Even as the Indian venture capital industry has grown significantly, venture debt, a companion asset class, is now almost 10 years old with Trifecta Capital having launched India’s first venture debt fund in 2015. This asset class has scaled significantly by providing a non-dilutive financing solution for early and growth-stage companies that typically are not able to access credit facilities from traditional lenders like Banks and NBFCs. Equally, investors in this asset class have appreciated the relatively low-risk profile coupled with predictable quarterly returns and upside participation. As a pioneer in this asset class, Trifecta Capital has deployed over INR 6,000 crore across 180 companies through three venture debt funds. Now, the fundraising process for our fourth fund is also in full swing.

The last decade was largely dominated by equity financing provided by private equity and venture capital investors given the low cost of capital and the hypergrowth of startups. The next decade, however, is likely to be very attractive for private credit investors, especially those specialising in alternate capital for new-age companies for the reasons below.

Firstly, equity financiers over the last decade have created a massive pipeline of new-age companies for venture debt investors to support in the next phase of their growth. For example, for a Series B founder who has already diluted 50-60% of their equity, raising debt to fund the next phase of growth makes much more sense than just raising more equity. Following the pandemic peak and subsequent slowdown, companies are increasingly focusing on profitability and capital efficiency, creating an even better crop of companies for venture debt players to fund.

Secondly, venture debt is being used for various purposes such as inventory and receivables financing, working capital, capex, and deposits. Emerging use cases include acquisition financing and share buyback financing. These trends indicate that as the ecosystem matures, the demand for venture debt will continue to rise.

Thirdly, in more mature startup markets like the United States, venture debt makes up close to 20% of venture capital funding, while in India, the number barely touches 5%. At its peak, the US venture capital market crossed $300 billion in funding, compared to India's $30 billion. This highlights the significant growth potential for India's venture capital market and with it, massive growth potential of the venture debt market.

Trifecta Capital, as a venture debt investor, funded 63 companies in CY23, including 48 new companies and 15 follow-on investments, deploying close to 1200 crores. With a team of over 15 investment professionals in the key venture markets of Bangalore, Mumbai, and NCR we stay close to our portfolio companies and support their growth plans by leveraging our specialised expertise to steer founders and their companies toward long-term value creation.

With enormous depth yet to be achieved, the current venture debt market is just a fraction of its potential in the coming decades. Trifecta Capital, as the pioneer and market leader is well positioned to capitalise on the growth of this asset class by providing innovative financing solutions to companies through their lifecycle.