Alteria Capital eyes Rs 1,750 crore new fund, going beyond venture debt

(From left) Vinod Murali, Ankit Agarwal, Ajay Hattangdi and Punit Shah, partners at Alteria Capital.

Alteria Capital, one of India’s largest providers of loans to startups, is eyeing a record new fund and looking to going beyond its core product, signalling an appetite for nuanced financial products and maturity in the startup ecosystem

Alteria has received teh market regulator Securities and Exchange Board of India's approval to raise Rs 1,000 crore, along with a greenshoe of Rs 750 crore, it said in a statement.

A greenshoe option gives a fund the option to raise more money than planned, depending on demand. In all, this fund could be nearly double Alteria’s debut fund of Rs 960 crore, which it closed in mid-2019.

Vinod Murali and Ajay Hattangdi started the firm in 2018, coming from Temasek-owned InnoVen Capital, also one of India’s leading venture debt funds. Along with the new fund, Alteria has hired two partners Punit Shah and Ankit Agarwal, who were directors at InnoVen until a few months ago.

“We want to build out Alteria as an institution, beyond just two people. I have known Punit and Ankit for nearly a decade, and having them multiplies our network in the industry virtually overnight,” Murali told Moneycontrol over a phone call.

Venture debt firms generally lend to startups with a payback period of two to four years and an interest rate of 12-14 percent (although these terms vary case to case) in exchange for a minute equity stake or warrants in fast-growing startups, as opposed to traditional lenders who look for asset-backed guarantees.

Alteria’s 28 portfolio companies include milk brand Country Delight, on-demand delivery firm Dunzo, small-business lender Lendingkart, cloud-kitchen firm Rebel Foods and sanitary napkin startup Nua Woman.

Venture debt firms typically back startups that have already raised some venture capital money and rely on future VC rounds and sustained cash flow in the long run to get back their investments.

Alteria’s investors from its first fund (limited partners) include IndusInd Bank, Small Industries Development Bank of India (Sidbi), Azim Premji Foundation and Flipkart co-founder Binny Bansal.

From the new fund, Alteria plans to diversify its approach and go beyond traditional venture debt. For startups it has backed, which have grown into mature companies with sustainable cash flows, Alteria will also provide more traditional lending options from this fund. Rather than the usual equity warrants, companies can provide assets or other traditional modes as security, also bringing Alteria’s offering close to regular banks and non-bank lenders (NBFCs).

“Large startups have better assets, better cash flows but are still not profitable, so banks rarely lend to them but they need something beyond traditional venture debt. So now, with this structured product, we can lend to them without founders having to dilute equity and at a lower cost, because most large startups are solely equity funded today,” Murali said.

The new product will also help Alteria attract investors (LPs) for its fund- banks and family offices who want a low-risk exposure to mature startups. While lending to these mature startups, Alteria also plans to let its LPs fund these firms as well. This gives the startup more sources of debt and gives institutions access to these proven startups that they otherwise may not get

About 20 percent of the new fund will be for this new product, while the rest will be venture debt for early to growth-stage startups. Alteria cuts cheques starting from half a million dollars going up to $20 million, depending on the company’s appetite to absorb debt.

Its fundraise and hiring also indicates the speedy recovery many startups have made from the Covid-19 pandemic, with digital adoption helping many scale new heights.

Moneycontrol wrote in April that many startups have asked venture debt firms for a longer payback period, anticipating months of zero revenue and future uncertainty and while some sectors such as travel have largely not recovered to pre-pandemic levels, many have.

“While there was undoubtedly a fall, the last three months have been even better than I expected,” Murali said.

“Venture debt has evolved over the years with founders and investors having an increasing appreciation for the role played by this asset class through a company's lifecycle. In the next few years, venture debt in India will gradually catch up to global benchmarks and capture a larger pie of all early-stage capital,” new partner Punit Shah said.

India’s venture debt market is largely cornered by three firms Alteria, InnoVen and Trifecta Capital, deploying its Rs 750 crore second fund. While the market has grown steadily, investors still preach caution over regulatory uncertainty, investing in a disciplined manner and want startups to have better corporate governance.

“If companies want to be treated as adults and not young startups, they need better controls, processes and corporate governance. That is something a lot of startups have to work on but we have seen founders be receptive so far,” Murali said.