At a time when equity funding has declined among Indian startup companies, venture debt as an asset class is set to grow steadily and cross the $1 billion mark by 2023.
According to a report by alternative debt provider Stride Ventures, Indian startup companies raised $1.2 billion in venture debt investments in about 175 to 190 deals last year, a 50 percent increase compared to $800 million raised in 170 to 180 deals in 2022. is more.
Meanwhile, equity funding has fallen by nearly 70 percent from $25.7 billion in 2022 to only $8 billion in 2023, the report said.
Apoorva Sharma, managing director of Stride Ventures, told Business Standard that deals became smaller last year. In the year 2023, the average amount size has come down to $4 million from around $6 million earlier. However, the number of deals has increased and the total investment volume has increased.
However, it is worth noting that venture debt as a category is much smaller than equity funding. A recent phenomenon in the Indian startup world is that it has recorded strong growth despite a relatively small base.
The report said that in the year 2023, most of the debt funding has taken place in the fintech sector, while the highest number of deals have been seen in the consumer sector. The growing demand for debt financing has allowed companies like Stride Ventures to increase their investments.
Sharma said, ‘It has been a good year for us. We closed 110 deals in 2023, making us the most active venture debt company in the industry. We have made more allocation than the previous calendar year. Currently there are 135 companies in our portfolio. Typically the more risk-averse asset classes that venture debt companies shy away from are areas where there is regulatory uncertainty.
He said, ‘We stay away from all such industries which have regulatory pressure. Most of our investments are in sectors like consumer, financial services, B2B and even EVs. We do not have any investments in emerging areas like Web3, Blockchain, AI, real-money gaming, as our returns as a debt instrument are limited. We are not VCs.
First Published – February 23, 2024 | 11:46 PM IST
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