Fintechs Turn Favorites for Venture Debt Firms in 2024

Regulatory curbs, uncertainty in the fintech landscape kept venture equity capital at bay

- Mansi Verma

Fintech companies, hobbled by declining venture equity capital investments amid stringent regulatory oversight this year, have found an alternative: venture debt, high-interest loans extended to early-stage firms looking to secure capital without diluting equity.

To be sure, although venture debt has gained significant ground, venture capital remains the main source of finance for startups.

This year, fintech has emerged as the top sector for venture debt, with firms securing $671.1 million across 49 funding rounds, up from the $307.2 million raised in 25 rounds in 2023, according to data from analytics firm Tracxn.

Regulatory sanction and uncertainty in the fintech landscape kept venture capital funds at bay, reducing equity funding to Indian firms by almost half.

Equity funding to the fintech sector in January-November dropped from $2.6 billion in 2023 to $1.6 billion in 2024, down 38% year-on-year, data showed.

"Many of the (fintech) firms have scaled well, become profitable, and increased their retained earnings, which gives us the comfort to lend, even as venture capital funding has slowed," Apoorva Sharma, managing partner, Stride Ventures, a venture debt firm, said.

Fintechs were followed by consumer startups raising $459 million in venture debt across 55 rounds this year, up 10% from the $416.4 million they had raised in 2023.