Indian venture debt market is steadily growing: Lighthouse Canton report

Indian founders are increasingly turning to venture debt as a financing tool to bridge funding gaps and avoid excessive equity dilution, global investment firm Lighthouse Canton said in a report on Thursday.

The report, titled “Silent Bloom: Venture Debt’s Growing Influence”, gives in-depth insights into the steadily growing reliance on venture debt in the startup ecosystem. At present, the growth of venture debt mirrors the early days of venture equity, the report said.

According to the findings, the shift has been primarily driven by the scarcity of equity funding and the desire to preserve ownership of companies.

A survey included in the report showed that 40% of founders prefer venture debt as it is less dilutive, while 30% said the repayment schedule flexibility of this mode of financing was a significant driving factor.

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Additionally, the report also highlighted the sector-wise dynamics of venture debt, where the Indian fintech sector—now the third-largest globally—is a major driver of venture debt adoption.

The growing electric vehicle (EV) sector, which is highly capital-intensive, has also become heavily reliant on venture debt. About 65% of EV startups rely on this financing tool for more than half of their debt funding as traditional lenders often view the EV sector as high-risk.

“India's startup ecosystem holds immense potential, and the growth of venture debt funding is playing a pivotal role in driving its development. At Lighthouse Canton, we believe that venture debt can help bridge the finance gap and unlock significant economic benefits," said Sanket Sinha, Managing Director, Global Head of Asset Management at Lighthouse Canton.

"We believe that this mode of funding will be essential to foster innovation and empower startups, which will ultimately drive sustainable growth across the nation’s dynamic and evolving business landscape,” he added.