Venture Debt

In the face of a mounting liquidity crisis in the Indian economy, many banks, financial institutions, and corporates are struggling to secure capital. Surprisingly, one segment that appears resilient amidst this financial tightness is venture debt — a funding model that is rapidly gaining popularity among startups seeking flexible, non-dilutive financing options.

Venture debt operates much like a conventional loan but is tailor-made for startups that often lack the collateral required by traditional banks. This form of funding typically involves a fixed loan term, predetermined interest rates, and scheduled repayments following a short grace period. The standout benefit? It allows startups to raise funds without parting with equity — making it an attractive middle ground between equity financing and traditional debt.

Although venture debt has existed in India since the early 2000s, it has only recently begun to attract widespread attention. The evolving startup ecosystem now sees it as a less cumbersome and more strategic financial tool, especially in turbulent economic times.

The past few years have witnessed a surge in the number of venture debt players entering the Indian market. Prominent names in the space include:

• InnoVen Capital (backed by Temasek)
• Alteria Capital
• Trifecta Capital

High-profile investors strengthening the sector include:

• Azim Premji Foundation
• Sachin and Binny Bansal
• Kiran Reddy
• Institutional investors like SIDBI, RBL Bank, IndusInd Bank

Loss rates remain low at 2–4%, compared to around 30% in venture capital, making venture debt an appealing choice.

• 2017: 47 deals worth USD 1.2 billion
• 2018: 62 deals totaling USD 1.4 billion
• H1 2019: Around 35–40 deals amounting to USD 547 million

• BigBasket — USD 14.5 million from Trifecta Capital (2019)
• Swiggy — USD 5 million from InnoVen Capital (2018)
• Byju’s — Undisclosed funding from InnoVen Capital (2017)
• LendingKart — USD 11 million from Alteria Capital (2019)
• Dunzo and Little Black Book — Funding rounds from Alteria
• Urban Ladder — Multiple rounds from Trifecta
• Others: OYO, UrbanClap, Paper Boat, Ninjacart, Rivigo, Vogo

• Accessibility: Ideal for early-stage, asset-light startups lacking collateral. Lenders assess business potential, IP, and revenue models rather than credit scores alone.
• Less Equity Dilution: Allows founders to retain ownership, especially beneficial for growth-stage companies.
• Slower Equity Markets: With early-stage equity funding slowing down in India, venture debt offers a practical alternative.
• Efficient Capital Recycling: Fixed repayments and structured returns allow venture debt firms to redeploy capital effectively.

While venture debt is not a substitute for equity funding, it serves as a valuable complementary financing option. It blends the benefits of traditional loans and equity capital without the complexities of either. As India’s startup ecosystem evolves, venture debt is set to become an even more integral part of the funding landscape.