VMPL
New Delhi [India], December 3: Lighthouse Canton has released an in-depth report titled "Silent Bloom: Venture Debt's Growing Influence." on India's startup ecosystem and its venture debt funding landscape. The global investment institution's report highlights the growing importance of venture debt as a financing tool in India's startup ecosystem. The findings of the report reveal that the venture debt market in India is steadily growing, mirroring the early days of venture capital. Indian founders are increasingly turning to venture debt to bridge funding gaps and avoid excessive equity dilution.
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 survey, included in the report, indicates 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.
The report delves into the sector-wise dynamics of venture debt, particularly in emerging sectors such as fintech and electric vehicles. 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. In particular, sectors like payment gateways and embedded finance benefit from venture debt, as traditional banks may be hesitant to lend in these areas.
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. This underscores venture debt's central role in helping EV companies expand production, set up charging infrastructure, and invest in battery technologies- key areas that are crucial for the sector's continued expansion. With traditional lenders like banks often viewing the EV sector as high-risk, venture debt makes for a vital alternative.
Sanket Sinha, Managing Director, Global Head of Asset Management at Lighthouse Canton, said, "India's startup ecosystem holds immense potential, and the growth of venture debt funding is playing a pivotal role in driving its development. At Lighthouse Canton, we believe that venture debt can help bridge the finance gap and unlock significant economic benefits. The report highlights the transformative opportunities within this space, reinforcing India's position as a key player in the new global economy. 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".
The report was launched at the IVCA Private Credit Summit in Mumbai on November 13, 2024. The summit was attended by industry leaders and investors from leading insurance firms, pension funds, and family offices, underscoring the expanding role of private capital in today's financing landscape. With banks and public lenders moving away from middle-market lending, private capital has stepped in to meet the rising financing demands of startups and SMEs. Private credit solutions have enabled businesses to secure growth capital, refinance, and access working capital by offering diverse options (including medium and long-term financing, acquisition funding, and revolving credit lines). In Asia, the private credit market has swiftly adapted to SME needs while mitigating investor risks, growing nearly 30 times from US$3.2 billion in 2000 to over US$90 billion by June 2022.
Ankit Agrawal, Executive Director, Portfolio Manager for LC Venture Debt Fund at Lighthouse Canton, said, "India's venture debt market growth mirrors the maturity of the startup ecosystem. Increasingly, founders are turning to venture debt to meet capital needs, fuel innovation, and drive growth while maintaining control over their businesses. We foresee this trend broadening across various sectors, providing startups with a flexible financing option that supports their scaling efforts in an evolving market".
Lighthouse Canton is a key player in India's rapidly growing startup and SME ecosystems, committed to fostering innovation and driving economic development. The company's diverse investment strategies in venture capital, venture debt and supply chain financing are actively empowering the growth of new-age economies by supporting emerging sectors and entrepreneurial ventures. Its venture capital and venture debt investment strategies in India have also attracted significant investment from global and regional institutional investors such as the Small Industries Development Bank of India (SIDBI) and NH Absolute Return Partners, the Singapore entity of NH Securities, part of the NH Group in Korea.
About Lighthouse Canton
Headquartered in Singapore, Lighthouse Canton is a global investment institution with wealth and asset management capabilities. We employ over 160 experienced professionals across our offices in Singapore, Dubai, India and London, and oversee over US$ 3.7 bn worth of assets under management and advisory (as of 30th June, 2024).
Lighthouse Canton creates value through innovative investment solutions for accredited private clients, institutional investors and an ecosystem of founders and entrepreneurs globally.
Lighthouse Canton's Asset Management service comprises strong internal product capabilities in hedge funds, private equity, traditional fundamental analysis, investing through multiple strategies in real estate private equity, direct lending, public equities, and global macros.
Lighthouse Canton Pte Ltd is regulated by the Monetary Authority of Singapore ("MAS") and registered as an Exempt Reporting Advisor ("ERA") in the United States. Lighthouse Canton Capital (DIFC) Pte Ltd in Dubai is regulated by the Dubai Financial Services Authority ("DFSA"). LC Capital India Pvt Ltd is regulated by Securities and Exchange Board of India (SEBI) for Portfolio Management Services and registered with Association Mutual Funds in India (AMFI).
The survey included in the report shows that 40% of founders favor venture debt over traditional debt and equity due to its less dilutive impact, with 30% also valuing the flexibility in repayment schedules.
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