This seems to be the year of debt funding. Over the last three months, startups have raised a massive $774 million in debt, showing signs of a maturing ecosystem.
The investor community has, of late, been looking at the Indian startup ecosystem with a lot more faith and confidence as compared with last year. During January-March, both deal volume and value rose on year and interestingly, the ecosystem saw increased interest in debt funding.
The quarter saw 221 deals worth $2.26 billion being closed, up from 211 deals worth $1.38 billion last year. This number includes PE and debt financing.
As was the case in 2017, during the quarter under review, the top 10 deals accounted for a majority of the deals value. Of the equity deals inked, the top 10 companies raised $1.03 billion, which is 55 percent of the $1.87 billion raised by all startups (not including PE and debt deals). In the March quarter, deals worth $774 million were debt deals. After a decade of going all-equity, Indian startups are increasingly open to debt financing.
Debt funds like Innoven Capital, Trifecta Capital, and the latest Alteria Capital, are becoming more active. Last year, mid-sized companies like BlackBuck sought debt funding, while Unicorns Flipkart and Ola took loans from Axis Bank and YES Bank, respectively.
This trend continued well into the first quarter of 2018. The key debt deals raised by startups included:
- LendingKart raises Rs 30 crore in debt
Bengaluru-based fintech company LendingKart raised Rs 30 crore in non-convertible debentures from Dutch development bank Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden NV (FMO), which invests in growth and frontier markets. This transaction marked the first-ever foreign debt transaction for the company. In a statement, LendingKart said it plans to reach over 950 cities across India.
According to the company, the funds will be used to growing its loan book, and to expand the reach of Lendingkart Finance across SME industries across the country.
2. ReNew Power raises two rounds of debt funding
The renewable energy company has raised two rounds of debt so far this calendar year. ReNew Power raised its first round of debt capital of Rs 2,235 crore from Goldman Sachs in January, and then Rs 1,000 crore from HSBC Bank last month. In 2017, the company had raised a $390 million debt from Asian Development Bank, and $200 million from JERA, a Japanese power company. The fresh funds will be used to refinance the debt of the company’s Amba Wind Power Project in Madhya Pradesh.
3. Curefit raises $10 million debt funding
Health and fitness platform Curefit raised $10 million in debt this year. A major chunk of that is said to have been from HDFC Bank and Axis Bank. Founded by Myntra Co-founder Mukesh Bansal and former Flipkart executive Ankit Nagori, Curefit was launched in April last year, and has already raised $54.6 million funding.
4. Faballey raises Rs 5 crore in debt funding
Noida-based online women’s fashion brand Faballey raised Rs 5 crore in debt funding. FabAlley was founded in 2012 by Tanvi Malik and Shivani Poddar, who quit high-paying jobs in Titan Industries and Unilever to chase their entrepreneurship dream. They sought to fill the gap in fashion that not available in India at affordable prices.
5. Cash Suvidha raises debt funding of $1.5 million
Delhi-based fintech startup Cash Suvidha, which extends business loans, raised debt of $2.5 million, of which $1.5 million was through private placement of Non-Convertible Debentures, and $1 million was from two financial institutions. According to a company statement, the funds will be used to grow the company's loan book. In December 2017, it had raised a debt of $2.7 million from six financial institutions.
6. Furlenco raises debt funding of $1.5 million
Bengaluru-based online furniture rental platform Furlenco raised $1.5 million debt funding from a clutch of investors. Furlenco has been trying to create a market for furniture rentals since 2011. The startup's aim has been to ensure that instead of buying expensive furniture, youngsters can rent premium furniture designed to fit their needs.
7. Ninjacart raises $1 million debt funding
The B2B agritech marketing platform raised debt funding of $1 million. Founded in 2015, Ninjacart initially started out as an on-demand grocery delivery startup, and has now pivoted to a B2B end-to-end agri marketing startup. Ninjacart connects farmers with businesses where they pick up produce from the fields and deliver them to various businesses.
8. Universal Sportsbiz raises debt of Rs 30 crore
Universal Sportsbiz raised venture debt funding of Rs 30 crore led by Alteria Capital. This was part of Alteria’s maiden Rs 1,000 crore fund. Founded by Anjana Reddy, Universal Sportsbiz’s portfolio includes WROGN, a brand co-owned by Virat Kohli, Imara, a women’s wear brand with Jacqueline Fernandez, and Ms Taken, a women’s western wear brand with actor Kriti Sanon.
9. Fingerlix raises Rs 8.5 crore debt funding
Ready-to-cook foodtech startup Fingerlix raised Rs 8.5 crore in debt led by Alteria Capital. The funds will be utilised towards building Fingerlix’s production capacity, expansion of the product suite, and growth into newer markets.
10. Power2SME raises $6.2 million in debt funding
Power2SME, the B2B online marketplace for Small and Medium Enterprises (SME), raised $6.2 million in debt funding. This is the third time that Power2SME has taken debt funding from InnoVen.
One of the biggest advantages of debt funding is that it provides growth capital to companies without diluting stake. Typically, companies opting for debt keep the ratio of debt at 15 to 20 percent. Anil Joshi, Founder and Managing Partner, Unicorn India Ventures, believes debt funding can be used at different stages of a company’s growth.
“Though we have seen larger companies and startups picking up debt capital at later stages, there is a huge opportunity for different startups to pick up debt capital at the Series A levels as well,” he says.
Rahul Khanna, Managing Partner - Trifecta, adds that this year, the team is looking to deploy close to Rs 250 crore in debt funding. He adds that taking into account all peer debt financing funds and Trifecta, there is close to Rs 1,500 crore of debt funding set to be deployed in the market in 2018.
“Debt funding was largely not available to young companies a few years ago. Sometimes, supply creates demand. In the case of debt funding, there was latent demand. Fundamentally, if you look at debt and equity, they both have their roles to play in the building of a company.”
Anil adds that it isn't about debt versus equity, as one cannot replace the other. The idea is to find a judicious balance between the two.