2024-12-29 17:41:07 :
Venture debt is essentially a high-interest loan to early-stage companies that want to raise money without diluting their equity, or that venture capital turns to when it becomes scarce. To be sure, while venture debt has made significant strides, venture capital remains the primary source of financing for startups.
Fintech has become the top area for venture debt this year, with companies raising $671.1 million in 49 funding rounds, up from $307.2 million in 25 rounds in 2023, according to analytics firm Tracxn.
Equity funding for Indian fintech fell by nearly half as regulatory sanctions and uncertainty in the fintech space kept venture capital funds away. Tracxn data shows that equity financing in India’s financial technology industry fell from US$2.6 billion in 2023 to US$1.6 billion in 2024 from January to November, a year-on-year decrease of approximately 38%.
Apoorva Sharma, managing partner at Stride Ventures, said: “Many of these (fintech) companies have scaled, become profitable and increased retained earnings, which gives us the comfort to offer them Loans, though venture capital funding has slowed,” Venture Debt Firms said.
Consumer startups followed suit, raising $459 million in venture debt across 55 rounds this year, a 10% increase from the $416.4 million in venture debt raised in 2023.
Total venture debt financing in India has increased 10% so far in 2024 to $1.48 billion ($1.35 billion in 2023). This is not only due to the need for non-dilutive financing, but also because equity investors and startup founders remain divided over the high valuations decided during the 2021 startup boom.
Mainstreaming venture debt
Ankur Bansal, co-founder and director of alternative credit platform BlackSoil Group, said venture debt is becoming mainstream for businesses at all stages, from early-stage financing to pre-IPO.
“This is becoming strategic from the perspective of capital efficiency, avoiding dilution and maintaining fiscal prudence at the business level,” Bansal said, adding that startups’ demand for capital will grow by 15-20% year-on-year by 2024. %. Risk debt.
According to Tracxn, the number of venture debt financing rounds will increase from 108 rounds in 2023 to 144 rounds in 2024, an increase of 33%. This is supported by continued optimism about alternative sources of startup financing, as equity funding for emerging companies continues to grow in addition to industry leaders. Scarcity.
“There’s a ‘missing middle,’ mainly because Series B to Series D venture capital activity is more low-key,” says Stride Ventures’ Sharma. Series B equity rounds are typically raised by startups that are mature but haven’t hit their target yet. next stage of growth, while Series D funding is for more advanced companies.
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Sharma said credit flows to venture debt funds this year are directly related to overall venture capital activity in smaller early-stage rounds or later-stage companies that are about to go public. Mint reported earlier this month that late-stage funding has seen a resurgence this year and is likely to continue in the short term as more big companies prepare to go public.
Stride Ventures, which has backed startups such as e-scooter maker Ather Energy, building materials market Infra.Market, trading platform Upstox and online pharmacy PharmEasy, launched its fourth fund earlier this month with a target size of $300 million. , the largest fund to date. Sharma said the company plans to allocate 10-15% of its resources to profitable startups that are not backed by venture capital or private equity firms.
In addition to Stride, venture debt firms Alteria Capital and Trifecta Capital have also raised funds this year. In March, Mumbai-based Alteria announced its third fund in $1,550 crore, while Trifecta launches largest-ever venture debt fund with corpus size of $2,000 crore in August.
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Change industry choices
While venture debt firms will continue to favor sectors such as fintech and consumer startups in 2024, cleantech, once an important segment for such funds, has faced challenges this year, reflecting a strategic realignment across the industry.
Venture debt financing in the cleantech space fell 44%, from $468.6 million in 2023 to $263.4 million this year, although the number of funding rounds rose slightly to 28, indicating that check sizes in the industry are shrinking.
The business-to-business agritech industry has seen a significant jump, raising $61.6 million in venture debt across nine rounds of funding in 2024, compared to just $5.3 million in five rounds last year. However, it remains one of the least funded industries in terms of venture debt.
“We maintain a thoughtful view on agtech. Although the GMV (gross merchandise value) is large, margins are still low, value-added is minimal and technology integration is low, which are some of the issues with agtech.” said BlackSoil’s Bansal.
He said that in recent years, a lot of money has been invested in agriculture, but it has not yet delivered the best return on investment.
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