Consumer and fintech emerged as the top sectors for raising funds through venture debt in India in 2023, leading in both deal volume and total funding raised respectively.
About 190 startups raised a total of $1.2 billion last year, marking a 50% increase. Venture debt globally stood at about $60-65 billion in 2023, according to the ‘India Venture Debt report 2024’ by venture debt firm Stride Ventures.
Fintech led with a more than 55% share of the total investment, followed by the consumer sector at around 25%.
In 2024, founders and venture debt firms expect clean tech, especially electric vehicles (21.6%), consumer (19.5%), and fintech (15.8%) sectors to raise more venture debt, the report said.
Venture debt refers to a variety of debt financing products applicable specifically to venture capital-backed companies. These are growth stage firms that may lack positive cash flow, tangible collateral but have secured investments from venture capitalists.
The robust Indian venture debt landscape is in stark contrast to a decline in venture debt fundraising in the US last year.
Apoorva Sharma, managing partner, Stride Ventures attributed two reasons for the outperformance of the Indian debt market compared to the global market. “One, that the asset class practically started eight years back. So, there was a lot of under penetration, so the momentum of growth was much higher. Second, our LP base is largely domestic. So, we are raising domestic money.”
“Venture debt has actually become a very critical alternate source of financing, especially in the funding winter when venture capital was not actively available,” she added.
Most startup founders believe venture debt should be availed when revenues and growth are stable. “If you take too much debt before proof of concept, before the revenues have started coming, before unit economics is figured out, it can become a burden. So you have to take the right amount of debt at the right stage in order not to burden yourself overtly because at the end of the day that is a capital that you have to return,” said Sharma.
Venture debt-backed consumer startups include Zepto, Chaayos, Rebel Foods, Bliss Club. In fintech, it includes startups like Slice, Jupiter, Turtlemint and Mobikwik.
The report also showed that 61% of founders and 59% of venture capitalists have positive expectations for capital funding in 2024.
Around 163 founders, 90 venture capitalists, and 47 limited partners participated in the survey. Key venture debt firms in India include Stride Ventures, Trifecta Capital, Alteria Capital and InnoVen.
