SUMMARY
Downrounds and low valuations in equity-based funding or VC money has been a primary concern for startups during the pandemic, fuelling the growth of venture debt
The Indian startup venture debt funding (2015-2020) crossed the $1 Bn mark in the year gone by, on the back of 2X growth in comparison to 2019
The latest Inc42 Plus report presents a one-of-a-kind financial matrix — benchmarking of cash reserves and earning power — of the startups that have opted for venture debt funding.
For decades, venture capital has been the primary source of funding for startups — even the likes of Apple, Facebook, Uber and other Silicon Valley giants built their empires on VC money in the early stages. And In India, the biggest startups such as OYO, Ola, Paytm, Zomato and others began their journey with VC funding. But over the years as the startup ecosystem has matured, alternative forms of capital procurement have also emerged with venture debt rising to prominence this year.
As is the case in the startup ecosystem, 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 reaching $70 Bn across 5,985 deals between 2014 and 2020, the startup ecosystem has reached a certain degree of maturity and therefore venture debt has come into play.
Between 2019 and 2020 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 the pandemic times and given this, 2020 was by far the best year for venture debt funding in India
Our report — Inside India’s Startup Venture Debt Funding Boom — provides a comprehensive study on the historical debt funding trends, average deal size, financial benchmarking of the startups that have gone the venture debt way between 2015 and 2020.
How Venture Debt Has Evolved Over The Years
Going by the deal count alone, ecommerce (30 deals), consumer services (29) and fintech (27) were the most preferred sectors for venture debt funding rounds between 2014 and 2020. This is primarily due to the fact that these sectors combined make 47% of the total funded growth and late-stage startups in India during this time.
There’s another reason why venture debt has grown significantly in 2020. The fact that opting for venture debt investment over equity factors out the possibility of a downround which was a primary concern among established startups raising funds during the pandemic. This was a major catalyst for venture debt.
India’s Most Active Venture Debt Investors
The Indian startup ecosystem is home to approximately 119 unique investors who participate in debt funding rounds, but there are only a handful of pureplay venture debt firms including but not limited to Trifecta Capital, Alteria Capital, Innoven Capital, Blacksoil and Stride Ventures.
The median ticket size of venture debt investment was $3.5 Mn in 2020, 10% compared to $3.9 Mn the previous years.
Our latest report Inside India’s Startup Venture Debt Funding Boom, Report 2020 is the most comprehensive study on the venture debt ecosystem in India. Besides delving into the investment analysis as well as the investor landscape, we have created a one-of-a-kind financial matrix — benchmarking of cash reserves and earning power — of the startups that have opted for venture debt funding.
