1、February 2023VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMYVENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY2VENTURE DEBT:SCALING ALONG WITH STARTUPS3Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their g

2、reatest opportunities.BCG was the pioneer in business strategy when it was founded in 1963.Today,we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholdersempowering organizations to grow,build sustainable competitive advantage,and drive positive societa

3、l impact.Our diverse,global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change.BCG delivers solutions through leading-edge management consulting,technology and design,and corporate and digital ventures.We work in a uniquely co

4、llaborative model across the firm and throughout all levels of the client organization,fueled by the goal of helping our clients thrive and enabling them to make the world a better place.Trifecta Capital is Indias leading alternate financing platform for startups across their life cycle with tailor-

5、made Venture Debt,Growth Equity and Financial Advisory Solutions.Trifecta Capital serves market leaders and category creators across B2B,Consumer Services,Consumer Brands,E-commerce,Mobility,Edtech,Agritech,Fintech and Healthcare.Trifecta Capital pioneered the asset class of Venture Debt Funds in 20

6、15,by launching the countrys first Venture Debt Fund.It has since provided over$500Mn of Venture Debt to 150+startups across its three Funds.The Funds portfolio includes many unicorns and several category leading businesses like Big Basket,Pharmeasy,Cars24,Vedantu,The Good Glamm Group,Infra.Market,D

7、ailyhunt,UrbanCompany,CarDekho,Kreditbee,BharatPe,Cure.fit,GlobalBees,IdeaForge,Rebel Foods,StashFin,Open,Kissht,Ninjacart,Chalo,NoBroker,Turtlemint,Udaan,Dehaat and Livspace.Trifecta Capital Venture Debt portfolio companies have cumulatively raised$13.5Bn of equity and are cumulatively valued at$54

8、Bn.As of February 2023,Trifecta Capital has raised over$600Mn across three Venture Debt Funds and one Growth Equity Fund.To support startups,the Firm has also built a customized technology and advisory platform with an AUA of over$300Mn.Since inception,Trifecta Capital has invested over$650Mn across

9、 Venture Debt and Growth Equity and aims to be the financial partner of choice for leading new economy companies in India.It currently has offices in NCR,Bengaluru,and Mumbai.VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY4EXECUTIVESUMMARYThe last few years have witnessed record equity inf

10、lows into the Indian startup ecosystem,primarily led by macroeconomic,technological,and geopolitical tailwinds.During the same period,Venture Debt has also gained popularity among Indian startups that are looking to raise capital.Since CY19,the Indian Venture Debt market has grown at 22%CAGR with al

11、most$1Bn invested in CY22.Its journey in India is beginning to mirror the trajectory of this asset class observed in developed markets.As founders get more financially sophisticated,startup balance sheets are now being designed to include debt as a form of financing.This has also been enabled by a h

12、igher number of debt providers and introduction of a variety of product offerings.This is evidenced by the fact that despite the recent funding winter,Venture Debt is still in high demand among startup founders.We are at a crucial inflexion point today.While the immediate funding slowdown can be an

13、acid test for debt investments,it also brings with it an opportunity for founders to choose the right investors and for investors to consolidate investments.Macro trends indicate that Indian Venture Debt investments are set to grow to$6Bn by CY30.Additionally,with a more nuanced risk return profile,

14、increased investor interest in debt instruments and higher participation from varied capital providers,the Venture Debt market can potentially leapfrog to$10Bn by CY30.This would imply a 10%share of projected VC investments,which is closer to the Venture Debt penetration seen in more developed marke

15、ts such as the US.In this report,we delve into the Indian Venture Debt journey so far,prevalent use cases,insights from the startup ecosystem on debt financing and the road ahead.As part of the report,we connected with 40+startup founders and one of the key themes that stood out was the limited awar

16、eness of Venture Debt as a form of financing.This has been one of the major deterrents in the growth of this asset class.Founders have been highly dependent on their existing networks to get introduced to debt options.Even today,Venture Debt is predominantly recommended and routed through equity inv

17、estors.However,founders who have taken Venture Debt expressed numerous benefits such as deal execution speed,availability of larger amounts of capital,flexibility of repayment terms and wider eligibility for credit.There are predominantly five use cases of debt financing that have become popular in

18、Indian startups:Growth:Expand into new geographies,deepen footprint in existing geographies,launch new products or new businesses.M&A Financing:Boost inorganic growth by acquiring firms operating in existing or complementary businesses.Capex and Project Financing:Meet capex requirements such as purc

19、hase of new warehouses or manufacturing facilities,machinery upgrades,strengthening existing supply chain,etc.Working Capital Financing:Address working capital requirements of operational expenses such as purchasing raw materials,financing receivables,etc.Onward Lending:Provide funds to Fintechs ope

20、rating in the lending space to build out their loan portfolio.Recognizing this opportunity,banks have also forayed into providing banking solutions and services customized to the needs of startups.12345VENTURE DEBT:SCALING ALONG WITH STARTUPS5In addition,banks are gradually getting into offering som

21、e forms of credit to startups as well including select products such as working capital loans.Regulatory support to enable flexibility in underwriting and repayment norms can help drive further participation of banks into Indias Venture Debt ecosystem.Interest for private credit and alternative inve

22、stments has also increased among different categories of investors in the last 5 years.Predictable cash flows,an attractive risk-return profile and potential for equity upside has led to a sizable allocation of Venture Debt within alternative investment portfolios.As of today,the preferred mode of e

23、ngagement for most individual and institutional capital providers is through specialist funds.Venture Debt investments cater to different kinds of limited partners in different ways:Insurance companies:Predictable returns and regular cash flows from Venture Debt supports forward-looking estimation f

24、or insurance companies.Endowment funds:Regular cash flows provided by Venture Debt investments help manage operational expenses of endowment funds.HNIs and family offices:Venture Debt enables risk diversification in the alternate investment portfolio of family offices.It also helps traditional busin

