Given limited opportunities in Indian markets and continued geopolitical uncertainty, this is likely to be the next stage of growth for these players, according to executives and industry consultants.
Venture debt involves high-interest loans to early-stage companies that want to raise capital without diluting equity. Startups and early-stage companies typically resort to such debt when venture capital becomes scarce or expensive. Venture debt is typically provided after an assessment of a company’s ability or likelihood to raise another round of equity financing, along with other factors such as cash flow and overall financial health.
To be sure, venture capital remains the main source of finance for startups in India, even as venture debt has gained market share as startups have started looking for alternative sources of funding with the decline in venture funding activity. As a result, one-time debt solutions are preferred that make it easier to raise funds.
Last week, Stride Ventures launched three funds in India, the Gulf Cooperation Council (GCC) and the UK, on the back of raising $300 million in capital over the past six months. To date, Stride has three venture debt funds in India and has backed around 200 startups including BlueStone, Moneyview, Moove, Foxtale, CureSkin, NewMe, Nat Habit and AgroStar. (The six member countries of the GCC are Saudi Arabia, the United Arab Emirates, Bahrain, Qatar, Oman, and Kuwait.)
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Stride Ventures managing partners Ishpreet Singh Gandhi (left) and Apoorva Sharma
While India remains the home base for its venture and growth credit business, managing partner Apoorva Sharma explained that Stride plans to tap into the fast-growing GCC ecosystem and European innovation and finance hubs for its next phase of growth. The Stride funds, which launched around April, are targeting an additional $300 million, bringing the total to $600 million.
synergy of India, Southeast Asia
Stride, BlackSoil and EvolutionX actually follow in the footsteps of Innoven Capital, which started in India in 2008 and has backed over 200 companies including Ather, RenewBuy, Pepperfry, Dailyhunt and Captain Fresh. Over the years, it has expanded its horizons to Southeast Asia (in 2015) and China (2017), becoming one of the first venture debt providers to do so.
The global wing of BlackSoil Group seeks to meet the evolving debt needs of its clientele. The investment firm launched a $50 million credit fund focused on Southeast Asia in August.
“I think there are synergies between India and Southeast Asia in factors such as per capita income, purchasing power, population demographics and entrepreneurial spirit. We see many early-stage companies operating in sectors such as e-commerce, logistics and financial services that are trying to solve very similar problems as India,” Varun Gupta, co-founder and managing partner, told Mint.
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Varun Gupta, Co-Founder and Managing Partner, BlackSoil
Since the cost of equity is even higher than debt, companies will need debt and similar pools of equity to fund growth, Singapore-based Gupta said, adding that BlackSoil will look at regions such as Australia and the India-Middle East corridor in the future.
The overseas push among venture debt firms coincides with several Indian startups looking to tap international markets for the next phase of growth. That, along with the fact that global capital moved to Singapore after the tariff wars started earlier this year, “makes us want to go into those areas,” Gupta said.
India abroad
Nidhi Killawala, a partner at law firm Khaitan & Co, which specializes in venture capital and private equity advisory, confirmed BlackSoil’s view. “Many Indian startups are now being built in India for the world with offshore structures and overseas subsidiaries. Expanding abroad allows lenders to support these global operations, tap into new startup ecosystems and engage with international LPs who prefer to partner through familiar jurisdictions,” she said.
BlackSoil, which has backed companies like Yatra, MobiKwik, ideaForge, Moneyview and Curefoods in India, has disbursed approx ₹8,425 crore across 245 shops and stores ₹1,300 crore in asset management for high-growth companies, according to its website. In April, it received approval from the Reserve Bank of India to merge with Caspian Debt to form an alternative credit non-bank financial entity.
A private equity expert traced the overseas expansion of venture debt companies to two factors: the markets are still young compared to India, and institutional investors or limited partners who back the funds see gaps in those markets. “It is important to note that the Indian venture debt ecosystem itself is currently not that big with 10-12 major players. If three or four funds expand overseas, it is already 25-30% of the total number of players,” said EY India private equity leader Vivek Soni.
Elsewhere, growth-stage debt financing platform EvolutionX Debt Capital, founded by Temasek and DBS, which provides financing to companies across Asia with a focus on India, Southeast Asia and China, is set to make its first investment in the GCC region in the next few months.
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Rahul Shah, Partner, EvolutionX
The firm’s partner Rahul Shah cited several factors that make the region attractive for venture debt: forecast economic growth of more than 4%, government initiatives to grow non-oil sectors and reforms, a young population with high per capita income, digital transformation and strong capital markets.
EvolutionX invests in technology businesses and growth-stage companies in emerging sectors of the economy such as consumer, education, financial services, electric vehicles and healthcare. It has backed companies like LendingKart, Udaan, Mensa Brands, UpGrad and Ola Electric and its ticket sizes range from $20 million to $75 million. This contrasts slightly with Stride and BlackSoil’s strategy of cutting checks in the $2-20 million range with a focus on earlier-stage startups.
Local, outbound support
In contrast, there are venture debt players from India who believe the India-rooted strategy is working well. Vinod Murali, co-founder and managing partner of Indian venture debt fund Alteria Capital, told Mint that the firm continues to believe in the depth of opportunity in the Indian market, but has explored ways to support portfolio companies with overseas operations. “We have relationships in the US and Southeast Asia that can help meet the requirements of our portfolio companies as appropriate,” he said.
“We believe that expansion into another geography must be coupled with local underwriting and market expertise, otherwise it can offer short-term benefits but create long-term stress,” Murali said.
The expansion of other debt funds overseas is a sign that venture debt firms are trying to catch the wave early in places like West Asia, where more early-stage companies are seeking such capital, EY’s Soni said.
“They will go where the startup ecosystem is maturing and venture capital funding activity is strong. Venture debt usually follows VC – entering the cap table to help founders and existing equity holders reduce dilution. So VC funds will target geographies with high startup activity and quality VC participation,” he said, adding that such moves reduce reliance on one market and boost revenue overseas2-3% ecosystem funds even 00 time.
