Fundraise through venture debt up 50% in 2023; equity funding down 70%

At a time when equity fundraising among Indian startups has nosedived amid the so-called funding winter, venture debt as an asset class grew steadily to cross the $1 billion mark in 2023.

Indian startups cumulatively raised $1.2 billion in venture debt investments across around 175-190 deals last year, a 50 per cent rise from $800 million raised across 170-180 deals in 2022, according to a report by alternative debt provider Stride Ventures. The equity funding fell around 70 per cent from $25.7 billion in 2022 to just $8 billion in 2023, it said.

“The deals became more granular last year. In 2023, the average cheque sizes went down from around $6 million earlier to $4 million. However, the number of deals has increased and the overall quantum of investments has gone up,” Apoorva Sharma, Managing Director, Stride Ventures, told Business Standard.

The venture debt as a category is much smaller compared to equity funding and has registered strong growth on the back of a relatively smaller base.

Most of the debt funding went into the fintech sector in 2023, while the consumer sector witnessed the largest number of deals, the report said.

The increased demand for debt financing has allowed firms like Stride Ventures to increase their investments.

“It was a good year for us. We did 110 deals in 2023, making us the most active venture debt player in the industry. We disbursed more than what we did in the previous calendar year. We currently have 135 companies in our portfolio,” Sharma said.

Traditionally a more risk-averse asset class, the venture debt players tend to shy away from sectors that have regulatory uncertainty, she said.

“We stay away from all such industries that have a regulatory overhang. Most of our investments are in sectors like consumer, financial services, B2B and even electric vehicles (EVs). We have zero investments in emerging sectors like web3, blockchain, AI, real-money gaming, because, as debt instruments, our returns are capped. We are not a VC,” she said.

The year 2024, however, is expected to pan out better for venture debt, as markets recalibrate. Stride Ventures plans to increase its investments this year, both in terms of the number of deals and total quantum, primarily in sectors like EVs, consumer and financial services.