The domestic venture debt market is likely to grow around 4x from $1.23 billion in 2024 to $5 billion in the next five years, according to Ishpreet Singh Gandhi, founder and managing partner of Stride Ventures.
In an interaction with FE, Gandhi said that in the coming years, use of this instrument would be more at the later and growth stages, as compared to early stages now.
According to a report released by Stride Ventures and Kearney on Wednesday, the venture debt market in India has jumped over 15x from $80 million in 2018 to around $1.23 billion in 2024.
Unlike VC funding, where startups assign equity for funding, venture debt is like a loan at an interest rate of around 15-17%.
The high growth of this instrument comes at a time when venture capital investments have been in a slow lane. While VC funding increased from $10 billion in 2023 to $12 billion in 2024, it is still significantly lower than $38.5 billion in 2021.
“As equity capital becomes more selective, venture debt is playing a pivotal role in bridging funding gaps while empowering founders to retain strategic control,” said Apoorva Sharma, managing partner, Stride Ventures.
The report highlighted that around 64% of companies surveyed attribute the surge in venture debt to a challenging equity fundraising environment.
Gandhi added that another reason for the growth in venture debt is the increasing awareness of asset class.
Among all the use cases, the report said that the highest number of companies now use the venture debt proceeds as working capital for day-to-day activities, followed by growth financing and runway extension.
Moreover, the highest amount of venture debt money in 2024 went to fintech sector ($447 million). It was followed by consumer ($295 million) and cleantech ($202 million) sectors.
In the coming years, the consumer sector is likely to get the highest funding via venture debt, owing to the high potential on the back of rising disposable incomes and the growing middle class.
In 2024, the highest amount of debt funding was raised by IPO-bound Bluestone at $61 million. It was followed by $47 million by Ather and $42 million by infra.market.