25、ess houses in exploring investments in new-age businesses.Development Finance Institutions:It aligns with the objectives of these institutions to expand the availability of credit to the startup ecosystem that has largely been under-served by traditional lenders.Banks:Present underwriting models do

26、not align with startup business models.Venture Debt helps build startups credit history,thereby making them gradually eligible for bank loans.As both global and domestic investors consider increasing their portfolio allocation towards private credit,Venture Debt has emerged as one of the leading seg

27、ments driving these investments.The following levers of demand and supply will propel the next wave of growth in Venture Debt.Enablers for growth in demand Increased awareness:Higher awareness among startup founders,venture capital providers about product features,use cases and accessibility.Product

28、 innovation:Tailor-made solutions to solve for specific financing needs of a startup,beyond traditional debt.Increased collaboration:Deeper relationships of Venture Debt providers with other investors such as Venture capital firms,Banks,NBFCs,Private Credit funds,etc.to leverage each others strength

29、s in distribution,cost of capital,etc.Enablers for growth in supply of capital Broadened investor pool:A wider array of investors in Venture Debt,such as global institutions,will help to fulfill increasing capital needs of the ecosystem.Increase in allocation:A steady track record of performance of

30、Venture Debt funds across vintages will power higher portfolio allocations towards Venture Debt.With the above enablers and continued regulatory support,Venture Debt is well placed for an exponential growth trajectory.It is an asset class whose time has well and truly come in India.12345TABLE OFCONT

31、ENTSBCG+Trifecta CapitalVENTURE DEBT:SCALING ALONG WITH STARTUPS7VENTURE DEBT:SCALING ALONG WITH STARTUPS0815THE NEXT HORIZON:UNLOCKING THE FULL POTENTIAL4651CURRENT LANDSCAPE AND PERCEPTIONS1645How credit is becoming mainstream for Indian startupsVENTURE DEBT:SCALING ALONG WITH STARTUPSBCG+Trifecta

32、 Capital8VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMYVENTURE DEBT:SCALING ALONG WITH STARTUPS9Indian Venture Debt investments rapidly growing to reach$1Bn p.a.Venture Debt investment has grown at 22%Amount in($Bn)Note:Data comprises 380 disclosed deals comprising debt disbursements by p

33、rominent domestic and foreign investors;excludes$860Mn in debt funding raised by Oyo Rooms CY21CY22 data estimated basis deal activity by top 4 Venture Debt fundsSource:Venture Intelligence;Tracxn;BCG-Trifecta Founder Interactions;BCG analysisOver 100 deals closed in CY22CY19CY20CY22ECY210.260.800.8

34、50.870.46DealcountAverage ticket size in$MnCY19766.1CY20584.5CY21949.310012077.5CY22ECOVID-19 impact3 key factors for rapid growthWhen we started out in the early 2000s,there were no avenues for new independent businesses in India to raise debt in any form.However,as a founder,I am glad to note that

35、 this has changed completely today.Rajeev Agrawal,Founder,InnovitiSecular growth:Increase in YoY venture capital equity investmentsCyclical growth:Equity slowdown from Q2 of CY22 onwards led to higher adoption of alternative financing optionsDemand Supply Growth:Increased awareness and access to non

36、-dilutive sources of financing+22%CAGRVENTURE DEBT:SCALING ALONG WITH STARTUPS910VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMYSource:BCG+Trifecta analysisA variety of startups considering debt to optimize cost of capital Zepto raised$20Mn Venture Debt in CY22 to finance working capital r

37、equirements and overall operational growth Raised$100Mn in debt in their registered NBFC for the purpose of onward lending This included several debt providers across Venture Debt players,NBFCs and even global pools of debt in the form of ECB linesZepto Raised$30Mn in CY22 from multiple Venture Debt

38、 players towards strategic investments and acquisition of adjacent food brandsStashFinRebel FoodsVENTURE DEBT:SCALING ALONG WITH STARTUPS11Founders display interest in Venture Debt as part of their next fund raise 63%of players are willing to substitute 20%of their next fund raise with Venture Debt

39、23%players want to raise$1020Mn in debt 14%want to raise$20Mn in debtSource:BCG-Trifecta Venture Debt Survey with Founders 2022(N=35);BCG-Trifecta Founder Interactions;BCG analysisRespondents interested in raising Venture Debt in next 1224 monthsWe have raised debt actively in the past and continue

40、to leverage appropriately for any planned capital raise.It helps us drive capital efficiency,operating discipline and improved RoE.Souvik Sengupta,Founder,Infra.Market66%Top 5 SectorsFintech/InsurtechHealthtechSaaSLogisticsConsumer goods/Consumer TechVENTURE DEBT:SCALING ALONG WITH STARTUPS11VENTURE

41、 DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY12US Venture Debt has scaled substantially in the last decadeVenture Debt penetration at 17%of VC investments by value and 19%by deal count,averaged over the last 5 yearsVenture Debt deals with ticket size$100Mn have grown 2x since CY20 and 5x since

42、CY18Venture Debt deal countVenture Debt investments($Bn)Venture Capital investments($Bn)Average(CY1822)By Deal ValueBy Deal CountCY12CY13CY14CY15CY16CY17CY18CY19CY20CY21CY22-3,000-4,000300 -400 -2,000200 -1,000100 -00 -42507386838914514616734278111715152633341,184%of VC1,4061,7142,1392,0482,1762,415

43、2,7802,683Deal count2,6182383332Pitchbook definitionVenture Debt Provider:Banks,a Venture Debt fund,or any other type of investor that provides debt-financing to a venture-backed companyVenture Debt User:Venture-backed companies,that have completed at least 1 VC deal and have not subsequently underg

44、one an IPO/PE Buyout/Acquisition Source:PitchBook-NVCA Venture Monitor 2022;BCG analysisInvestments in$BnCY21:Venture Debt penetration dropped as VC flows hit a historical high at$342Bn;doubling from CY2018%16%16%20%18%17%18%23%20%10%15%14%16%19%20%19%20%22%21%17%3,03613%17%17%19%13VENTURE DEBT:SCAL

