Bulk Of Venture Debt Deployed In Series D+ Startups In 2022, Says Report

“Venture debt has become one of the key growth enablers for Indian startups," said Ishpreet Singh Gandhi, founder and managing partner, Stride Ventures.

Venture debt is offered to startups, which are backed by venture capital firms. It is primarily a type of loan that is offered to early-stage, high-growth companies through dedicated funds as a complement to equity financing.

Since 2019, capital disbursed through ventured debt in India has grown 2.6 times to about $800 million in 2022, according to the report. These included startups such as The Good Glamm Group, Home Lane, Spinny, Sugar Cosmetics, Yubi, Jupiter, Money View, MobiKwik.

“The rising awareness of this asset class and positive investor outlook has enabled Venture debt to more effectively showcase its non-dilutive characteristics and capacity to unlock growth."

The country’s venture debt market, still at a nascent stage, offers a vast opportunity to grow with the expanding startup ecosystem in the country. Besides Stride, firms like InnoVen Capital, Alteria Capital and Trifecta Capital are key players in the market offering venture debt.

“Founders and companies are clubbing equity rounds with Venture Debt to have better leverage on their books," the report said, adding that its variations such as invoice financing, vendor financing, revenue based financing are also gaining interest.

Going forward, the report said, the business-to-business sector(B2B) is likely to attract the most venture debt capital in 2023, followed by consumer and electronic vehicle sectors.

Fintech, which was the most attractive sector in 2022, is expected to be at the fourth position according to the report, which involved a survey of about 150 founders and investors.

As per the survey, about 71% founders of early stage companies were certain of raising venture debt in 2023, compared to 20% of growth stage firms and 50% of late stage startups. The expectation, however, has come down compared to last year, when more founders in each of these categories were certain of raising venture debt.

The financing tool, amid an increasingly tough macro-environment, allows startups to extend the cash runway of a business, fund working capital and capital expenditure requirements, and acquisition financing, without significant dilution.