This preference shows a growing recognition of the strategic advantages venture debt provides, especially in capital-intensive and rapidly evolving industries.The venture debt market in India is steadily growing, mirroring the early days of venture capital, particularly in the emerging startup sectors such as fintech and electric vehicles (EVs), a report showed on Thursday.
Indian founders are increasingly turning to venture debt to bridge funding gaps and avoid excessive equity dilution, according to the report by global investment institution Lighthouse Canton.
This shift has been primarily driven by the scarcity of equity funding in the market and the desire to preserve ownership while accessing the capital necessary for growth.
The report indicated that the top reason founders prefer venture debt over traditional debt and equity is its less dilutive nature (40%), with repayment schedule flexibility also being a significant factor (30%).
This preference shows a growing recognition of the strategic advantages venture debt provides, especially in capital-intensive and rapidly evolving industries.
"India's startup ecosystem holds immense potential, and the growth of venture debt funding is playing a pivotal role in driving its development," said Sanket Sinha, Managing Director, Global Head of Asset Management at Lighthouse Canton.
"We believe that this mode of funding will be essential to foster innovation and empower startups, which will ultimately drive sustainable growth across the nation's dynamic and evolving business landscape," he added.
India's fintech sector, now the third-largest globally, continues to be a major driver for the adoption of venture debt. Innovations like UPI have propelled India's fintech market forward, with venture debt playing a critical role in helping fintech startups manage cash flows, support onward lending, and fuel their growth.
The electric vehicle sector, which is capital-intensive and faces unique challenges, has also become heavily reliant on venture debt to drive its growth.
According to the report, approximately 67% of EV startups rely on venture debt for more than half of their debt funding.
"With traditional lenders like banks often viewing the EV sector as high-risk, venture debt makes for a vital alternative," the report mentioned.
