Venture Debt Fund Alteria Capital Makes Final Close Of First Fund At $140 Mn 

Alteria Capital today announced that it is now the largest venture debt fund in India after it made the final close of its maiden venture debt fund (Alteria Capital India Fund I) at INR 960 Cr ($140 Mn) in a round that was oversubscribed. 

“The fund had initially targeted to raise INR 800 Cr which has been oversubscribed and the final corpus including the green-shoe is INR 960 Cr ($140 Mn),” the Mumbai-based venture fund said in a statement. 

Started by venture debt veterans Vinod Murali and Ajay Hattangadi, who earlier were senior executives at InnoVen Capital, the fund is the beneficiary of the single largest commitment made by SIDBI under the Startup Fund of Funds program of the Government of India with an allocation of INR 157.5 Cr. 

“SIDBI started with a commitment of INR 100 Cr and did a top-up of INR 57.5 Cr, so we are the first fund in India to qualify for a top-up in the fund of fund program said Hattangadi who spoke with Inc42 along with Murali on the day of fund closing. 

The duo has been making a mark in the venture debt industry first with Innoven and later with Alteria Capital, where they helped spread and establish venture debt as an asset among Indian investors and a funding option for startups but this close is their biggest milestone yet. 

Although we didn’t get to speak about milestones, we did ask about why SIDBI would choose to make Alteria one of its top bets?

“After they (SIDBI) established a relationship with us towards the middle of last year, they saw the pace of fund deployment and were quite pleased with it. They also see that the team has demonstrated capability in getting great deals and the fact that Ajay and I have been working together for over a decade,” said Murali. 

More Growth Stage Investments

Alteria Capital’s investors in the maiden fund include several large domestic banks, family offices, and development financial institutions such as IndusInd Bank, SIDBI, Azim Premji Foundation, Binny Bansal and Kiran Reddy among others. 

The fund will target startups across early and growth stages with cheque sizes ranging up to INR 100 Cr and now with the close, the fund will have a sustained ability to write those large cheques which is something that is going to position Alteria deeper into growth rounds of startups, something that Hattangadi confirmed to Inc42. 

Speaking about how things are now changed for the fund, Hattangadi said “the only new nuance is recruiting, we can reach out to a wider range of companies and can contribute more in successive rounds. We have done many follow ons in the past and will now go deeper in funding round (Series A, B, C, D). For example, even  a company that is raising 100 Mn in equity, 10 Mn in debt helps when it comes to the issue of share dilution.” 

Reinventing The Venture Debt Model

Alteria Capital, which has an 11-member team, is one of the few venture debt players in India, which makes the current fund among the largest funds raised domestically in India for early-stage funding. So when Hattangdi talks about reinventing the venture debt model, it probably can have huge ramifications on the sector. 

“The traditional approach has been to provide value in the form of capital and providing an alternate option to equity. But this, not the only important element and things like business connections, connections to service providers, introductions to other startups, etc are equally important,” said Hattangdi. 

Alteria Capital runs a platform called Activate, through which it leverages its network to connect portfolio companies with large corporations, investors and emerging technologies to unlock business and investment opportunities ranging from business introductions to joint marketing & product development programs, and service providers for business development services. The Activate team has made over 100 connections for Alteria Capital’s portfolio companies.

“Venture debt is now an integral part of funding rounds for startups across stages and sectors. There is a better awareness of how the product can be utilised by startups as well as the expectation on returns for investors into the fund. Since we can recycle capital, we will end up deploying approximately INR 1,800 Cr from this fund and we are seeing a very strong pipeline of startups across technology, healthcare and consumer segments to absorb this capital over the next couple of years,” said Murali.

Venture Debt At A Time Of Increasing Market Risk 

When Inc42 had earlier spoken with Murali in October as part of the Moneyball series, he was hoping to close the round in the next three-five months, a target that was reasonable given that Alteria Capital had achieved its first close in 100 days flat and at the time had raised about $84.7 Mn (INR 625 Cr) of commitments. 

It’s taken much longer than that and the reason behind that, according to Hattangadi, is the broader fixed income market that was acted by scandals involving like ILFS and DHL which set back the fundraising efforts by two-three months. 

“After the lull period, investors started showing a higher level of interest in us because they increasingly came to see us as an asset class that is not correlated to issues that broader fixed income is having, so we were able to catch up after that. We wish it would have been a few months faster but we are happy,” said Hattangadi.

This is something that the fund hopes will portion itself suitably among investors and Murali adds that the fund can still provide predictable quarterly income, which is an added bonus not to mention more returns as compared to traditional fixed-income assets. 

In terms of IRR for investors, post all expenses we are expecting it to be between 12%-13%. Conventional fixed income funds provide 7%-8%( like bonds) and we provide 4%-5% enhancement on that,” said Murali. 

Since the fund’s first close in Q12018, it has already committed Rs. 615 Cr of capital to startups of which Rs. 540 Cr has already been deployed across 28 transactions. 

Some of Alteria Capital’s investments include Byju’s, Swiggy, OYO Rooms, Myntra and Firstcry among others.

In May venture debt provider InnoVen Capital raised $200 Mn in equity from its shareholders — Singapore’s government investment firm Temasek and United Overseas Bank while another venture debt fund Trifecta Capital is raising an INR 750 Cr second fund.