Stride Ventures’ India Venture Debt Report showed that B2B can replace fintech in 2023 as the most attractive sector for venture debt, closely followed by consumer and electric vehicles (EV).
Out of the total 170-180 venture debt deals recorded in 2022, FinTech emerged as the leading sector with 31 per cent of the share, followed by consumer and agritech sector startups. According to the report, the venture debt ecosystem in India has seen a 2.6 times increase in the debt amount disbursed from 2019 to 2022.
The report also showed that startups at Series D and beyond stage raised the most debt in 2022, while pre-Series A stage startups completed the highest number of debt deals. The survey was conducted with 150 Startup Founders and Venture Capital firms (VCs).
Most active location
Geographically, the report recorded Delhi NCR as the most active location for venture debt deals in 2022, followed by Bangalore and Mumbai. The report also noted that in 2023, 82 per cent of founders said they will strive for profitability and prioritize scaling their startups, while 79 per cent of VCs expressed a focus on profitability, and 21 per cent want to focus on growth. This is in contrast to 2022, when 55 per cent of VCs and 68 per cent of founders focused on growth rather than profitability.
The survey also revealed that 71 per cent of founders of early-stage companies plan to raise venture debt in 2023, compared to 50 per cent of late-stage founders and 20 per cent of growth-stage founders. Additionally, 74 per cent of VCs surveyed would recommend their portfolio companies take on venture debt in 2023. In 2022, 100 per cent of growth-stage founders were certain of raising venture debt, compared to 86 per cent of early-stage founders and 67 per cent of late-stage founders.
The survey results also highlighted that 62 per cent of founders and 44 per cent of VCs consider “engaging with bank limits” as the most important value-added service offered by a venture debt fund, with “advisory on corporate financial services” being the second most preferred service for 28 per cent of founders and 33 per cent of VCs. This is a change from 2022, where advisory on corporate financial services was considered the most important value-added service, followed by “engaging with bank limits”.
Further, the survey showed that agritech, healthtech, and SaaS sectors are receiving fewer venture debt prospects, according to founders and VCs. These findings suggest that founders and VCs in India prioritise profitability and seek venture debt to achieve growth, while also valuing value-added services from venture debt funds.
Commenting on the findings, Ishpreet Singh Gandhi, Founder and Managing Partner, Stride Ventures, said, “Venture Debt has become one of the key growth enablers for Indian startups. The rising awareness of this asset class and positive investor outlook has enabled Venture debt to more effectively showcase its non-dilutive characteristics and capacity to unlock growth.”