SIDBI forays into venture-debt market

Small Industries Development Bank of India (SIDBI) Chairman Sivasubramanian Ramann announced the bank's foray into venture-debt financing at the Indian Venture and Alternate Capital Association (IVCA) conclave.

Speaking in Mumbai on the first day of the IVCA conclave being held in Mumbai, Ramann said, "Along with equity investments, we are talking about the ability to provide debt. A lot of banks, even today, are not in a position within their straitjacket to provide debt to companies. So, SIDBI has gone into what is known as venture debt." The European Investment Bank's website defines venture debt as a "loan to an early-stage company that provides liquidity to a business for the period between equity funding rounds." Also Read:

Alteria Capital's Vinod Murali: When there is no equity, there is no debt either This form of funding is a short-term financing solution, and typically these loans come with a repayment period of one-two or two-three years. Unlike other forms of debt, venture debt providers stay linked to venture capital investors and it is not unusual to see a business being provided with such loans multiple times during its initial years.

Also Read: Fintech emerged as top sector for venture debt funding in 2022, raised $400 million: Report Commenting on SIDBI's progress so far in providing venture-debt, Ramann said, "It's very small beginnings, but I think we've done about 4 investments, and this we are doing with, in fact, the partnership that has grown amongst all of you." Also Read: Digital lending platform Mintifi to raise $60 mn at $350 mn pre-money valuation Addressing the fund-winter and the need for incentivising the startup space, Ramann said, "We've talked a lot about seed-stage investing. We've talked to several incubators around the country - whether incubation is something we need to grow more, we need to take that up in a bigger way, or is there a consolidation that is expected to happen? Because I was told that there were over 200 incubators in this country, and we probably don't know what's happening amongst them, but this all adds up to the startup space." Investment firm Orios Venture Partners estimates the venture debt market to be 10-20 percent of the annual flows of venture equity. Closer home in India, unofficial estimates pin it around 2-5 percent of annual venture capital flows.

In his address, the SIDBI Chairman also urged funds to consider early-stage investing. Ramann said, "When you are already straddling the space of startups, where you are talking about series A and upwards, are you also willing to look to come up to the early stage more easily?" Earlier, SIDBI had declared that the MSME sector can serve as a strong foundation for the recovering economy. Thus, it aims to grow its balance sheet to ₹5 trillion in the next two years and facilitate credit supply to the MSME sector, in line with the Government of India's vision of making India a $5 trillion economy.