45、ING ALONG WITH STARTUPSUS Venture Debt investments see greater traction in growth stagesSource:PitchBook-NVCA Venture Monitor 2022,BCG analysisAverage Venture Debt ticket size for growth&expansion stage firms($Mn)Deal count CY21Average%Venture Debt vs.VC ticket size1,27427%Growth&Expansion(Series C

46、and beyond)Growth stage ticket sizes increased over last 23 years despite overall market remaining stable at$32BnHowever,higher confidence in larger firmsEarly stage ticket sizes at$13Mn in CY22 i.e.almost half of growth stage ticket size Venture Debt ticket size as a%of VC ticket size(27%)higher fo

47、r growth vs early stage(20%)Early Stage ticket size:$13MnCY12CY14CY16CY18CY20Q2 CY22$12.6$12.5$13.3$21.2$22.9$23.3+8%CAGRGrowth stageVENTURE DEBT:SCALING ALONG WITH STARTUPS13VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY14Indian Venture Debt investments also focused across growth&expansi

48、on stage firmsSource:BCG-Trifecta Venture Debt Survey for Founders(N=35),BCG analysis,BCG-Trifecta Founder interactionsRisks at this stage often include concept risk,best funded by equity27%Early stage(up to series A)35%Growth stage(series B&C)35%Expansion stage(series D&E onwards)3%Late stage(serie

49、s F onwards or pre-IPO)%respondentsVenture Debt raised across growth and expansion stage startups70%As companies prepare for listing in India,banking lines become readily available.Moreover,late stage debt is still nascent in IndiaWhat was your firms stage when you raised Venture Debt?One of our mos

50、t important financial decisions,that we took early,was to optimize our capital structure with Venture Debt.At first,it served as an additional buffer to meet unexpected contingencies like demonetization,while later we found specific use cases which were structurally best financed with debt.Its terms

51、 also allowed us to retire the obligation at the appropriate time in our growth journey.Anuj Srivastava,Founder,LivspaceVENTURE DEBT:SCALING ALONG WITH STARTUPS151.CY22 data estimated basis top contributing Venture Debt fundsSource:Venture Intelligence;BCG-Trifecta Founder Interactions;BCG analysisV

52、enture Debt in India is led by Fintech,Consumer segments%share of deal count in CY221Notable startupsJai KisanRebelRupifiAtombergPaperboatThe Good Glamm GroupStashfinConsumer product&services29%Fintech19%B2B services13%Healthcare12%Agritech7%Venture Debt helps raise capital while managing dilution.W

53、e have actively leveraged Venture Debt for the strategic growth of our business,whether it is for working capital or to help finance inorganic initiatives.Darpan Sanghvi,E-commerce6%Edtech5%Transportation&logistics9%Founder,The Good Glamm GroupVENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOM

54、Y16Use cases&value propositionCURRENT LANDSCAPE AND PERCEPTIONSBCG+Trifecta Capital2A.Venture Debt Use Cases2C.Perspectives:Banks2E.The Evolution of Venture Debt in India2B.Venture Debt Value Proposition2D.Perspectives:Investors16VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMYCURRENT LANDS

55、CAPE AND PERCEPTIONS173 types of non convertible debt options available for startups in IndiaSource:BCG-Trifecta analysisDescription Venture Debt is a bespoke debt product combining coupon and equity participation Offers larger ticket sizes with limited restrictions on end-use A complimentary,medium

56、 to long term capital for growth stage startups Preferred by startups having predictable cashflowsVenture DebtBank Loans Traditional debt investments by private and public sector banks Firms with adequate cash reserves preferred,such as mature businesses Traditional frameworks®ulatory guidelines

57、lead to limited flexibility on terms Cost effective,helps build scalable relationshipsRevenue-based financing Flat fee applied on the total debt amount Repayment as percentage of monthly revenue No equity participation,board seats,etc.Early stageGrowth stageLate stageConvertible notes Debt Investmen

58、ts which can fully convert to equity at a later stage Conversion at the end of a defined period or at the occurrence of an event like a future equity round Accessible to startups across all stagesNon convertible debtConvertible debtVENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY18Source:BC

59、G-Trifecta analysisBank LoansRevenue-based FinancingVenture DebtDetailed structure of the 3 non convertible debt optionsTypical debt providerEquity ParticipationRepayment structuresKey benefitsSpecial requirementsSizeCollateralMaturity periodInterest rateKlub,Velocity,GetVantage,N+1Monthly recurring

60、 revenueAmount of cash/cash reserves and the stage of the companyVenture Debt fundsTrifecta Capital,InnoVen,Alteria Capital,StridePrior VC fundingPSU and private banksICICI Bank,HDFC Bank,RBL,HSBC2530%of annual turnoverTypically 2030%of equity round or available cash Depends on financial health 2025

61、%of turnover624 months1836 months Working cap:Yearly renewal Capex:23 years Banks:912%NBFCs:1315%Working capital:Flexible drawdowns&monthly interest paymentPredefined funding timelines&shared alignment towards growthFaster funding,minimal security Minimal dilution option for fulfilling strategic gro

62、wth plans Overall cost of capital goes downMost optimal cost of capitalNot mandatoryTypically 812%of debt amountNoneCash FlowsAssets/IP Assets and IP Cash collateral in the form of FD or Mutual fundEffectively 2025%1315%EnablersSteady and easily tracked revenues with full visibility into channel sal

63、esInstitutional equity backing&strong unit economicsWorking Capital and capex funding requirements for mature businesses or those with ability to offer collateral Amortizing with or without moratorium Revolving credit facilitiesEarly stageGrowth stageLate stageFunding status:At least one round of in

64、stitutional funding Should not have undergone an IPO,PE buyout or acquisition Private companies,backed by VC or PE investors,can raise Venture DebtTypical business stage:Revenue generating Post product market fit stage Venture Debt can be availed as part of a financing round or in-between rounds Glo

