From a venture debt fund to a tech-driven financial solutions firm – the journey of Trifecta Capital

After being a pure-play venture debt fund and working closely with large and small startups for the past five years, Trifecta Capital realised startups needed help in terms of financial management, deployment, and managing cash flows. There was no customised, simple, and comprehensive tool to help these companies manage the treasury the way they wanted to. 

This led the homegrown venture debt provider to build a comprehensive tech platform last year to give startups customised treasury management - advisory, execution of funds, monitoring, and rebalancing; early vendor payment systems - payable management, debt structuring for vendors and dealers, working capital financing; and integrated AR and AP platform - digitised receivables and payments reconciliation. 

In the last twelve months, Trifecta claims its tech platform has helped multiple businesses manage their treasury better. According to the venture debt fund, the COVID-19 crisis has also accelerated the need for such solutions as companies are struggling to fortify their capital structure and manage their finances better.  

With two active funds and an investible corpus of approximately Rs 3,000 crore, Trifecta is now working with over 20 companies and VCs, advising on the efficient deployment of hundreds of crores of treasury capital. 

Trifecta’s list of portfolio includes Bigbasket, Vedantu, Rivigo, CarDekho, Cure.fit, Pharmeasy, Urban Ladder, etc. 

Explaining how the platform works, Rahul Khanna, Co-founder and Managing Partner, Trifecta Capital, says, 

“This is like a CFO workbench where you can see your stock of money, flow of money, and decide how to manage it. If you want to provide some early payment incentives to your vendors, you can open the interface and work around those.” 

Rahul adds: "They also have have tools to manage your receivables and you know when which parts of the accounts are going to be in trouble and you should focus your energy on collections. So far, everything is run on excel. What we are trying to do is give you this one-stop-shop to manage your finances from the lens of a CFO.” 

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How does the platform work?

Rahul says, “As a diligent investment manager, we do not merely react to crises, but respond to them. In March, amid a mood of general panic and uncertainty, we helped our portfolio with thoughtful frameworks of crisis management and cash flow planning.”  

“We could clearly identify companies where additional capital support was required. We then worked to provide this support in partnership with both new and existing equity investors in each business, helping our companies prepare an additional margin of safety,” he adds.

According to the team, Trifecta’s tech platform is helping startups analyse the cash flow and addressing the working capital gaps. The capital is then deployed so that it is available on the date of requirement. There is also an algorithm-led fund selection to match the duration and give periodic reviews for rebalancing. Trifecta is primarily sector agnostic with its investments across ecommerce, edtech, and fintech.

The platform analyses the underlying portfolio for each fund/ instrument, works to eliminate unrated/low rated exposure, and review quarterly for any credit changes. It also analyses expense ratios, fund selection as per duration, and maximise weighted average yields. 

As of now, the integrated platform is providing curated products like bank FD advisory, debt mutual funds, bonds, and corporate deposits for capital reserves. Trifecta claims the platform is a DIY online corporate execution platform with 24*7 portfolio monitoring, latest research and analytics, and multiple reporting formats. 

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From debt fund to offering tech solutions 

Trifecta Capital was founded by Rahul Khanna and Nilesh Kothari in 2015. According to them, when Trifecta was started, the Indian startup ecosystem was just evolving and growing, and debt funding was not very popular. 

Venture debt provides capital to founders without diluting their stake in the company. Typically, companies opting for debt keep the ratio at 15 to 20 percent. 

Rahul and Nilesh, who collectively had 40 years of experience in investing, lending, and operating experience in institutional platforms, realised traditional banks wouldn’t provide loans to startups. 

“We started Trifecta when we saw a credit gap in the market, and we opened a debt fund to deploy credit. As the startup ecosystem evolved, we saw a certain maturity towards debt financing and we realised there was a need to solve larger gaps,” says Rahul. 

While companies started growing, they were looking more at the product, tech, and marketing, explains Rahul. The founders were less focussed on managing cash flows and balance sheet, and so it was a natural progression into getting into the role of providing financial solutions, he adds. 

In 2015, Ratnakar Bank Limited (RBL) agreed to partner with Trifecta. After receiving approval from the Securities and Exchange Board of India (SEBI) in April 2015, they looked at multiple set of investors - insurance companies, endowments, development finance institutions, and family offices. Till now, Trifecta has invested over Rs 1,600 crore.

“We are thus building a technology backbone that will streamline financial management for startup founders and CFOs. This segment has been traditionally underserved by banks / intermediaries, and we are in a unique position to provide transparent, unbiased advice and tools,” says Rahul. 

