Venture debt platform BlackSoil, which has backed Indian unicorns such as OYO and Spinny, will launch its second credit fund immediately after it has finished deploying funds from its Rs350 crore ($42 million) maiden fund in about four months, its co-founder told DealStreetAsia.
Ankur Bansal said the new fund will have a similar size to its maiden fund with a green shoe option. The firm has deployed Rs280 crore out of the Rs350 crore from its maiden fund and will deploy the rest of the funds within four months.
“We believe in raising optimum size funds where we can deploy funds quickly in two years and move to the next fund,” Bansal said.
BlackSoil claims to have deployed upwards of $300 million, across over 130 transactions in the last six years. Its portfolio includes unicorns such as Upstox, Slice, MobiKwik, Udaan, Infra.Market, Zetwerk & Purplle. There are over 20 Family Offices/HNIs that have invested in BlackSoil’s various debt products, it said.
The firm launched its maiden credit fund in 2020, with exposure to five unicorns. While the firm is sector-agnostic, Bansal said they are cautious about investing in consumer acquisition businesses where getting repeat orders is a challenge and marketing is a way to sustain; and B2B commerce, fintech platforms that are unable to work as per RBI guidelines.
He said the firm is bullish on travel tech, healthcare, food QSR business, insurtech, agritech and SaaS sectors.
As the access to equity slows down during the funding winter and valuation multiples sober up, Indian startups are increasingly turning to venture debt to meet their working capital needs. Capital investments in the form of debt infusion in Indian startups touched $1.7 billion in Jan-Oct 2022, recording a growth of about 24% over the corresponding period last year, show proprietary data compiled by DealStreetAsia.
According to Bansal, the ‘funding winter’ has opened up opportunities for alternative credit as they provide the necessary runway through working capital solutions, acquisition financing, and other short-term funding requirements without impacting the overall captable and underlying valuations of startups. To meet the growing demand for venture debt, many firms like BlackSoil have launched new vehicles in the past few months.
In October, Edelweiss Wealth Management launched a Rs 3,000-crore venture debt fund to invest in growth-stage startups from Series A onwards.
In the same month, Alteria Capital, too, announced the first close of its third venture debt fund at Rs 1,000 crore, with a greenshoe of Rs 1,000 crore. The firm now has an AUM of Rs 3,800 crore across its three debt funds. The firm has over 100 portfolio companies including Dealshare, Good Glamm Group, Infra.market, BharatPe, Dunzo, Cars24, EarlySalary, Zepto, among others.
In March, Vivriti Asset Management reached the final close of its second debt fund at about $46 million. The same month, Eight Capital Management’s Ravi Chachra and Vijay Lavhale launched 8vdX, a $75-million venture debt firm for early-stage startups. Anicut Capital, too, hit the final close of its second debt fund at $118 million in January. Earlier, WSB Real Estate Partners and BlackSoil Group together raised a Rs 500-crore residential property debt fund to invest in residential real estate projects for middle-income households and in the affordable housing segment.
A recent report by BCG shows Indian Venture Debt investment has grown rapidly at 22% CAGR in the last 3 years to clock nearly $1 billion as of CY22. This is projected to grow 8X to reach $6-7 billion by CY30.
“With increasing access, founders are now leveraging Venture Debt for strategic use cases such as M&A financing, and growth financing. Despite the funding slowdown, different investor groups are gradually increasing their portfolio allocation towards Venture Debt given its advantages such as predictable cashflows and risk-adjusted returns,” the report said.
When asked to quantify the impact of more startups moving toward venture debt, Bansal said BlackSoil has grown about 1.5 times in terms of volume and value of transactions in the calendar year 2022 versus 2021. He added that in just eight months of FY 2023, the firm had done the same amount of business it did in the entire FY 2022.
However, Bansal said the firm has also been increasingly cautious about the companies it invests in. Its conversion ratio has fallen from 12% to 8% to select a company for funding.
He said the firm does not like to fund companies that are gross profit negative and only survive on raising capital. He claims that 12 out of 28 of our deals from its fund are EBITDA positive.
In the biggest venture debt deal in 2022, founder Byju Raveendran financed his $400 million investment in BYJU’s earlier this year through loans raised from multiple international banks. In October, the edtech giant also picked up an unsecured loan of Rs 300 crore from its subsidiary Aakash Educational Services to fuel its business activities.