Fintech emerged as top sector for venture debt funding in 2022, raised $400 million: Report

India’s fintech emerged as the leading sector for raising funds through Venture Debt (VD), accounting for the highest number of deals and the maximum amount raised in 2022 at around $400 million.

However, in 2023, founders and venture debt players believe that Business-to-Business (B2B) commerce startups are going to be the most trending sector for venture debt, followed by Electric Vehicle (EV) segments, said a report by Stride Ventures titled ‘The India Venture Debt Report 2023’.

The report said that while the majority of the founders (around 72 percent) feel that stable revenue and growth are needed before raising debt, 28 percent of founders are also open to raising debt at a post-proof of concept stage.

Venture Debt refers to a variety of debt financing products that are applicable specifically to Venture Capital-backed companies. It is primarily a type of loan that is offered to early-stage, growth stage and late-stage companies with venture capital backing.

Key Venture Debt players in India include Stride Ventures, Alteria Capital, Trifecta Capital and InnoVen. Some of the startups that raised venture debt in recent times include Paper Boat, Pepperfry, Meesho, BluSmart Mobility, Chaayos, Cars24, LendingKart, Jupiter, Perfios, MoneyView and Uni.

The total amount of venture debt disbursed in India in 2022 is up nearly 2.6X from 2019 to around $800 million. In 2021 venture debt disbursals were around $538 million. Venture Debt penetration in India is around 0.8 billion as against $32 billion in the US. At the same time venture capital penetration as of 2022 is around $24 billion.

Talking about the use cases of raising debt over equity, the report found that 40 percent of founders and 56 percent of investors believe that Working Capital is the leading use case of Venture Debt.

“The survey results in 2022 also indicated that the best use case of VD is Working Capital followed by Runway Extension according to both the founders and investors,” the report said.
Around 62 percent of founders and 44 percent 0f investors felt that helping to engage with bank limits is the most important value-added service offered by a VD fund. This is followed by advisory on corporate financial services.