Stride Ventures closes Fund II, demand for debt capital on the rise

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Venture debt firm Stride Ventures has announced the final close of its second fund at $200 million (around Rs 1,580 crore), signaling a strong demand for venture debt amid large venture capital investors slowing down fund deployments. 

The fund saw its first close back in August, 2021 and the second fund witnessed participation from banks, marquee family offices, corporate treasuries, sovereign funds, PE funds, insurance firms, and high net worth individuals (HNIs) contributing to its success, the firm said in a prepared statement on August 17. 

Venture debt is a loan arrangement from a lender to a startup without the dilution of shareholding. It is usually given alongside an equity raise or within a few months of a round closing.

Founded in 2019, Stride Ventures invested in more than 20 companies from its first fund including  Infra.Market, Zetwerk and Home Lane. Stride has investments in sectors such as consumer, fintech, agritech, B2B commerce, healthtech, B2B SaaS, mobility & electric energy solutions (EV). 

The venture debt firm closed its maiden fund at Rs 350 crore earlier in 2021. Fund II was set up in May of 2021 for Rs 1,000 crore with a greenshoe option to raise an additional Rs 875 crore.

“Stride Ventures has already committed a large portion of the fund in industry leading startups and our goal is to continue being a preferred lender while developing innovative alternate financing solutions for founders,” said founder and managing partner of Stride Ventures, Ishpreet Singh Gandhi in a prepared statement. 

Interestingly, top venture capital firms even though have slowed down fund deployments have announced raising new funds with a specific focus on early-stage investments in India. 

“Investors are not rushing to invest. Good companies do get the investment at the right time but the VCs are taking a cautious approach…accessing a startup today is very different and strong financials do matter even if it is for early-stage,” said an executive from a venture capital firm requesting anonymity. 

WestBridge Capital, which has backed unicorns such as Lead and Vedantu in recent years, has raised $1.5 Billion to invest in Indian companies. 

Last month, venture capital firm Lightspeed raised a $500 million corpus to fund early-stage startups in the India and Southeast Asia region, as part of a larger $7-billion fundraise to invest in technology companies across geographies.

Sequoia India and Southeast Asia has also launched two new funds, a $2- billion early-stage, venture and growth fund for India and an $850-million dedicated fund for Southeast Asia in June. 

Elevation Capital, Accel India and US-based  investment platform Achieving Women Equity, or AWE, also recently launched their maiden fund. 

“Deals used to close in less than a week that is long gone now…as valuations are correcting and VCs taking a lot of time, venture debt is getting popular in India and globally,” the person quoted above said. 

The amount of debt disbursed through venture debt in India doubled in 2021 to $538 million from $271 million in 2019, according to Stride Ventures’ recent India Venture Debt Report 2022.

As per the report, venture debt's average ticket size was $5.85 million, with 111 deals reported in 2021.

On August 17, Venture debt marketplace 8vdx too announced expanding operations to international markets like Singapore, the United Kingdom and Australia indicating rise in demand for venture debt across the globe. 

Vivriti Capital, a non-banking financial company, has also committed over Rs 5,000 crore of debt financing to startups in India. 

“The current economic environment has made growing businesses more amenable to debt transactions than ever before, giving India's venture lending industry a chance to grow and evolve,” said Apoorva Sharma, partner at Stride Ventures.