Navigating Venture Debt in India | Wework Labs

Explore the resurgence of venture debt in India. Learn its use cases, recent trends, and why startups are choosing this non-dilutive financing option. Discover top venture debt providers in India.

Venture debt is noting a resurgence of late. Over $105 million has been raised in venture debt financing till May this year, in comparison to the $151 million that was raised entirely in 2023. While equity is still a desirable option for many looking to scale their businesses, startups are now increasingly preferring non-dilutive alternatives like venture debt for in some cases.

If you’re looking out for ways to finance your startup idea and aren’t sure if venture debt is right for you? Here’s a quick rundown of what venture debt is, its use cases, and also the most recent trends in the space.

What is venture debt?

Unique to only startups that are backed by venture capital, venture debt is a form of financing designed for early-stage, high-growth companies that are venture-backed. It typically involves loans or lines of credit provided by specialised lenders, which can be utilised to fund working capital or capital expenditures without requiring the company to give up equity (i.e. it is non-dilutive). While venture capital involves investors providing funds in exchange for equity stakes in the company, thereby becoming part-owners and sharing in the financial risks and rewards, venture debt does not involve ownership transfer. Instead, it is a loan that must be repaid, typically within 18 months to three years, with interest. Until fully repaid, it sits as a liability on the company’s balance sheet.

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Use cases for venture debt : Venture debt is most commonly raised by companies in the late stage of their business. The most critical use of venture debt for these firms is in extending your cash runway. Securing venture debt enables you to prolong your cash runway while reducing equity dilution and retaining control over your business. The capital raised through venture debt can be directed towards various growth initiatives, such as expanding sales and marketing efforts, funding product development, or making strategic acquisitions. For some late stage firms raise venture debt at a time when equity purse strings tighten. It provides a financial lifeline during periods when raising equity may not be feasible or desirable. Also Read: why should your startup be in coworking space

Trends in venture debt in India

Last year was a record for venture debt funding in India, with funding through this method crossing the $1Bn mark. Fintech emerged as the sector raising the most amount of venture debt in the country, accounting for about 55% of the deals in the space, followed by consumer (26%), SaaS (Software as a Service) (5%) and B2B (Business to Business) (4%). In stark contrast to the other markets, most of the venture debt deals in India happened among startups that are Series D and beyond, according to a report.

This stark confidence in venture debt particularly in the late stage, comes at a time when early-stage funding in particular is on a downtrend, with investors attempting to refocus their strategies on established ventures with proven business models, making the path harder for early-stage innovators.

The increasing reliance on venture debt among Indian startups is reshaping the funding landscape. As traditional equity funding experiences a downturn, many founders are turning to venture debt as a strategic alternative to bridge funding gaps while preserving ownership. Another report highlights that 40% of founders prefer venture debt for its non-dilutive nature, while 30% value the flexibility of repayment schedules. This shift not only reflects a growing awareness of the benefits of venture debt but also indicates a broader trend towards using alternative financing methods in a competitive market.

It is clear now that venture debt is becoming essential to ensure sustainable growth for startups and sustaining innovation in the Indian ecosystem. Here’s a list of firms from where you can raise venture debt:

• Alteria Capital
• InnoVen Capital
• Stride Ventures
• Trifecta Capital Other notable funds include BlackSoil, Northern Arc, and Varanium Capital, which also cater to the growing demand for venture debt in the Indian startup ecosystem.

What’s your preferred way to raise funds? Let us know! See you in the next WeWork Labs blog.