Over time, India may be seeing a growing traction of venture debt as a viable capital instrument for businesses. At the same time, what does it take for a venture debt fund to be purpose-led? Can it be truly aligned with sustainability?
According to Rahul Gupta, Founder & Managing Partner at ValuAble, “As a $100 million fund, ValuAble stands on 3 pillars: to create value, deliver on those values and have a belief in ability. Living in a capitalist world means that it’s important to focus on creating value… Typically, from a $100 million fund, we’ll be underwriting checks between $2 million to $4 million and estimate to underwrite approximately 55 unique transactions. We’re targeting healthy blended returns aligned with the market…People seem to like our theme and thesis, but what they’re justifiably demanding is a track record. As people who love cash flows, we intend to invest in companies that have seen validation from VCs… There are certain sectors that we intend to stay away from like gambling, alcohol, tobacco and similar sectors. What’s non-negotiable for us is scale, return and sustenance. Once a company passes through these parameters, we look for companies in 3 cohorts: climate, inclusion and Bharat (India)… We believe that the next trillion-dollar opportunity is going to soon come from Tier-II, Tier-III, Tier-IV and Tier-V… I think what’s going to create a niche for us is that we’re getting into an exclusive partnership with a leading Indian private-sector bank. As a debt fund, we believe that we should play a pivotal role in getting companies ready for bank finance and get banks to come early on their cap table. That’s going to create a differentiation for us, the founders, equity founders and the entire startup ecosystem”.
And as a venture debt focused on sustainability, how is greenwashing being looked at?
Gupta remarks, “This may sound controversial, but I think greenwashing is good, because people are waking up and realizing that their actions translate into habits, which turns into behaviour, which becomes culture, which translates into society. Companies may be forcing themselves to behave in a particular way and coming generations are going to observe what’s going on as natural behaviour. We live in an era of strong governance, but there are people smart enough to bypass that… That being said, one can deceive the market only for a limited period of time, because the market is watching and waiting”.
And why should entrepreneurs pay more attention to venture debt?
“Founders need to build an optimal capital structure and they need to have the right balance. There was a point where equity funds were getting irked at debt funds for underwriting valuations… At best, debt is a build-up to equity capital. Equity and debt need to complement each other… Generally, founders sit in the first equity meeting, but they don’t come for the first debt meeting, because they think it’s a commodity. Founders need to put enough attention to venture debt as an asset class for it gets them ready for financial discipline”, states Gupta.
And what advice could be imparted to those dealing with disabilities in a business landscape?
Gupta opines, “At times, people can get overprotective and on the other hand, they may have some barriers in their thought process. Perception can be the biggest barrier to wisdom… Do not let anybody question your lapses or your mediocrity and owe it to your challenge. One should never get the opportunity to use their disability to justify mediocrity”.
“The ability to take collective responsibility would lead to a much better and evolved world”, quips Gupta.
