The Rise of Venture Debt

Startups increasingly turned to venture debt funds to raise capital, making 2020 one of the best years for the VC debt industry

- POOJA SARKAR

Last July, in the middle of the pandemic, Vinod Murali and Ajay Hattangdi began working on their second fund. By September, the co-founders of Alteria Capital had applied to the markets regulator to raise their second venture capital (VC) debt fund. It is looking to raise ₹1,000 crore with a green shoe option—a top-up that one can do to their base amount—of ₹750 crore.

A venture debt fund lends money to startups. When a startup is raising equity capital, the founders usually raise a component of debt alongside the equity, which is known as venture debt. Traditional sources of capital like banks are wary about lending to loss-making companies, and that’s where VC debt funds step in. So do a lot of fintech lending firms, but traditional VC debt funds lead the race when it comes to financing new-age companies. While an equity investor stays put for four to eight years, debt providers usually have a tenure of 24 to 36 months.

Venture debt is almost 12 years old in India, and both Murali and Hattangdi have managed to ride the cycle from its early days. Hattangdi had joined Silicon Valley Bank (SVB) India Finance Ltd in 2007 and drew up its business plan. Later, he applied to the regulators to get a non-banking finance (NBFC) licence to launch the venture debt vertical. Murali and Hattangdi looked after the business from 2008.

A LOT HAS HAPPENED SINCE THEN