Interest rates for venture debt deals—typically 14-15% and with low correlation to bank rates—have largely remained stable for over a decade, with a change of only about 1-1.5% based on the company’s risk profile, said Punit Shah, managing partner at venture debt firm Alteria Capital.“While the macro conditions have been less favourable for startup funding, there is significant amount of dry powder available to be invested in the ecosystem, which will drive innovation further and reward sustainable growth. Venture debt will continue to be a derivative of this capital,” Shah told FE.
Venture debt is a type of loan offered to Series A-and-above startups with institutional backing, and includes equity warrants in addition to the debt component, with a repayment period of two-three years. These equity kickers are typically about 10% of the debt quantum and usually translate to less than 1% ownership in the firm on a fully diluted basis.Alteria Capital, which is bullish on India’s consumption story, has so far backed firms such as Good Glamm Group, Curefoods, Rebel Foods, Spinny, Mensa Brands, BharatPe, Cars24, Blu Smart Mobility, etc. It recently announced the final close of its oversubscribed third fund at Rs 1,550 crore.
Alteria plans to make 100-120 investments from the latest fund, aiming for a return in the mid-to-late teens. It is also currently raising funds for a shorter-duration scheme which is to address the working capital requirement of startups, and aims to make 50-70 investments of smaller cheque sizes.Shah expects the funding environment to recover in the second half of this year, while big-ticket startup IPOs will provide positive cues for investors.
“There are early signs emerging for market recovery already. A notable metric is that the gap in valuation expectations between demand and supply has started to narrow compared with last year,” he said.Last year, most investors in the startup ecosystem had noted a mismatch between the expectations of founders and venture capitalists, which dried up deal flows further and pushed the total funding to a five-year low. As few as 17 late-stage deals were signed last year, 69% lower than the preceding year, as per Tracxn data.
“For sustained growth, founders and investors should focus on learning from past trends, understanding that capital beyond fair market valuation levels can be detrimental in the medium term itself,” he added.