65、bally,debt providers span across banks and non-banking organizations Venture Debt funds,typically structured as AIFs regulated by SEBI,are the most significant debt providers to startups in India NBFCs are gradually emerging as another segment of debt providers in India Debt Investment curated to th

66、e companys needs and growth plans Flexible payment structures and customized options available Offers capital with limited dilution to foundersWhat isVenture Debt1Who are Venture Debt providersWhich companies can avail Venture Debt1.Defined as per Pitchbook and BCG analysisSource:BCG-Trifecta analys

67、isRebel FoodsShadowfaxThe Good Glamm GroupUdaanBuilder.AIZeptoCogoportJai KisanFashinzaStashfinBluSmartInfra.MarketGlobalbeesToddleCars24Examples of startups that have raised Venture Debt in the recent pastCURRENT LANDSCAPE AND PERCEPTIONS19VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY20

68、Founders prefer Venture Debt over other available debt optionsSource:BCG-Trifecta Venture Debt Survey with Founders 2022(N=35)Revenue-based financing:Amount of capital available is lower than Venture Debt Attracts firms with steady monthly revenues such as subscription based businessesBank Loans:Tai

69、lored for more mature businesses Cash collateral involved Usually term loans are not available due to end use restrictions and relatively lower risk appetiteRespondents prefer Venture Debt over other debt financing options63%The mindset of an investor is very different from the mindset of a debt pro

70、vider.The best Venture Debt funds are able to marry the best of both to deliver capital to us at high speed and with an optimal risk appetite.For our business we chose Venture Debt,given that the quantum of debt and the purpose that we needed it for,it was relatively difficult with banks due to thei

71、r comparative subdued risk appetite and process complexity.Aloke Bajpai,Co-founder,Ixigo Atul Shinghal,Founder,Scripbox2A.Venture Debt Use CasesBCG+Trifecta CapitalCURRENT LANDSCAPE AND PERCEPTIONS21VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY22Use caseFor exampleDeep diveStrategic rati

72、onaleResultBuilder.aiLivspaceFurlencoBOX8G.O.A.T.Brand LabsCurefoodsGlobalBeesIxigoThe Good Glamm GroupCuemathCars24InnovitiBigBasketCars24The Good Glamm Group Expansion in existing and new geographies across the world Capital needed for maintenance of used car inventory at various locations pan-Ind

73、ia,typically as working capital Raised$800Mn+in subsequent equity capital Present in 5 countries across the globe Create“digital HUL”style consortium of brands Timely acquisitions of complementary firms;realize marketing&distribution synergiesAcquisitions:Content platforms:PopXO,ScoopWhoop,Miss Mali

74、ni,Winkl&Vidooly Personal care:St.Botanica&Organic Harvest,MomsCo,BabyChakra Set up new warehouses and processing facility for fruits&vegetables Strengthen the cold-chain Ramped up supply chain infrastructure;helped service the demand surge during multiple COVID related lockdownsContent-to-commerce

75、for retail cosmeticand personal care productsLargest online food and grocery store;operates in 30+cities across IndiaM&A financingGrowthCapex&Project financingExpand to new geographies,new offeringsFull-stack e-commerce platform for used cars BigBasket5 key use cases of Venture Debt are prevalent in

76、 India123Source:Trifecta analysisCURRENT LANDSCAPE AND PERCEPTIONS23Use caseFor exampleDeep diveStrategic rationaleResult5 key use cases of Venture Debt are prevalent in India Low-cost capital better for working capital intensive business Procurement of construction materials&financing of receivable

77、s to supplement the rapid growth 16x growth since raising 1st round of Venture Debt Working capital cycle remained constant as various forms of debt financed incremental scale Other debt providers were slower and offered smaller amounts of debt Post COVID growth goals:Scale the NBFC book Collaborate

78、 with more providers;achieve 2x leverage Achieved leverage at scale Expansion to tier-II cities and towns;ramp up offline presence via facilitation centers Long term partnership with debt providersOnward lendingWorking capital financingB2B platform with full stack managed marketplace for constructio

79、n materialsInfra.MarketCredit led fintech company;offers instant loans to individuals&small businesses;forayed into payments&insuranceKisshtCashify.inBlowhornBizongoInfra.marketShadowfaxBharatPeKisshtKreditBee45Source:Trifecta analysisVENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY24Startu

80、ps raise Venture Debt largely for financing growth and working capital needsVenture capital:Top reasons for raising fundsVenture Debt:Top reasons for raising funds71%66%57%40%Customer acquisitionWorking capital financingCapex and Project financingM&A financingOnward lendingPersonnel and Team expansi

81、onOperational expansionProduct development/new product launch Source:BCG-Trifecta Venture Debt Survey with Founders(N=35),BCG analysis34%26%17%6%share%share38%Growth financing31%Working capital financing15%Optimize equity dilution8%M&A financing4%Operational expansion4%VCs were not willing/able to i

82、nvest at that point of time5570%firms used funds for new product launch,operational expansion and branding activities30%+firms used funds for growth and working capital needs.Optimizing dilution during an equity round also an important reasonCURRENT LANDSCAPE AND PERCEPTIONS25Innovative reasons to r

83、aise Venture Debt are emergingExtra capital for the next opportunistic moveFunds are deployed in growth opportunities while there is high cash reserves i.e.higher ability to repayInvest in revenue generating assets/businesses to augment repayment capacityImprove capacity to service debt by strategic

84、 deploymentLeverage Venture Debt for business expansion toenhance valuation,with limited dilutionImprove valuation while optimizing equity dilutionWe were cashflow positive when we took on debt from Trifecta,but it offered us the cushion to make bold opportunistic moves during the pandemic when nobo

85、dy was thinking about growth.Aloke Bajpai,Co-founder,IxigoVenture Debt allowed us to make acquisitions in between VC rounds.We planned for it by matching the cashflows of the acquired firms and the upcoming equity fund raises to the debt repayments.Darpan Sanghvi,We raised a portion of our capital r

