Startups in the fintech space are expected to lead the way in raising venture debt this year similar to the trend seen last year, according to findings of the survey conducted by venture debt firm Stride Ventures.
Over 45% of respondents said that fintech startups will be most actively raising venture debt this year. About 100 startup founders and venture capital firms took part in the survey taken as part of Stride Ventures' 'India Venture Debt Report 2022'.
Fintech will be followed by startups in the consumer (14.3%), agritech (11.9%), software-as-a-service (SaaS) (9.5%), electric vehicle (EV) (7.1%), business-to-business (B2B) platform (4.8%) and healthtech (4.8%) sectors, said the survey.
In 2021, too, fintech startups accounted for the highest number of venture debt deals and maximum amount received, the report noted. Last year, a total number of 111 venture debt deals were struck and $538 million disbursed, it added. The average ticket size of venture debt deals was $5.85 million in 2021 and the average age of the startups raising venture debt last year was close to six years.
The report also said that 91 companies raised venture debt for the first time last year and most of the startups raising venture debt last year came from Bengaluru (40%) followed by Delhi NCR at 27% and Mumbai at 18%..
Venture debt investments in India have picked up pace over the past five years as it has become a popular instrument for startup founders to raise capital without diluting equity. InnoVen Capital, Trifecta Capital, Alteria Capital and Stride Ventures are the main players in the market and they have been actively raising venture debt funds. Stride Ventures itself marked the first close of its second fund by raising more than half of the targeted corpus of Rs 1,000 crore in August last year. In the past two years, venture debt firms have grown not only to do late-stage funding but they are also developing a sharper strategy for late-stage funding in startups they hope will go public in the next two to three years.
According to the survey, the maximum venture debt deals were made at the Series D and beyond stage at 31 as compared with 16 each at Series B and Series C stages. The number of pre-Series A and Series A venture debt deals was at 17 and 27, respectively. Consequently, Series D and beyond deals cornered the highest venture debt in terms of value as well at $250 million in 2021.
In the survey, 66.7% of the late-stage founders said that they will resort to venture debt this year while 100% of growth stage (Series B and Series C) founders said they will take venture debt. Notably, 85.7% of the early stage (pre-Series A and Series A) founders also plan to raise venture debt this year.
The survey also showed that 71.4% of venture capital firms would recommend their portfolio companies to take on venture debt in 2022 while 28.6% said that they were not sure of recommending. Most venture capital firms (75%) also voted for stable revenues and growth stage as the apt time to raise debt while founders (72%) preferred raising debt in between two rounds of funding.
Notably, for startup founders, cheapest pricing was not the most important factor while selecting a venture debt partner. Instead, most founders (53.6%) preferred flexible structures and quick turnaround time (25%) for resorting to venture debt.
