Equity gets the glory, but sometimes it’s debt that gets the job done. Debt can finance day-to-day expenditures and allows companies to grow without ownership dilution or selling high-cost equity (see, “Banking on the Poor: Using the Off-Grid Solar Revolution to Unlock Low-Income Credit in Africa”).
In India, startups received $1.2 billion in debt financing in 45 deals last year. That was nearly 10% of total startup funding, reports YourStory (see deal-sheet below). In 2017, venture-capital firm Unicorn India Ventures launched a debt fund, while venture debt funds Trifecta Capital, InnoVen, and IntelleGrow all increased investments. Blue Orchard and Triodos Investment Management, two impact funds, also made debt investments in India last year (see, “State Bank of India backs small-business lender Lendingkart”).
Such financing has only recently become available to young Indian companies. “Sometimes, supply creates demand. In the case of debt funding, there was latent demand,” Trifecta Capital’s Rahul Khanna told YourStory. Trifecta expects to deploy $40 million in debt this year.
In the US and UK, venture debt lagged venture capital by about 10 to 15 years. India’s startups may not need to wait as long.