The venture debt market in India has grown at an annual rate of 22 percent with over $0.8 billion invested in 2022, according to a report by Boston Consulting Group (BCG) in partnership with Trifecta Capital. The report titled Venture Debt – The Rising Tide of Credit in the New Economy delves into the journey of the industry in India and the enablers that will unlock its growth potential.
The report is based on insights from over 40 founders and more than 10 investors in the asset class. It assesses the current state of the venture debt industry in India, prevalent use cases, insights from the startup ecosystem on debt financing and the road ahead.
"While venture debt investments in India have grown rapidly in the past few years to reach over $0.8 billion in 2022, it is still behind mature markets like the US where venture debt penetration in overall venture capital flows is at least 5x as compared to India. This indicates a lot of headroom for growth in the coming years and with the right enablers in place, it can potentially reach $6-7 billion by 2030," said Yashraj Erande, Managing Director and Partner at BCG.
The report also highlighted some of the key findings. Despite a funding slowdown, over 100 venture debt deals closed in CY22, with an average ticket size of over $7 million. Founders have also displayed interest in venture debt as part of their next fundraise, with 66 percent of surveyed founders expressing interest.
Additionally, 73 percent of deals closed in less than two months, and 70 percent of venture debt raised in India is across growth and expansion stage firms, similar to trends in the US. Some of the notable startups participating in venture debt deals in 2022 include StashFin, Rebel Foods, and The Good Glamm Group.
On the investor side, up to 20 percent of the overall portfolio of investors is being allocated to alternative classes. Venture debt has emerged as one of the leading segments driving these investments. Investors have showcased a higher appetite for alternative investments in the last five years. As both global and domestic investors consider increasing their allocation towards private credit, venture debt has emerged as a preferred option.
The report also highlights that venture debt as an asset class is well placed for a healthy growth trajectory given increased awareness, innovative and customised product offerings, broadened pool of investors, and continued regulatory support.
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