Indian startups have seen a meteoric rise in venture debt funding, a report published by Stride Ventures titled India Venture Debt Report, found.
The second edition of this report highlighted business-to-business (B2B) as the most attractive sector for venture debt in 2023 replacing fintech. The two were closely followed by the consumer and electric vehicles sector.
“Venture debt has become one of the key growth enablers for Indian startups. The rising awareness of this asset class and positive investor outlook has enabled venture debt to more effectively showcase its non-dilutive characteristics and capacity to unlock growth,” said Ishpreet Singh Gandhi, Founder and Managing Partner of Stride Ventures.
He also said that the report delivers both a macro and micro perspective on the startup landscape, adding that it gives an overview of sentiments for key stakeholders, offering an actionable outlook on what to expect from India’s venture debt ecosystem in 2023.
The survey—conducted with 150 startup founders and venture capital (VC) firms—accentuates investor sentiments concerning various factors driving the venture debt ecosystem.
According to the report, in 2023, 82% of founders said they strive for profitability and prioritise scaling their startups. While 79% of VCs expressed a focus on profitability, 21% want to focus on growth. This is in contrast to 2022, where 55% of VCs and 68% of founders said they would rather focus on growth than profitability.
It revealed that 71% of early-stage startup founders plan to raise venture debt in 2023 compared to 50% of late-stage founders and 20% of growth-stage founders.
Further, 74% of VCs surveyed recommended their portfolio companies take on venture debt in 2023. In 2022, 100% of growth-stage founders were certain of raising venture debt compared to 86% of early-stage founders and 67% of late-stage founders.
It also states, 62% of founders and 44% of VCs consider “engaging with bank limits” as the most important value-added service offered by a venture debt fund, with “advisory on corporate financial services” being the second most preferred service for 28% of founders and 33% of VCs.
This is a change from 2022, where advisory on corporate financial services was considered the most important value-added service, followed by engaging with bank limits.
According to founders and VCs, agritech, healthtech, and SaaS sectors are receiving fewer venture debt prospects, suggesting they are prioritising profitability, and seeking venture debt as a means of achieving growth, while also valuing value-added services from venture debt funds.
