Emerging Entrepreneurs

Providing start-ups venture debt to augment their capital

N Ramakrishnan | Updated on January 21, 2020 Published on January 20, 2020

Vinod Murali, Managing Partner, Alteria Capital   -  N. Ramakrishnan

Alteria Capital looks for enterprise value before writing those large cheques

It was thanks to their experience at venture debt firm Innoven Capital that Vinod Murali and his colleague Ajay Hattangdi were able to hit the ground running when they launched their own venture debt firm Alteria Capital. Their track record made sure that they did not face too much of a challenge in raising funds. Alteria Capital raised about ₹960 crore from a range of investors. It has completed 40 deals in more than 25 companies and with follow-on funding rounds. The company has deployed 70 per cent of the fund, according to Vinod.

Changes in SEBI rules and the desire to do something on their own was what prompted Vinod and Ajay to launch Alteria after quitting Innoven, which was one of the early players in the venture debt space.

Alteria raised money from a number of marquee investors, including the Azim Premji Foundation, SIDBI — through its Fund of Funds programme, and Binny Bansal. The venture debt platform provides these investors an alternative asset class.

According to Vinod, Alteria does not invest in infrastructure, real estate or the industrial sector. “We don’t do old economy. New economy, we are agnostic,” says Vinod. It can be consumer, technology, healthcare, edtech, agritech and fintech. It only looks at companies that have raised equity capital from venture capital firms. Which means, Alteria works closely with VC firms and provides debt to companies that are looking to raise capital.

The financing method

“Stage-wise, we don’t do pre-Series A. We look for a particular level of capital. We come in at Series A and beyond. We start as small as ₹2-3 crore and we go as high as ₹100 crore,” says Vinod. The largest cheque it has written till date is for ₹80 crore, to Lendingkart. Alteria, he says, looks for significant progress and enterprise value before writing large cheques.

“The idea is to look at venture-back companies, which are differentiated, which are reasonably stable in terms of their performance, team and the market opportunity looks interesting. And, a strong investor syndicate which gives us comfort that they will raise more capital,” says Vinod.

 

The interest rate on the loans is around 15 per cent and the loans are typically of 24-36 months. “We don’t do bullets or balloons. We do monthly payments,” he says. The companies may be in Series A stage looking to go to Series B or in Series B looking to go to Series C, when Alteria lends to them. If they raise the next round of equity capital, the debt is safe. But if they don’t raise the next equity round, repaying the debt becomes a challenge. Alteria, according to Vinod, also takes part of the consideration through equity kickers, typically less than one per cent ownership. “If a company goes on improving the enterprise value over a period of time and the founders make money and the investors make money then the equity kickers are valuable to us. It aligns us to the long-term growth of the business and with the founders. If the company is not successful, this is zero. We are happy to role the dice with them and do part and part,” explains Vinod.

Typically, venture debt can constitute 10-30 per cent of a fund-raising round. In India, venture debt constitutes just 2-3 per cent of the market, whereas it is 15 per cent in the US. Hence, there is enormous scope for growth here, says Vinod.

What kind of returns can Alteria’s investors expect on investment? “Going back to my earlier construct where it is fixed income plus some equity kickers, we are targetting about 18 per cent pre-tax. A good portion of that goes as cash distribution every quarter. Today, we are doing about 15 per cent net of expenses distributions to our investors,” says Vinod.

Activate platform

Alteria, according to him, has launched an initiative called Activate, which is a platform where it brings large corporates that need specific problems solved into contact with identified start-ups that can solve these problems. This helps both the corporates and the start-ups. Alteria gets money on the Activate platform where the corporates pay a subscription fee. “We have got more than 10 companies signed up and made more than 100 connections,” says Vinod.

With 70 per cent of its fund deployed, will Alteria raise another fund soon? Vinod says that the advantage they have is that they can recycle capital in this fund by one more turn. “We will end up doing about $250 million worth of deals in this fund (the fund is about $140 million). That is the expectation we have. We have another 18 months of runway into this fund for the corpus. We plan to go to the market later this year for our second fund. It will be a larger fund," he says.

Published on January 20, 2020
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