What Is Venture Debt Funding in India and How Does It Work?

Collateral, profitability and repayment history are typically the priorities of traditional banks when it comes to grants for business loans. Venture debt investors take a different investing stance. They judge the quality of a startups' institutional investors, how quickly it is growing, how it is doing on revenue, its cash runway and the chances of obtaining additional funding.

Venture debt is provided in India through specialist category of funds which are registered with SEBI as Category II Alternative Investment Funds (AIFs) and NBFC under the RBI. Some providers have more than one structure. Some of the top players in the market include Trifecta Capital, Alteria Capital, Stride Ventures, InnoVen Capital and BlackSoil Capital.

A venture debt facility is generally a term loan wherein the loan is paid back over a period of time. A few lenders offer a grace period where interest only is paid for a period of time, followed by principal payments. Warrants can also be part of the agreement, where the lender can also share in the company's future equity gains.

Typical Venture Debt Terms in India

The terms vary according to the lender, startup stage, investor backing, sector and risk profile. The following ranges are indicative rather than standardised market rates.

Venture debt is commonly used to extend runway after an equity round, finance inventory or equipment, support business expansion, bridge the gap between funding rounds and finance acquisitions.