Venture debt firm Alteria Capital has announced the first close of its Fund III (Scheme A) at Rs 1,000 crore, which is the largest venture debt fund to be raised in India to date and expects to do a final close in the next two-three quarters indicating a rise in demand for venture debt.
The total corpus of the fund is Rs 2,000 crore including Rs 1,000 crore of greenshoe option, the firm said in a statement on Monday (October 17). While the company did not mention the details of the limited partners (LPs), it said that the LPs were a mix of domestic investors and high-net-worth individuals (HNIs).
“We have returned about 1x of our previous two funds to our investors and we need another pool of capital to deploy. We are also targeting 18 percent returns to our investors with this new fund (pre-tax, post-expenses),” said Vinod Murali, cofounder of Alteria Capital, in interaction with Moneycontrol.
The third venture debt fund III, Scheme A which received SEBI’s nod in Q2 2022 will continue to back startups that have already raised VC funding and provide them with a range of speciality debt solutions, Murali said.
Fund III will back around 70-100 startups including those that are already covered in the two existing funds, he added.
The fund will largely remain sector-agnostic and will target Indian startups across early and growth stages with cheque sizes up to Rs 150 core. There will be a separate scheme within this fund to provide working capital solutions to startups, the firm said in the statement.
Alteria Capital has assets under management (AUM) of Rs 3,800 crore which combine all its three funds.
“We will remain sector-agnostic with this fund, however, we will stay cautious on Web3 and crypto startups. Certain sectors like consumer, D2C, Agri commerce, healthcare, and electric vehicles (EVs) will see a lot more action,” said Ankit Agarwal, managing partner of Alteria, in interaction with Moneycontrol.
Alteria Capital was founded in 2017 by Vinod Murali and Ajay Hattangdi and has backed over 100 startups including Rebel Foods, Spinny, Mensa Brands, Dealshare, Good Glamm Group, Infra.market, BharatPe, Dunzo, Cars24, Niyo, EarlySalary, and Zepto.
“As a team, we have witnessed the venture debt asset class grow more than 20x in the last 10 years across multiple cycles and we feel humbled to have played a meaningful role in its evolution,” Agarwal added.
Last year in October, Alteria Capital announced the final close of its second venture debt fund at Rs 1,800 crore.
Widespread Use Cases for Venture Debt
The firm plans to launch scheme B which will focus entirely on specific use cases like working capital management.
“We have supported companies that use venture debt for various use cases like acquisition capital, supply chain and more…many companies need short-term working capital and we will have another scheme which will focus purely on specific working capital needs,” Murali said.
Strong Demand for Venture Debt Continues
“This is our third fund in five years which signals strong momentum in the venture debt industry as a growing asset class in India. Consistent, stable returns over the years with strong credit risk performance as well as upside potential from equity kickers has proven to be a healthy combination for investors,” Murali said.
Moneycontrol reported last month that venture debt in India is on the rise, with the total amount deployed growing by 11 percent to $312 million by August 2022, as against $280 million during the same period last year.
While this is largely due to the slowdown in the venture capital market, Murali said that there is a strategic shift happening in the startup ecosystem to opt for debt.
“Early stage is looking better than the growth stage in terms of funding and valuation. There is definitely a lot of dry powder in India for the early stage…however, venture debt is not an alternative for venture capital,” managing partner Agarwal said.
Many startups and founders have understood the venture debt market very well, the whole market has become mature. A lot of companies are raising debt for multiple reasons and the timing is just right for this asset class, added Agarwal.
The fund has also backed companies like Chaayos, Mylo, LBB, Country Delight, Wow Sciences, Ayu Health, Euler Motors, Happay, Medibuddy, Damensch, Exotel, Sunstone Eduversity, Cropin, and Universal Sportsbiz.