It seems like over the years, there's a financial instrument quietly gaining traction amongst growth-stage companies in India: venture debt. It may be considered an alternative funding mechanism offering loans and once a niche, it could be emerging as a tool for companies seeking capital without wanting to relinquish too much equity.
So, what's driving interest? What's making venture debt gain popularity as an asset class? According to Dr Somdutta Singh, Serial Entrepreneur, Founder and CEO - Assiduus Global Inc, LP Angel Investor, Advisor Govt of India (Core Committee Member of WEP - Niti Aayog), "The interest is being driven by the relative safety of debt instruments compared to equity, steady income from interest payments and potential equity upside. Additionally, as the startup ecosystem is maturing, I am certain venture debt might become a valuable option for startups looking to complement their capital structure".
"India's surge in startup activity, over the last few years in particular, presents both opportunities and challenges for the venture debt market. Opportunities lie in providing growth capital to promising startups, while challenges include assessing risk and managing defaults. Education, the people involved, standardizing terms & collaboration between lenders, startups and investors can address these challenges", adds Singh.
