While stock financing remains the primary solution for modern firms’ financial needs, alternative financing options are gaining popularity among startups as a way to generate funds without drastically diluting their captable. Tracxn data indicates that, as of May of this year, venture loan capital raised by companies amounted to about $105 mn, while throughout the course of 2023, $151 mn was raised. These are the only venture debt agreements that are made available to the public.
Venture debt is a kind of institutionally backed financing available to Series A and above firms. It has a two- to three-year repayment schedule and comes with stock warrants in addition to debt. These equity kickers represent approximately 10% of the total debt amount and, when completely diluted, often equate to less than 1% ownership in the company.
Since venture capital investments are normally restricted to companies with institutional support, the rebound in venture capital investments is largely responsible for the increase in venture loan transactions. “The year started off well with VC investments in Indian startups rebounding from a low not seen since Q4 2016 to double to $2 bn from 183 deals compared to $1 bn in Q3FY24.”
There has been a noticeable increase in venture debt activity as a result of the Stride team’s anticipated positive trend in venture capital. Due to these encouraging market trends, the venture debt landscape appears poised to reach new heights in 2024, having already surpassed the $1 tn mark in 2023.
Convertible debentures raised $49 mn in March by Mohalla Tech, the company behind the popular social media platforms Moj and ShareChat, made it one of the largest venture debt deals of the year. In addition, this year saw venture debt funding raised by the space-tech startup Dhruva Space and the fintechs Axio and Lendingkart.