He adds that when it comes to financial engineering, they play a complementary role to VCs who tend to focus on profit and loss (P&L) management, while they take a broad approach to help improve balance sheet and cash management.

“We met our target commitments for our second fund in the middle of a global pandemic, and are now in green shoe territory. We have also started returning capital in Fund-I, both principal and capital gains, to investors – a critical sign of the maturity of the Venture Debt Fund model that we pioneered,” says Rahul.

Speaking about how Trifecta has helped them, Vipul Parekh, Co-founder, Bigbasket, says, “We have had a long and fruitful relationship with Trifecta Capital since 2017. They are very thoughtful partners and show tremendous flexibility in working with startups. They understand our business well and are always eager to help with their excellent industry relationships. We value Nilesh’s counsel and his unique approach to thinking through our capital needs for capex and working capital.”

Having raised more than Rs 160 crore of debt from Trifecta over the years, Vipul says that their business has scaled multifold.  Some of the top venture debt funds in India at present include Trifecta Capital, InnoVen Capital, and Alteria Capital. 

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Looking deeper into the CFO’s work 

In the past five years, Trifecta has identified three areas of financial management that startups need to work on - P&L, balance sheet, and cash flows. 

The P&L focuses on the business model, customer acquisition, customer retention, pricing strategy, operational efficiency, team hiring and incentives, financial controls, and systems. 

The next part focuses on the balance sheet, which includes treasury management, receivables tracking and discounting, payables management, inventory financing, capital structure, ESOP and cap table management, capex and investment plan. And finally, the cash flows - cash runway plan, working capital management, ALM, and liquidity planning. 

The team realised that when it came to balance sheet and cash flows, there was a big gap in the market. Banks often ignore this segment as they work only with large and profitable companies. While several intermediaries operate, there is a huge trust deficit as incentives are not always aligned. 

The team also realised there was a disconnect between cash flow needs and the duration of allocation, non-transparent advisory and potential conflict of interest, limited performance reporting and no active supervision, infrequent credit profiling of funds and risk assessment, and limited width of products or customised offerings. 

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Building the platform

To build the platform, Trifecta Capital roped in Deepak Mohan, who had earlier worked with RBL Bank and several other banks. While at RBL, Deepak had worked closely with some of the portfolio companies, and was experienced in building new businesses from scratch. He also wanted to work with startups. 

“As part of RBL, I was exposed to the way startups worked and I liked the speed and the way the ecosystem functioned. I realised I wanted to be on the other side and work with startups, and it led me to join Trifecta,” says Deepak. 

When Trifecta was looking beyond venture debt and was building a financial tech solution, Deepak says he jumped at the opportunity.

“The founder’s focus is mostly on the growth and vision of the company, and when the capital comes in, very few know how the capital can be deployed. Most times, the CFOs do not have experience with treasury management, especially in early stage startups. And the CFO typically comes in during Series A, B, and C rounds. Generally, the capital raised in the first three to four rounds is not thought through,” explains Deepak. 

“What CFOs want is execution at their fingertips, which most platforms don’t have,” says Deepak. 

Apart from startups, the team has also worked with VC funds and banks. “Before we launched the platform, we went to the VCs and understood their financial process and how they deploy and guide their companies to manage the capital. We customised the platform with feedback from the likes of SAIF Partners, Accel Partners, and Sequoia Capital India. We realised it is important to build bottoms up. After that, we took it to the market,” says Deepak. 

Expanding the reach 

Apart from startups, the team says the tool can help the larger part of the ecosystem as well. It has also connected with mid-sized VC firms and even companies that are not as big as Bigbasket or Vedantu.  

According to the venture debt fund, companies that have just raised Series A round need more help with treasury management. 

The platform also works as a reporting architecture with analytics. Deepak says, with analytics, the endeavour is also to help the CFOs understand the depth of treasury, so that over a period of time they understand the thought process and why treasury management needs to be a little more thought through. 

“We have opened the platform to companies beyond our portfolio. We have connected with close to over 100 CFOs and over 30 VC firms to understand their portfolio,” adds Deepak. 

The team has also partnered with select tech mutual funds that are high cohort funds. The team has also partnered with high quality corporate deposits and bonds of high AAA houses like LIC, HDFC Bank, and Bajaj Finance. 

“We aim to be the financial partner of choice for the top 100 new economy companies of India and South East Asia, helping them with a suite of advisory capabilities, technology, and tools, as well as different forms of growth financing.” 

“We strongly believe these businesses will create disproportionate value, and we are solving for the diverse needs of these companies with a variety of offerings,” says Rahul.