86、equirement back in 2015 as Venture Debt,limiting the equity stake dilution which was non-insignificant at such an early stage.Vikram Vuppala,Founder,NephroPlusSource:BCG-Trifecta Founder interactionsFounder,The Good Glamm GroupBCG+Trifecta Capital2B.Venture Debt Value Proposition26VENTURE DEBT:THE R

87、ISING TIDE OF CREDIT IN THE NEW ECONOMYFounders express several benefits of Venture DebtVenture Debt investors like Trifecta Capital understand the mindset of the founders and speak the same language,which helps build comfort,familiarity,trust and ultimately value.Ruchit Agarwal,Co-founder,Cars24Ven

88、ture Debt is a well kept secret that every startup founder should leverage to unlock growth while managing dilution.Shashank ND,Founder,PractoBest source of capital at times when the world is struggling to understand your valuation,especially if you have not had the need to raise a VC round in somet

89、ime.Mandeep Manocha,Co-founder,CashifyThe quantum of debt&speed of access in Venture Debt is significantly higher than traditional debt options.Mohit Dubey,Co-founder,ChaloVenture Debt allows you the extra time required to reach the desired size and scale before your next equity round.Amit Raj,Found

90、er,Box8CURRENT LANDSCAPE AND PERCEPTIONS27Source:BCG-Trifecta Founder interactionsVENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY28Venture Debt funds have evolved to create a robust deal processIdentifying need for debt,specific use caseIntroduction to debt providers&their selectionEvaluat

91、ion&due diligence by investorNegotiationof termsDocumentationand fundingDebt Servicing,repayment of principal,interestPortfolio monitoring and Venture Debt firms equity exit2 Weeks35 days34 Weeks56WeeksCapital requirement identificationDeal Evaluation&ExecutionPostInvestmentSource:BCG-Trifecta analy

92、sisVenture Debt is emerging as an asset class and an umbrella term for different private credit solutions.Venture Debt firms will continue to innovate on structured finance products as needed by the startup community.Rahul Khanna,Managing Partner,Trifecta CapitalCURRENT LANDSCAPE AND PERCEPTIONS29St

93、artups are evaluated on their financial health as well as their equity potentialSource:Trifecta analysisReasonable cash runways are preferred when evaluating companies for Venture Debt At Series A,startups have higher runways as their 1st institutional capital has been raised but their spends have n

94、ot yet ramped up This dips in Series B,but increases again in later stages as the investment sizes increaseCompanys growth potential is evaluated in conjunction with current operational and financial metrics High visibility of a future equity financing event helps with availability of higher amounts

95、 of Venture Debt Eligibility for Venture Debt is determined to some extent by gross margin,revenue and other financial metrics.However,the evaluation is not limited to these metrics Sectors that attract more Venture Capital,also see higher flows of Venture Debt investments 70%of Venture Debt investm

96、ents in last 5 years in 4 sectors Fintech,Consumer products,Consumer services&enterprise Fintech and consumer services were amongst the top funded sectors in CY22,accounting for more than$6Bn in equity funding across 300+deals.In addition,these sectors showcase strongest Venture Debt use cases acros

97、s onward lending,fulfilling working capital needs&deploying capital for growthVENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY30Founders appreciate the speed of deal execution in Venture DebtLess than a month12 months24 monthsMore than 4 months42%4%23%31%73%of Venture Debt deals take 2 mont

98、hs to closeSource:BCG-Trifecta Venture Debt Study Survey 2022(N=35),BCG analysisVenture Debt has an advantage in terms of faster closure timelines,compared to other debt providers like Banks,VCs.Aloke Bajpai,Co-founder,Ixigo80%of companies feel Venture Debt deals close faster than VC deals%responden

99、tsCURRENT LANDSCAPE AND PERCEPTIONS31 Vipul Parekh,Co-founder,Big BasketIncreasing product awareness is a key enabler for growth of Venture Debt investment flowsSource:BCG-Trifecta Venture Debt Study Survey for Founders 2022(N=35),BCG-Trifecta Interaction with Founders&Investors,BCG analysisDisplay

100、limited knowledge on product structure&flexibilityLimited awareness of Venture Debt investorsFirst time founders feel Venture Debt is a nascent ecosystemI discovered the benefits of Venture Debt later than I would have preferred:Dilution at early stages have a lasting impact which could be mitigated

101、 if more founders know about this at Series A.Highlights from the survey indicating lack of product knowledge among foundersPerceived as expensive option compared to equity dilution due to repayment requirementsNever considered raising debtRaised debt in the pastActively considering raising debt43%3

102、6%21%Prayank Swaroop,Partner,AccelAwareness is definitely an issue,Venture Debt is nottop of mind for most equity investors.VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY32Founders are dependent on their existing network for choosing Venture DebtOpportunity to tap into alternative channel

103、sDebt providers need to educate founders and finance leaders on the benefits of taking on Venture Debt,via events,publications and broader ecosystem engagement.Rahul Taneja,Partner,LightspeedOften,as soon as we close an investment term sheet,we discuss with our founders about pros and cons of Ventur

104、e Debt,and introduce them to our partner Venture Debt funds.Prayank Swaroop,Partner,AccelVenture Debt can be an interesting option in specific situations.A bunch of our portfolio companies are already working with leading Venture Debt firms and we are supportive of others opting for the same.Rajat A

105、garwal,MD,Matrix PartnersGot introduced to their Venture Debt investor via existing networkWere introduced to their Venture Debt investor by a known VC firm31%57%Source:BCG-Trifecta Venture Debt Study Survey for Founders 2022(N=35),BCG-Trifecta Interactions with Founders&Investors,BCG analysis3%Foun

106、d their investor in corporate/startup meetsCURRENT LANDSCAPE AND PERCEPTIONS33Founders prefer debt providers offering better economicsSource:BCG-Trifecta Venture Debt Survey for Founders 2022(N=35),BCG-Trifecta Interactions with Founders&Investors,Investors,BCG analysisFactor%ShareFounders&investors

