What Does This Venture Debt Firm Look For Before Investing in Start-Ups?

Apart from gauging the category position of a company, Trifecta also spends time with equity investors to ensure that expectations are aligned, says managing director Rahul Khanna.

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Having provided venture debt to over 50 companies in the last five years, Trifecta Capital has created a new asset class in the Indian start-up ecosystem, says Rahul Khanna, managing director at the firm.

Trifecta Capital
Rahul Khanna, Managing Director, Trifecta Capital

Trifecta's portfolio includes the likes of online grocery platform Big Basket, beverage maker Paperboat, and India's latest unicorn Rivigo, which provides surface logistics services.

"We look to partner with business in the emerging economy who are creating new categories or are clear leaders in existing categories," says Khanna.

Before investing, this sector-agnostic venture debt firm, apart from evaluating the market and quality of the team running a start-up, also sits down with equity investors to ensure that their expectations from the business are in alignment.

About Misses

According to Khanna, the firm did have situations where it was conservative in its risk assessment and missed out on investing in companies that went to become sizably large.

But as debt providers, it is inevitable that they would pass on some opportunities, he says. "We regularly review our anti-portfolio to remind ourselves of the right balance in assessing risk and some early indicators that we should use to evaluate a business' true potential."

Backing the Entrepreneur

Khanna says it is critical to provide the right kind of freedom to entrepreneurs during the early stages of a company. "We strongly believe that the entrepreneur, as a practitioner, has the best insights into what will really work in the company."

He believes the role of an investor is more advisory, wherein, he acts like a sounding board when important decisions are to be made.

"As investors, we do highlight areas which could be a potential blind spot for the entrepreneur – given our breadth of experience and ability to recognize patterns that we have seen play out in multiple contexts," says Khanna.

"However, the biggest mistake an investor can make is to believe that he or she understands the business better than the entrepreneur," he adds.

Focus On Building a Team

Entrepreneurs often make the mistake of not giving enough focus to building a strong team while scaling up, according to Khanna.

"Bringing in the right talent at the right time allows a business to respond quickly to market forces, scale rapidly, and attract capital," he says.

However, it is also difficult to attract talent during the early stages of a start-up, resulting in the founder taking more responsibility, over-leveraging himself. "We have seen several cases in the wider ecosystem where they are not able to relinquish control, identify the right talent to take over some of their responsibilities, or retain senior talent by affording the right level of flexibility and autonomy to operate in."