Why Is Venture-debt Picking Pace in India Like Never Before The trend reflects the market's maturity and the increasing sophistication of venture-debt solutions tailored to the needs of companies, according to a recent report

India's venture-debt market surpassed the billion-dollar mark at $1.2 billion last year rising confidence from founders, venture capitalists and investors fuelled deals in the sector, says a recent report by Stride Ventures.

This surge, accounting for approximately 175-190 deals, reflects a Compound Annual Growth Rate (CAGR) of about 34 percent from 2017 to 2023, marking venture debt as a burgeoning asset class in India's financial landscape, the report said.

It added that with a growing preference for one-stop debt solutions that simplify fundraising and financial packages for startups, the trend reflects the market's maturity and the increasing sophistication of venture-debt solutions tailored to the needs of companies.

"This leap signals a shift towards strategic financing, propelling Indian innovation to global prominence. With the market poised to hit $1.8-2 billion by 2026, India's future in the global startup scene looks not just promising but unstoppable," said Ishpreet Singh Gandhi, founder and managing partner, Stride Ventures.

While Fintech dominated the VD landscape in India, capturing over 55% of the total investment, the consumer sector stood second with approximately 25.56 percent investment.

Venture debt space in India

Prominent venture debt firms in India include Stride Ventures, Trifecta Capital, Alteria Capital and InnoVen. Stride Ventures, founded in 2019, has made over 100 investments in more than 15 sectors including consumer internet, fintech, SaaS and B2B. The firm has so far launched three funds. Its portfolio includes Spinny, Sugar Cosmetics, Inframarket, among others. Another prominent firm, Alteria Capital has startups such as Dunzo, Country Delight and Curefoods in its portfolio.

Venture debt was not a go-to choice for startups for many years. How did it change?

"Venture debt is picking up in the startup landscape in India rapidly, as venture debt also becomes a great solution for quick capital infusion for startups at their growth stage. Those founders who are confident about their performance and see long-term value being created won't like to dilute their stake through equity funding at certain stages thus they turn to venture debt," said Mitesh Shah, partner, Physis Capital.

During a panel discussion on 'Debt funding-The State of the venture debt market', at the Entrepreneur 2023 Summit, Vikram Gupta, founder and managing partner, IvyCap Ventures, said, "As an equity investor, we are seeing 10-12 term sheets coming from different venture debt funds. It's important to see what differentiates one from the other. And they are building their own differential strategies. They bring very different kinds of value to the table which is good for the ecosystem as entrepreneurs are matured and they know who they should choose as their partner and it's only building up."

The reason behind the increasing popularity is the general rise of the startup ecosystem. As more and more startups reach growth or late stages, venture debt is coming to the fore. "Done along with or after an equity round, venture debt funds broadly provide high teen returns to investors. About two-thirds of the returns come from fixed income.

Investors are opting for Venture debt as an asset class because of the low volatility in returns and the equity kicker can outperform enabling the upside can be far greater," said Ankur Bansal, co-founder and director, BlackSoil.