107、 express importance of relationship with debt provider as well1.Interest rate54%2.Minimal debt covenants40%3.Flexibility&restructuring37%4.Tenure flexibility29%5.Quick TAT25%6.Relationship with Venture Debt provider23%7.Ability to offer large ticket sizes6%Commercials are table stakes:what is most i

108、mportant is the team behind the fund,can they help sharpen the business,do they have the capacity to follow up with a larger amount.Amit Kulkarni,Director Finance&IR,Fireside VenturesThe colour of the money is more important than the money itself.Despite temporary disruptions in business during COVI

109、D,we continued to receive an immense show of support which is why we doubled down on our relationship with Trifecta.Sachin Dev Duggal,Founder,Builder.aiMyriad factors go into picking the right Venture Debt investor.While commercials are important,it is critical that companies pick the right partner

110、on their growth journey.Sameer Brij Verma,Partner,Nexus Venture PartnersBCG+Trifecta Capital2C.PERSPECTIVES:BANKS34VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMYCURRENT LANDSCAPE AND PERCEPTIONS35Banks are venturing into startup banking with tailor-made offeringsSource:BCG-Trifecta intera

111、ction with Banks;BCG analysisWe dont just want to sell our products to the startups,we want to provide them with solutions to realize their business growth plans.Head-Startup BankingLarge Indian Private Bank10+Indian banks actively providing some form of credit to startups Both public and private ba

112、nks active in startup banking IDFC FIRST Bank,HDFC Bank,Axis Bank,RBL,ICICI,SBI,Bank of Baroda,amongst the front runners Citi and HSBC also actively engaged with Indian startupsWider suite of offerings becoming the norm Offerings have moved beyond provision of current accounts and card facilities En

113、d to end digital solutions,varied credit facilities,and advisory services also gaining tractionSpecialized and niche offerings for startups coming up SBI launched their first“startup”branch in Karnataka IDFC First Bank launched Leap to Unicorn-to provide startup founders with mentors,networking and

114、fundraising opportunitiesVENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY36Source:BCG-Trifecta interaction with Banks,BCG analysisRegulations restrict term loans,structured productsBanks offer a wide range of startup banking services Appetite to provide credit to positive EBITDA firms only

115、Regulatory framework for banks restrict wider term debt penetration in startups Venture Debt funds have more flexibility,allowing AIFs to offer credit to pre-profit startups Banks in US,like Silicon Valley Bank,heavily leverage capital call lines i.e.offer credit to Venture Capital firms to further

116、invest in startups Indian Banks regulated from providing such debt offerings which leads to indirect ownership of equityTerm DebtCapital call lines Early stageGrowth stage Additional to early stage offeringsCurrent accountSecured credit cardsTrade&ForexCorporate salary accountPre-approved ODWorking

117、capital DebtPayment servicesLiquidity management Collection solutionsEscrow managementCURRENT LANDSCAPE AND PERCEPTIONS37BCG+Trifecta Capital2D.Perspectives:InvestorsCURRENT LANDSCAPE AND PERCEPTIONS37VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY38Venture Debt meets cashflow expectations

118、 of insurance firms,endowment funds High credit quality,diversified portfolio and almost zero delinquency Specialized underwriting through investment in Tier-1 VC backed startups Coupon distributions provide predictable cash flows with equity kickers further improving IRRsInvestors report a shared p

119、erception of attractive Risk Adjusted Returns Venture Debt provides downside protection for insurance company investors as they are typically more focussed on capital preservation Periodic distribution from Venture Debt provides predictable returns Additionally,cash flows in Venture Debt supports fo

120、rward looking estimation and reporting Downside risk protection is of paramount importance for endowments Equity upside further helps to make this asset class more attractive than typical debt products Regular cash flows for endowment funds helps with managing opex due to the need to fund their P&L

121、Periodic cash flow distributions are more favorable compared to venture capital cash flows which follow a steeper J-Curve patternInsurance CompaniesEndowment FundsSource:BCG-Trifecta Interactions with investorsCURRENT LANDSCAPE AND PERCEPTIONS39HNIs,Family offices,DFIs participate in debt financing

122、to startups through Venture DebtVenture debt provides a good combination of risk and returns.Fixed income like distributions along with an alpha to typical debt return makes it attractive.Sriram Mahadevan,Principal-Endowment Investment GroupAzim Premji FoundationSource:BCG-Trifecta Interactions with

123、 investors Family offices typically get better deal flow access through a Venture Debt fund partner as compared to direct origination Venture Debt enables risk diversification in the alternate investment bucket Selective participation available in direct co-investment through either debt or equity O

124、pportunity for traditional business houses to explore strategic initiatives with new-age businesses DFIs are mandated to channel credit to the under-supplied startup ecosystem,which is integral to the economys growth DFIs,such as SIDBI,facilitate incremental capital allocation,which has a multiplier

125、 effect,as they mandate their funds to invest twice of their FoFs contribution,providing additional capital to startups Venture Debts profile supports DFIs strategy to be self-sustaining with early periodic repayments,as compared to Venture Capitals delayed fund payouts,which could be used for reinv

126、estment into other focus areasHNIs&Family OfficesDomestic Financial Institutions(DFIs)Weve seen Venture Debt evolve over last 78 years in our journey with Trifecta.It has been able to fill a large vacuum in the debt market between high yield/high-risk options like real estate NCDs and traditional lo

127、w yield instruments.Pankaj Dinodia,CEO,Dinodia PartnersVENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY40Venture Debt funds help build startups credit worthiness for bank loansAs the broader Venture ecosystem has matured and awareness on Venture Debt has increased,weve seen several categori

128、es of investors allocate towards Venture Debt.While there is a significant potential to deepen penetration within existing capital pools,tapping into new capital pools,including global capital is a large opportunity.Venture Debt helps fuel banks coverage of the startup ecosystem Current bank underwr

129、iting models are not fully aligned with startup business models which typically consume cash during their growth phase Venture Debt helps startups build a credit history,eventually bringing them into the formal banking credit foldBanksRBL Bank has been a partner and enabler to the startup ecosystem

130、for several years.With our investment in Trifectas fund,we get a window into the world of a diverse set of startups,investment themes and VC trends,in addition to generating strong risk adjusted returns.Rajeev Ahuja,Executive Director,RBL Bank Nilesh Kothari,Managing Partner,Trifecta CapitalSource:B

131、CG-Trifecta Interactions with investorsCURRENT LANDSCAPE AND PERCEPTIONS41Investors showcased higher appetite for alternatives in last 5 yearsSource:BCG-Trifecta Interactions with investors,Trifecta analysisThis asset class is well-suited to cater to our needs of yield and portfolio diversification.

