Venture debt player Trifecta Capital to set up Rs 1,500-crore fund 3

Venture debt player Trifecta Capital Advisors LLP will be launching its third fund sized Rs 1,200-1,500 crore by the middle of this year, said a top company executive.

The seed-stage venture capital (VC) fund will be reaching out to limited partners (LPs), such as the Azim Premji Foundation, RBL Bank, and multiple life and general insurance companies, which have been strong supporters of Trifecta in Funds 1 and 2, to raise this third fund.

“We have demonstrated to them that we can be a good custodian of their money. If we continue to perform the way we have, we will get similar support from them in Fund 3 as well,” said Rahul Khanna, managing partner, Trifecta Capital.

The venture debt fund launched in 2014 has so far invested in 72 companies, including nine unicorns, such as BigBasket, Rivigo, Cars24, and Urban Company. It deploys Rs 150-200 crore across five to seven start-ups on a quarterly basis.

It has also closed its second fund recently, which was oversubscribed at Rs 1,025 crore during final closure. Launched in May 2019, with a target of Rs 1,000 crore and a greenshoe option of Rs 250 crore, Trifecta Capital has already deployed Rs 900 crore from Fund 2 in 38 start-ups and will be actively investing from it for another three and a half years.

“Typically in venture debt, you have two funds that run concurrently. One is the primary fund being recycled and then a subsequent fund being called for. Since the company will be able to draw all the capital from Fund 2 by the middle of the year, we will start using Fund 3 for new investments,” said Khanna.

The third fund is likely to have a life cycle of seven years. Venture debt is an additional layer of capital that sits on top of equity funds. The demand for debt by start-ups has gained significant traction since the Covid-19 pandemic outbreak, as companies have realised that businesses can’t be built on equity alone.

“When equity dried up after lockdown and companies started looking for alternative routes of financing, venture debt became a clear winner. Debt is an efficient mechanism to finance working capital and capital expenditure assets, apart from the obvious benefit of no dilution,” says Ankur Bansal, co-founder of venture debt fund BlackSoil, which has seen enquiries for debt double since the pandemic. The firm had launched a Rs 350-crore fund last year, for which it has done the first close at Rs 126 crore.

Another venture debt player Alteria Capital Advisors LLP is also likely to close its second fund of Rs 1,000 crore, with a greenshoe of Rs 750 crore, by the end of the March quarter.
 

“For the second fund, LPs will be predominantly domestic, but we are giving ourselves room to raise money from outside India as well,” Vinod Murali, co-founder and managing partner of Alteria Capital, had earlier said. Alteria Capital has LPs such as Azim Premji Foundation, IndusInd Bank, Small Industries Development Bank of India via fund of funds, and Binny Bansal.

While venture debt is growing in India, it’s still early days. “In India venture debt penetration is only 5-6 per cent of all VC raised, compared to 13-15 per cent in the US. There is a lot of runway in this segment. As the VC ecosystem burgeons, more start-ups will be formed and existing ones will become larger, thereby generating greater demand for capital, including venture debt,” said Ashish Sharma, managing director and chief executive at InnoVen Capital India.