The Arrival Of Venture Debt

Capital-hungry start-ups are turning to venture debt as increasing frequency of liquidity events make founders realise the true cost of equity capital. Plus, venture debt can be deployed faster, and might even yield greater returns at lower risks.

- Binu Paul

POPULAR CHOICE VENTURE DEBT HAS BECOME A FAVOURITE ALTERNATIVE SOURCE OF CAPITAL WITH FOUNDERS

VENTURE DEBT. Isn’t that an oxymoron? While venture signifies high risk, debt signifies the opposite. But start-up founders seem to love venture debt. In fact, it is fast becoming a multipurpose tool that founders deploy at the heart of their growth strategy. It also means that venture debt funds are able to deploy more capital, faster.

Investors, too, seem to be enamoured by venture debt, if fundraising is anything to go by. The pace at which India’s top venture debt firms are closing their fundraising tells the story of this asset class, and its blistering growth. Take for instance Alteria Capital, which has companies such as Dunzo, Country Delight and Rebel Foods in its portfolio. Launched in 2017, the Mumbai-based firm announced the close of its first fund in July 2019. When it hit the limited partner (LP) market for its second fund in December 2020, the plan was to initially raise funds from domestic investors before reaching out to international LPs in May 2021. But it didn’t have to; by April 2021, the fund hit its final close at ₹1,820 crore, just from domestic investors, says Co-founder and Managing Partner Vinod Murali. At present, this is the largest venture debt fund in India. Alteria, which began investing in March 2018, currently has assets under management of ₹2,800 crore.