132、The quarterly distributions are convenient and help us in our income goals.The illiquid nature of the asset class is compensated by potentially higher returns.Mihir Vora,Sr.Director&Chief Investment Officer MaxLife Insurance Credit mutual funds AUM dropped by more than 50%in last 23 years Yields dro

133、pped across tenures for AAA papers by 7580 bps since 201920 Indian AIFs have grown to$90Bn of AUM compared to$500Bn in mutual funds.Further,large global pools of equity also entering India Recent good performance of alternative investment funds like venture capital,Venture Debt Debt AIFs across vint

134、age delivered double digit IRR,outperformed debt market index i.e.CRISIL Composite Bond Fund Index Increased access with exponential increase in SEBI registered AIFs(50%+of AIFs registered in last 4 years)6 key factors leading to increased interest in private credit&alternatives Relatively new with

135、nearly$1Bn annual market size,growing at 22%CAGR Taps into the high potential space of Indian startup ecosystem-3rd largest in the world with 100+unicorns Strong acceptance of the product in the ecosystem in last 23 years Promising growth trajectory,expected to mirror the US Venture Debt marketVentu

136、re Debt:A new-age proposition within alternative investment landscapeVENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY42Venture Debt is a key part of alternate investment allocation for Indian investorsSource:BCG-Trifecta Interactions with investorsVenture Debt is well placed within private

137、credit Venture Debt allocation by Family Offices ranges from 30100%of alternative debt investments Unlike traditional private credit for global pension funds,Venture Debt has potential to attract substantial inflows in the next 35 yearsAllocation towards Private credit Global investors have allocate

138、d$200Bn+p.a.towards private credit,out of which India accounts for$45Bn Unlike equity funds,top global private credit funds are accessible to Indian investors Venture Debt,performing mid-market credit and special situations investing are some common strategiesPrivate equity,hedge funds,venture capit

139、al HNIs and newer investors often enter alternative assets through equity,awareness of credit typically follows PE,VC strategies available to investors Global fund managers not easily accessible to Indian investorsTotal portfolioAsset allocation of different investor groups varies basis risk and ret

140、urn expectations,cash flow requirements and strategic goals.Portfolio allocation to alternative assets observed:Indian HNIs and Family Offices:520%Indian Banks and Insurance Companies:2%Global Pension,Endowment,Sovereign funds:20%Upto 20%allocated to alternate investmentsUpto 40%60%+CURRENT LANDSCAP

141、E AND PERCEPTIONS43BCG+Trifecta Capital2E.The Evolution of Venture Debt in IndiaCURRENT LANDSCAPE AND PERCEPTIONS43VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY44Evolution of Venture Debt Funds in IndiaALTERIA CAPITALSTRIDE VENTURESLaunch of Alteria CapitalVenture Debt Fund I$137MnVentur

142、e Debt Fund II$200MnALTERIA CAPITALVenture Debt Fund II$245MnTRIFECTA CAPITALLaunch of Trifecta CapitalVenture Debt Fund I$76MnSTRIDE VENTURESLaunch of Stride VenturesVenture Debt Fund I$50MnINNOVEN CAPITALLaunch of Innoven Capital Venture Debt Fund I$200MnTRIFECTA CAPITALVenture Debt Fund III$250Mn

143、TRIFECTA CAPITALVenture Debt Fund II$144MnCY18CY19CY21CY22Cumulative Venture Debt Asset Class in IndiaNote:The cumulative Venture Debt fund data comprises of funds raised by Trifecta Capital,Alteria Capital,Stride Ventures and Innoven CapitalSource:BCG-Trifecta analysisCY15$76Mn$213Mn$407Mn$1,102Mn$

144、1,302MnCURRENT LANDSCAPE AND PERCEPTIONS45We have sourced a significant number of investments in category leading technology companies with strong unit economics and clear path to a time-bound liquidity event from Trifectas Venture Debt Portfolio.Venture Debt complements our Growth Equity and Financ

145、ial Advisory strategies,allowing us to offer services across the life cycle of new-age companies.Lavanya Ashok&Sandeep Bapat,Partners,Growth EquityTrifecta Capital Abhishek Gupta,Partner,Trifecta CapitalVenture Debt FundGrowth EquityFinancial Advisory Services1st player in Indian startup ecosystem t

146、o offer Venture Debt to startups Over$500Mn Venture Debt fund raised till date Portfolio of 150+companies across industriesStarted financial advisory&other service offerings 40+startups leveraging Treasury Management services Access to leading members of the startup investor ecosystemGradually progr

147、essing into growth equity funding for startups 1st fund of$250Mn raised&invested in Dailyhunt,Livspace,Cars24,etc.Targeted towards growth or late-stage tech-based startupsAtombergBharatPeFabAlleyLivspaceCars24Infra.MarketAtombergBizongoFableStreetLivspaceKlubInfra.MarketIxigoThe Good Glamm GroupMees

148、hoLivspaceCars24Pharmeasy2015 onwards2020 onwards2021 onwardsSource:BCG analysisTrifecta Capital acting as a catalyst in further expanding product offerings across a startups lifecyclePrimary levers for growthTHE NEXT HORIZON:UNLOCKING THE FULL POTENTIALBCG+Trifecta Capital46VENTURE DEBT:THE RISING

