Mumbai-headquartered non-banking financial company (NBFC) BlackSoil has raised INR 110 Cr in the first close of its alternative investment fund (AIF), BlackSoil India Credit Fund (BICF).
This is the third alternative investment fund to be launched by BlackSoil after successfully raising INR 480 Cr in the first two AIFs which were focused on the real estate credit asset class.
The funds for the first close of BICF were raised primarily from family offices and high net worth individuals (HNIs). BICF will use the funds for a differentiated credit strategy comprising venture and structured debt, and target startups and companies across mid and growth stages. The fund will look to raise overall INR 350 Cr and complete over 30 deals with an average cheque size of INR 10-20 Cr per investment.
“We are seeing a strong pipeline of startups across technology, healthcare, enterprise and consumer segments with a need to finance their growing businesses, which will continue to grow in the coming years,” said Ankur Bansal, cofounder of BlackSoil.
“We have a strong track record of catering to this segment and have already deployed INR 950 Cr over four years across more than 70 transactions in companies namely: Oyo Rooms, Zetwerk, Spinny, Purplle, Koye Pharma, EarlySalary, LetsTransport, IndustryBuying and iNurture, among others.”
Founded in 2010, BlackSoil claims to have pioneered unique advisory and financing solutions for developers, startups and high-growth companies. The NBFC works with companies at all stages of development through structured lending, fundraising and restructuring, among other solutions. BlackSoil is known for focusing on structured debt for tech startups while it runs a separate realty fund.
According to the company, BICF’s fundraise is an indication of the popularity of debt financing among Indian startups, since it helps them avoid excessive dilution of equity, finance working capital for day-to-day business operations, and increases the runway prior to large equity fundraise.
Hence, through BICF, BlackSoil is aiming to solve the problem of access to finance for high-growth innovative companies backed by marquee institutional investors or established Indian founders, professionally managed SMEs (small and medium-sized enterprises) and lending to firms by offering customised debt.
Though BICF is sector-agnostic, it will specifically focus on companies with a strong cash flow and EBITDA positive.
BlackSoil is sponsored by the family offices of Shashi Kiran Shetty (Chairman, AllCargo Logistics) and Gnanesh D Gala (MD, Navneet Education), both being publicly listed companies with a combined market capitalization in excess of INR 5,000 Cr.
Of late, NBFCs have become a crucial source of capital for startups. Where banks have traditionally been unwilling to lend, NBFCs come in with a deep understanding of the sector and know-how of the local market.
NBFCs Crucial For SMEs & Startups
NBFCs are financial institutions that offer various banking services but do not have a banking license. Hence, a few factors distinguish NBFCs from traditional banks. NBFCs don’t accept demand deposits; they do not form part of the payment and settlement system and can’t issue cheques drawn on itself; deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
In India, NBFCs such as Finova Capital, U Gro and Aye Finance, among others, have focused their operations on lending to SMEs which remain unserviced by the traditional banking system.
Since the ILF&S crisis in September 2018, the NBFC segment has attracted negative sentiment from the investor side. The sector had to face a slowdown in disbursements, reduced capital market borrowing, and more.
While it has been gradually recovering from the crisis, the Covid-19 situation turned the screws in again, bringing newer challenges across the asset side and stressing NBFCs even further.
Amid the pandemic, the Reserve Bank of India (RBI) took several measures to help NBFCs tide over the liquidity crisis. This included relaxation in NPA (non-performing assets) classification and funding through the Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD) and the National Housing Bank (NHB), among other measures.
Lending Set For Boost In India
According to Inc42 Plus estimates, the credit demand in India is projected to be worth $1.41 Tn by 2022. The estimated growth rate in credit demand is 3.73% between FY17 and FY22. However, the Covid-19 crisis is said to be an unprecedented boost to the lending space in India.
Paytm founder Vijay Shekhar Sharma, talking at the ‘Ask Me Anything’ webinar hosted by Inc42, highlighted that lending is one of the biggest opportunities which comes out of these times. “Companies that swing around to the opportunity of distributing unsecured loans and collecting them well, and underwriting them well will become the champions of tomorrow,” he added.