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Unicorn India Ventures, headed by former Sebi chief M Damodaran, has announced its maiden debt fund with a corpus of Rs 600 crore.
"The domestic startup ecosystem is maturing. While there has been a lot of venture equity activity over the past few years, startups are still starved of funds for growth," Damodaran, chairman of Unicorn India Ventures, said today.
The Sebi-registered fund will invest in about 10 venture in a year with an average ticket size of Rs 20 crore, he said, adding the fund will remain invested in a venture for around eight years.
Well-known investor Sudip Bandyopadhyay has joined the fund as a managing partner.
"We will make the first round of investments in the first three years, followed by a second round of investments in the next three years, and a harvesting period of about two years," Damodaran said.
Noting that venture debt is still not very popular in the country, he said "last year there were Rs 700 crore investments in startups. Excluding unicorns like Flipkart and Ola, smaller startups garnered about Rs 300 crore. This indicates that there is a conservative potential of about Rs 50 crore at least for venture debt funding."
High levels of founder dilution, uncertain exit scenarios and limited financing options from banks and NBFCs have made debt financing a need for the startup ecosystem, managing partner Bhaskar Majumdar said.
Venture debt ensures cheaper capital to entrepreneurs, who do not have to bring down their equity for funding. Also, funds give additional runway to cover cash needs, and grow the business. "This also leads to higher valuations.