149、TIDE OF CREDIT IN THE NEW ECONOMY47THE NEXT HORIZON:UNLOCKING THE FULL POTENTIALIndian Venture Debt investment can potentially reach$10Bn by CY30Estimated growth of Venture Debt investments in India($Bn)Venture Debt penetration as a%of Venture Capital flows expected to increase with time as the asse

150、t class&ecosystem evolves Venture Debt in the US has reached 1520%penetration of Venture Capital over the last few decades With accelerated VC funding growth and rapid activation of demand-supply enablers,the Venture Debt asset class has potential to grow to$10Bn of annual investment flows by CY30Ve

151、nture Debt funding as%of VC fundingVC funding($Bn)VC as%of GDP100.4%3%391.2%2%310.9%3%8010012%810%Source:BCG analysisCY20CY21CY22ECY30E0.260.870.800.856710Base case scenario of reaching$67Bn Venture Debt investments annuallyPotential to reach$10Bn of credit flows with a focused systemic effort to in

152、crease demand and achieve higher supply of capitalTHE NEXT HORIZON:UNLOCKING THE FULL POTENTIAL47VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY481.As on August 24th 2022;Startup criteria used:Backing status-VC/Incubator/Angel,Ownership status-privately held Source:Preqin,Pitchbook,Oxford

153、Economics,Venture Intelligence,Tracxn;BCG analysisMacro trends indicate atleast 5x growth potential of Venture Debt as a proportion of VC flows by CY30$22,996Bn$3,084Bn57,0836,837$33Bn(10%)$0.87Bn(2%)GDPNo of startups1Venture Debt size(%of VC flows)VC investments(%of GDP)$342Bn(1.5%)$38.5Bn(1.1%)VC

154、investments as percentage of GDP in India came close to the US benchmarks in 2021,a record-setting year for investments across both geographies In the US,Venture Debt investments accounted for 15%of VC capital deployment With activated growth enablers,India has 5X growth potential for Venture Debt t

155、o reach 10%of VC capital deployment by CY30,making it a$610Bn industryUSINDIA(All figures relate to CY21)THE NEXT HORIZON:UNLOCKING THE FULL POTENTIAL49THE NEXT HORIZON:UNLOCKING THE FULL POTENTIAL49VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY50Growth enablers:DemandIncrease awareness i

156、n the ecosystemUnlock new credit structuresToday founders rely on their existing network for choosing Venture Debt.To enable faster growth,it is important to take steps towards building awareness of the product features,use cases,accessibility and implications of its key terms.Evangelizing interacti

157、ve modes of engagement such as workshops,seminars,blogs will promote deeper knowledge of this asset class as a form of financing.While debt financing gains momentum in India,curating need-based financial solutions will be key to enable higher interest among founders.Working capital lines,project-bas

158、ed financing,along with co-lending,growth stage debt and acquisitions financing are some leading examples.Beyond this,financial tools for founders to better understand and optimize cost of capital is a vital need in the market that can be adressed.50VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW

159、ECONOMYTHE NEXT HORIZON:UNLOCKING THE FULL POTENTIAL51Growth enablers:Supply of CapitalBroaden the investor poolStrengthen presence in existing investor groupsAs the industry matures,expanding the array of investors participating in Venture Debt funds will fuel the growing capital requirements.This

160、includes building investment vehicle structures that can draw global institutional capital such as multi-family offices,pension funds,sovereigns,endowments,etc.to Venture Debt.While investors are considering Venture Debt as a part of their overall portfolio,increased awareness will driver higher all

161、ocation towards this asset class.This will be further aided by demonstrating a successful track record of Venture Debt investments across sectors and ticket sizes,over the next economic cycle.Vintage of experienced fund managers is also expected to provide additional comfort to investors and drive f

162、urther allocations.THE NEXT HORIZON:UNLOCKING THE FULL POTENTIAL51If you would like to discuss the themes and content of this report,please contact:For further information,contactYASHRAJ ERANDEManaging Director&Partner,BCGErande.YANSHUMAN UPADHYAYAPartner,BCGUpadhyaya.AANWESHA CHAKRABORTYConsultant,

163、BCGChakraborty.ARAHUL KHANNAManaging Partner,Trifecta CapitalRahul.Khannatrifectacapital.inABHISHEK GUPTAPartner,Trifecta CapitalAbhishek.Guptatrifectacapital.inARIJIT SARKARDirector,Trifecta CapitalArijit.Sarkartrifectacapital.inSAHIL AGGARWALAssociate Director,Trifecta CapitalSahil.Aggarwaltrifect

164、acapital.inATUL SATPATHYAssociate,Trifecta CapitalAtul.Satpathytrifectacapital.inNEETU CHITKARAChitkara.NManaging Director&Partner,BCGThis report is a joint initiative of Boston Consulting Group(BCG)and Trifecta Capital India.We are thankful to Mihir Vora,Pankaj Dinodia,Sriram Mahadevan,Rajeev Ahuja

165、,Gautam Sehgal,Prayank Swaroop,Rajat Agarwal,Rahul Taneja,Amit Kulkarni,Sameer Brij Verma and Abhilash Sethi for their valuable insights to enriching this report.We thank the 40+founders we connected with over the BCG-Trifecta Venture Debt Survey for Founders,2022 and 1-on-1 interactions for their c

166、ontribution towards the enrichment of this report.We extend our sincere appreciation to Jasmin Pithawala,Komal Mohan and Sucheta Desai for marketing and communications support and to Saroj Singh,Sujatha Moraes,Subhradeep Basu,Soumya Garg,Nitesh Tirkey,Naman Arora,and Dinkle Thakker for their extensi

167、ve design and report production support.AcknowledgementsFor information or permission to reprint,please contact BCG at To find the latest BCG content and register to receive e-alerts on this topic or others,please visit .Follow Boston Consulting Group on Facebook,Instagram and Twitter.Boston Consulting Group 2023.All rights reserved.02/23VENTURE DEBT:THE RISING TIDE OF CREDIT IN THE NEW ECONOMY54