VCCircle Startup Walkabout Pit Stop III: InnoVen reveals its investment strategy

Venture debt financing saw significant growth last year, especially as venture capital dried up. Leading the fray in the segment was Temasek-backed InnoVen Capital India Pvt. Ltd, deploying Rs 400 crore (about $60 million) across 43 loans to 35 startups last year. 

In the October-December 2016 quarter alone, it signed deals worth Rs 110 crore ($16 million) across sectors ranging from online food delivery to insurance.

In the third Walkabout session at News Corp VCCircle Startup Summit 2017, the top guns at InnoVen Capital spoke about things that venture debt firms look for while backing a startup. Walkabout is a unique VCCircle initiative under which entrepreneurs get to visit offices of marquee investment firms and hear it straight from their top officials on their investment strategy. 

Ankit Agarwal, associate director at InnoVen Capital, said that investors look to park their money in firms tackling a critical-enough problem. He said the idea or service or product doesn’t necessarily have to be profitable in a year, but it needs to have small margins at the outset. “The business opportunity needs to be defined very well and you need to focus on the targeted addressable market,” he added.

Agarwal also said that founders often say they are the only ones addressing a particular problem, which does not reflect reality. They also need to talk about competition, which they don’t enough of at the moment.

InnoVen Capital usually writes cheques at the post-Series A stage, but it mentors early-stage startups as well.

“We mentor a lot of startups in a passive way, and make fixed returns. We have a portfolio to take care of and we only take risks that are limited, but at least a VC investment should have happened,” Agarwal said.

The venture debt firm has 90 companies in its portfolio that are live, but plays a passive role as an investor. “I will only help if you [startups] want me to. I don’t take board seats and I don’t participate in the strategy,” he explained.

InnoVen is able to connect startups not only with VCs but also PE firms and banks. “We are at the centre of the ecosystem. VC funds end up doing five to six deals a year; we do 30-40. All VC and angel funds talk to us. We are a repository of information,” Agarwal said. 

The venture debt firm is also able to bring together banks and growth-stage companies through a programme. Banks, Agarwal said, are increasingly keen on investing in technology firms, and all of this is done without any commercial arrangement.

To keep track of its portfolio firms, InnoVen looks at the financials on a monthly basis.

The Walkabout was host to a number of startups from various sectors, including logistics, medical devices, healthcare services (an ambulance and blood bank app provider) and even a furniture firm, all of whom had queries on how to pitch to investors, what investors look for and at what stage they should seek funding.

Apart from Mumbai-based InnoVen, Delhi’s Trifecta Capital Advisors, Bengaluru-based Capital Float, IFMR Capital of Chennai and Ahmedabad-based Lendingkart are prominent players offering debt funding to early-stage companies.

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