As profitability takes priority, venture debt finds favour with startup founders: Strides report

• 71% of founders of early-stage companies plan to raise venture debt in 2023.
  
• 74% of VCs surveyed said they would recommend their portfolio companies to take on venture debt in 2023.
  
• Venture debt disbursed increased 2.6 times from 2019 to 2022.

A lot has changed in the last one year in the Indian start-up landscape. In per a survey by India Venture Debt Report by Stride Ventures, 82% of founders said they will strive for profitability and prioritize scaling their startups in 2023.

Also, 79% of VCs want to focus on profitability, while only 21% want to focus on growth. This is in contrast to 2022 when 68% of founders and 55% of VCs focused on growth rather than profitability.

The survey also revealed that 71% of founders of early-stage companies plan to raise venture debt in 2023, compared to 50% of late-stage founders and 20% of growth-stage founders.

Says Ishpreet Singh Gandhi, founder and managing partner, Stride Ventures, “Venture debt has become one of the key growth enablers for Indian startups.”

Additionally, 74% of VCs surveyed would recommend their portfolio companies to take on venture debt in 2023.

The survey results also highlighted that 62% of founders and 44% of VCs consider "engaging with bank limits" as the most important value-added service offered by a venture debt fund, with "advisory on corporate financial services" being the second most preferred service for 28% of founders and 33% of VCs.

Bank limits are defined by a bank to set up amount and duration based restrictions on the transactions that can be carried out by the user. This is a change from 2022, where advisory on corporate financial services was considered the most important value-added service.

Agritech, healthtech, SaaS receive fewer venture debt prospects

Finally, the survey indicated that agritech, healthtech, and SaaS sectors are receiving fewer venture debt prospects according to founders and VCs.

Out of a total of 170-180 venture debt deals recorded in 2022, the fintech sector emerged as the leading sector with 31% of the share, followed by consumer and agritech sector startups.

The report also highlights the potential of B2B replacing fintech in 2023 for the most attractive sector for venture debt, closely followed by consumer and EV.

The report also reveals that the venture debt ecosystem in India is thriving, with a 2.6 times increase in the debt amount disbursed from 2019 to 2022. The report indicates that Series D and startups beyond that stage raised the most debt in 2022, while pre-Series A stage startups completed the highest number of debt deals.

Geographically, the report recorded Delhi NCR as the most active location for venture debt deals in 2022, followed by Bangalore and Mumbai.

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