Alternative debt provider BlackSoil sees 44% jump in investment in 2023

Venture capital and private equity players may be seeing a subdued year when it comes to investments in startups, but that is not the case with alternative investors like venture debt.

Mumbai-based alternative debt provider BlackSoil has seen its investment go up by 44 per cent in 2023.

BlackSoil’s total invested capital for 2023 (January-November) was Rs 1,075 crore. This was at Rs 745 crore for the same period last year.

These investments were done in over 40 new companies. This took its total portfolio to over 75.

Ankur Bansal, co-founder and director, BlackSoil, believes that entrepreneurs who want to build sustainable business will look at debt as a tool to fuel growth.

 

“Not everyone is raising billions of dollars of equity funding. In our portfolio, we have four companies that have not raised any equity funding for the last four years,” he said.

He also agrees that with equity funding at an all-time low, demand for debt has gone up. BlakSoil’s lead generation has gone up by 20-25 per cent in a years’ time, but Bansal shares that the conversion rate for the company has come down to 8 per cent from the earlier 10-12 per cent.

“This means, the pressure on the team is high so that we pick up good assets,” he added.

Bansal also said that the risk is getting blurred between equity and debt as entrepreneurs are unable to raise funds via equity.

“One cannot just raise debt. It has to be a mix of equity and debt. Entrepreneurs cannot build their businesses on debt, it’s a huge risk,” he added.   

The risk patterns from an investor mindset have also gone up. Bansal said the market has shifted drastically in the last few months.

“Earlier a six-month runway from the fundraise point was considered a good position for a business. Today, that has been stretched to 9 to 12 months. And, if you are on a six-month runway and not raising funds, then you are closing,” he added.

Unlike some other debt players, who have been impacted by bad debts as startups folded or were caught in governance issues, BlackSoil has been more prudent. Bansal said the average internal rate of return (IRR) is 16-17 per cent per annum.

“It’s heartening to see that 80 per cent of our portfolio firms have grown at least 20 per cent or above this year. From 2020 till now, the total corpus raised via equity by our portfolio firms after we came on board has touched $1 billion,” he added.

This is also evident in the exits BlackSoil had. In 2023, the company exited from 20 firms. Some of these include Udaan, Inframarket, Nahar Credit and BankBazaar, among others.