Venture Debt Grows As Equity Funding Dries Up | Chennai News
Chennai: Startups may be seeing a funding winter set in as equity venture investors tighten their purses. But venture debt — debt-financing for new age ventures/startups — has started occupying the mindshare of founders and is seeing brisk deal activity.
As macro conditions led to drying up of venture capital investments in the last few months, it has left startup founders in shock, and many startup employees without a job. In such a situation, investors and founders TOI spoke to said more founders are exploring debt options as compared with before the downturn, and investors too are advising portfolio startups to go for a round of debt.
Data from research firm Venture Intelligence shows that venture debt as an asset class has been steadily gaining importance. The first five months of 2022 (as of May 23) recorded 29 deals worth $190 million in venture debt, compared to 33 deals of $136 million in the same half year 2021.
Venture debt typically suits any startup (early or growth stage) that needs money to meet its working capital needs. It can also be used to grow and gain metrics to project a sound position to investors for an equity fundraise, to finance acquisitions/M&As, or for companies that do not want to dilute stake but need funds to extend runways and reduce burns.
“There is a visible growth trend in the preference for venture debt. As raising capital gets tougher beyond series-B, founders who raised last year now hesitate to price their company in this climate and are looking at venture debt for buffer,” Alteria Capital managing partner Vinod Murali said. Alteria Capital has already drawn down around 75% from their second fund of Rs 1,820 crore raised last year. Murali added the pipeline is getting better.
Venture debt marketplace 8vdX co-founder Vijay Lavhale said various new business models have started tapping venture debt after the slowdown starting March. “For instance, biotech is one sector that had not looked at venture debt earlier and we are seeing demand from there,” Lavhale said.
Stride Ventures has observed many late stage companies that were comfortably funded at high valuations now going in for venture debt for the first time. “Companies that have deferred their IPOs are seeking venture debt to bridge the gap between now to the IPO,” Stride Ventures partner Apoorva Sharma said. Venture debt firm BlackSoil noted an increase in inbound queries. “We received over 60 leads cumulatively across April & May, which is a 100% jump in our quarterly leads generation,” BlackSoil co-founder Ankur Bansal said.
As macro conditions led to drying up of venture capital investments in the last few months, it has left startup founders in shock, and many startup employees without a job. In such a situation, investors and founders TOI spoke to said more founders are exploring debt options as compared with before the downturn, and investors too are advising portfolio startups to go for a round of debt.
Data from research firm Venture Intelligence shows that venture debt as an asset class has been steadily gaining importance. The first five months of 2022 (as of May 23) recorded 29 deals worth $190 million in venture debt, compared to 33 deals of $136 million in the same half year 2021.
Venture debt typically suits any startup (early or growth stage) that needs money to meet its working capital needs. It can also be used to grow and gain metrics to project a sound position to investors for an equity fundraise, to finance acquisitions/M&As, or for companies that do not want to dilute stake but need funds to extend runways and reduce burns.
“There is a visible growth trend in the preference for venture debt. As raising capital gets tougher beyond series-B, founders who raised last year now hesitate to price their company in this climate and are looking at venture debt for buffer,” Alteria Capital managing partner Vinod Murali said. Alteria Capital has already drawn down around 75% from their second fund of Rs 1,820 crore raised last year. Murali added the pipeline is getting better.
Venture debt marketplace 8vdX co-founder Vijay Lavhale said various new business models have started tapping venture debt after the slowdown starting March. “For instance, biotech is one sector that had not looked at venture debt earlier and we are seeing demand from there,” Lavhale said.
Stride Ventures has observed many late stage companies that were comfortably funded at high valuations now going in for venture debt for the first time. “Companies that have deferred their IPOs are seeking venture debt to bridge the gap between now to the IPO,” Stride Ventures partner Apoorva Sharma said. Venture debt firm BlackSoil noted an increase in inbound queries. “We received over 60 leads cumulatively across April & May, which is a 100% jump in our quarterly leads generation,” BlackSoil co-founder Ankur Bansal said.
Related Posts
Credit: Source link
Comments are closed.