a percentage of the overall debt raised, and it is success based.

According to Gaurav, Vivriti’s focus will be a massive investment on CredAvenue. The tech and data science team has about 60 members and this will be go up to 100 in a year. “Massive investment in tech and data science. That is the future. That is where you will see scale. If you are not able to solve for transactional aspects through technology, I don’t think you can scale in a debt marketplace,” he adds.

Published on April 13, 2020

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