Over the decades, legions of Indian businesses, big and small, have grown on the back of debt. But for startups chasing growth at all costs, debt is like a millstone around their necks. Unsurprisingly, in the past nine years, Indian startups have raised about $56 billion in venture capital, but only about Rs 3,300 crore ($481.3 million) in venture debt.

Now typically, venture debt lags behind venture capital in startup ecosystems around the world. But the scale of the disparity between equity and debt funding in India is also a sign of a lack of maturity and an over-reliance on venture capital. Venture debt accounts for less than 1% of all startup funding in the country, as against 15% in the US.

And until now, investors have largely seen this asset class as an experiment—but that might be changing, with venture debt slowly gaining credence as a serious investment vehicle. A turning point for the industry, in particular, is the recent interest in venture debt shown by entrepreneurs-turned-millionaire investors Sachin Bansal and Binny Bansal.

The two Flipkart co-founders are looking at options to redeploy their millions after huge exits from the e-commerce company they started in 2007. Binny started his own venture capital fund 021 Capital in January. Sachin, meanwhile, is making equity investments—including a mammoth $100 million in ride-hailing company Ola—besides planning to start his own new venture.

And venture debt has caught both their fancies. Sachin is reportedly in talks to become a limited partner in a venture debt fund. Binny, through 021 Capital, has invested $10 million in one, according to a person aware of his plans, who asked not to be named because the information is not yet public. A situation that is not without a tinge of irony.

The way the Bansals grew Flipkart created a playbook of sorts for startups in the country. It showed that hyper growth ambitions are best fuelled through venture capital. And with each round raised and each new investor added, raising money became a bigger measure of a successful company rather than just the brass tacks of a business. The media coverage of rounds raised grew ever more breathless. And peers made an example out of it.

For entrepreneurs who grew a multibillion-dollar valuation business on the back of a steady diet of equity funding, though, dabbling with venture debt is coming a full circle. Sachin declined to participate in this story and Binny did not respond to requests for comment.

That said, startups still remain less than enthused about venture debt.

Raincoats and returns

Of all the different pots of money available for businesses—from private equity and venture capital to money from family and friends to bank loans—venture debt stands out.


Arundhati Ramanathan

Arundhati is Bengaluru-based. She is interested in how people use money in the digital age and how new economies will take shape based on that interaction. She has spent over 10 years reporting and writing on various subjects. Previous stints were at Mint, Outlook Business and Reuters.

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