Venture debt is rapidly expanding in India, with larger funds closing and more in market as fundraising dries up
Venture debt is rapidly expanding in India, with larger funds closing and more in market as fundraising dries up
Venture debt is attracting attention in Asia, since volatility in equity markets and falling valuations have made venture capital trickier and more expensive to access. With its roots in Silicon Valley in the 1980s, venture debt is a specialized loan product for early-stage, high-growth companies, offered by specialist lenders such as Silicon Valley Bank. Venture debt sits alongside equity investment and can be used to finance acquisitions, for capital expenditure and as a bridge between equity rounds.
North America dominates the global venture debt space, accounting for $13.4bn, or 56%, of the global total AUM of $23.8bn (as of March 2022). However, APAC-based venture debt AUM has also grown significantly, standing at $3.9bn, also as of March 2022 and almost double that of December 2019. Venture debt disbursed in APAC in 2021 stood at $12.1bn, nearly four times 2018’s $3.2bn (Fig. 1).
Within APAC, there’s greater awareness and active participation in India’s venture debt space. India-based venture debt AUM stood at $1.2bn as of March 2022, with $0.4bn of that dry powder. The country is home to some of the largest funds being closed (Fig. 2), and in market (Fig. 3). Most of the region’s active venture debt managers are based there.
Here’s a look at the top five venture debt managers in APAC:
1. Malaysia Debt Ventures
Malaysia Debt Ventures was established by the Malaysian government two decades ago to provide term loans or revolving credit facilities for VC-backed start-ups in information and communications technology (ICT), biotechnology, and green technology. Companies must have undergone at least one round of VC funding to be able to get venture debt loans from Malaysia Debt Ventures. It raised $955mn in the last decade and is currently raising the Malaysia Debt Ventures FinTech Fund, with a target of MYR 300mn ($64mn).
2. Alteria Capital
Alteria Capital, headquartered in Mumbai, lends to start-ups in agtech, edtech, and fintech verticals. It raised $139mn for the Alteria Capital fund in 2019, $243mn for Alteria Capital II in 2021 and has completed raising $120mn for the first close of Alteria Capital III. The firm provides venture debt to Indian start-ups in various industries, typically in the e-commerce and mobile apps verticals. Its most recent venture loan was extended to cloud kitchen brand Rebel Foods, which became a unicorn in 2021 after raising $175mn in a series F funding, led by the Qatar Investment Authority. Rebel Foods’ investors include banks, wealth managers, and family office Premji Invest.
3. Stride Ventures
New Delhi-headquartered Stride Ventures recently closed $200mn in August for its fund Stride Ventures II, two years after it closed $50mn for its maiden fund Stride Ventures in 2020. The fund lends to growth-stage start-ups with existing operational cash flows that are already VC-backed. It’s currently backed by the Small Industries Development Bank of India (SIDBI), a state-owned bank.
4. Trifecta Capital
India-based Trifecta Capital has raised $215mn in venture debt since 2015 under the series Trifecta Venture Debt Fund. It lends to emerging Indian companies that are technology-enabled, VC-backed and show potential for high growth. These include e-commerce platform GlobalBees Brands and cloud kitchen platform Curefoods.
5. InnoVen Capital
Temasek Holdings and UOB bought Silicon Valley Bank’s India business in 2015 and rebranded it as InnoVen Capital. InnoVen has disbursed over $900mn-worth of loans to start-ups across India, China, and Southeast Asia. Last year, the firm committed $50mn to anchor its new SEA fund and is seeking additional investors.
For early-stage companies across India and Southeast Asia, venture debt provides an alternative source of capital that avoids dilution of shareholder equity and can be leveraged to achieve targets set by equity investors. Most recently, global money transfer company Wise secured GBP 300mn ($355mn) from Silicon Valley Bank UK as working capital to expand its business.
For investors, venture debt offers the prospect of higher returns than other debt investments, and less risk than equity. Venture debt loans typically have shorter tenures, so investors see returns sooner. Venture debt is a niche product but given the attractions to borrowers, lenders, and investors, one that is set for continued growth.
Overall, private debt in APAC is nascent but expanding as tighter bank-lending conditions increase demand for capital from companies. In our latest report Preqin Territory Guide: Private Debt in APAC 2022 (China, India, and ASEAN), we delve into the emerging Asian economies where private debt has been growing fast. Discover the largest private debt funds closed and in market right now, the key fundraising figures, and the investors allocating to the asset class.
Power your deal-making with accurate and comprehensive private market data and intelligence on investor-backed companies. Get a complete view of the private capital lifecycle with interconnected company, fund and performance data. Find out more about Company Intelligence today.