Indian venture debt firm Trifecta Capital, on Friday, announced the final close of its second fund, Trifecta Venture Debt Fund-II at INR 1,025 Cr (roughly $150 Mn). The fund was oversubscribed after being launched in March 2019 with a target of INR 1,000 Cr and a green-shoe option of INR 250 Cr.
Trifecta Venture Debt Fund-II has already invested INR 900 Cr across 38 companies and with a provision to recycle capital, will have an investible corpus of up to INR 2,560 Cr.
The company’s first venture debt fund, which it claims was India’s first such fund, was launched in 2014. In its sixth year, the fund has returned over three-quarters of its capital to its investors and is likely to return 100% of the capital by June 2021.
Across the two funds, Trifecta Capital claims to have invested around INR 2,000 Cr in 72 early growth and growth-stage startups. Its portfolio includes unicorns such as BigBasket, Cars24, Dailyhunt, Blackbuck as well as the likes of Pharmeasy, Vedantu, Infra.Market, ShareChat, UrbanCompany, Curefit, CarDekho, Ninjacart, NoBroker, Kreditbee, Dehaat, Turtlemint, Livspace and BharatPe.
“Successfully closing Fund-II during these challenging times is evidence of the performance of our funds and the maturity of the asset class which we pioneered in 2014. Besides consistently beating the quarterly hurdle on returns for over five years across both funds, we have returned a significant portion of our first fund to investors and are building a strong foundation for the future,” said Rahul Khanna, managing partner at Trifecta Capital.
Founded by Rahul Khanna and Nilesh Kothari in 2014, Trifecta Capital provides customised financing solutions for emerging businesses in various sectors such as B2B, consumer services, consumer brands, ecommerce, mobility, edtech, agritech, fintech and healthcare.
Venture debt funds such as those operated by Trifecta, lend money to startups that typically have a steady stream of monthly revenue. Unlike equity financing, where funds are raised in exchange for a stake in the company, debt funds lend money expecting to be paid back after a certain period of time. In some cases, debt financing may be accompanied by equity financing as well.
Amid the Covid-19 pandemic, venture debt became a preferred option for Indian startups looking to tide over the crisis without divesting equity in the process, especially given that investors chased higher equity at a lower valuation in the first half of 2020.
Venture debt usually erupts when the existing venture capital base has reached a certain level of maturity. With the VC money flowing in steadily over the years and reaching $70 Bn across 5,985 deals between 2014 and 2020, the Indian startup ecosystem has reached a certain degree of maturity and therefore venture debt has come into play.
Between 2019-20 there has been a 2x surge in total venture debt funding in Indian startups from $217 Mn to $427 Mn. This clearly underlines the growing prominence for venture debt during pandemic times and given this, 2020 was by far the best year for venture debt funding in India.
Another factor in favour of venture debt funding was that it rules out the possibility of a down round, which was a serious concern among established startups raising funds during the pandemic.
A detailed analysis of India’s startup venture debt funding boom can be found here in our Inc42 Plus special report.