The venture debt market in India is steadily expanding, resembling the early days of venture capital, particularly in emerging sectors like fintech and electric vehicles (EVs), according to a report released Thursday.
Indian founders are increasingly turning to venture debt to bridge funding gaps and minimize equity dilution, as highlighted in the report by global investment firm Lighthouse Canton.
This shift is primarily driven by limited equity funding in the market and a desire to preserve ownership while accessing the capital needed for growth.
The report indicates that the top reason founders prefer venture debt over traditional debt and equity is its non-dilutive nature (40 percent), with flexible repayment schedules being another significant factor (30 percent).
This preference reflects a growing awareness of venture debt’s strategic advantages, particularly 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 and Global Head of Asset Management at Lighthouse Canton.
“We believe this mode of funding will be essential in fostering innovation and empowering startups, ultimately supporting sustainable growth across the nation’s dynamic business landscape,” he added.
India’s fintech sector, now the third-largest globally, continues to be a major driver for venture debt adoption. 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 growth.
The electric vehicle sector, which is capital-intensive and faces unique challenges, has also become heavily reliant on venture debt for its expansion.
According to the report, approximately 67 percent 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 serves as a vital alternative,” the report noted.
(Inputs from IANS)