Debt financing for Indian startups increased significantly in the first half of 2024. More than double the $285 million raised in H1 2023, or $576 million, was invested in debt. This increase suggests that startup finance tactics are changing, with debt becoming a more popular choice to support business growth.
Equity Funding Dips Slightly
While debt funding surged, equity funding saw a modest decline. Equity investments totaled $4.7 billion in H1 2024, down 8% compared to $5.1 billion in the same period last year. This trend suggests that startups are increasingly looking for alternative funding sources that don’t dilute existing stakeholder ownership.
Debt Funding Benefits and Examples
For entrepreneurs, debt financing provides a number of benefits. It gives new funds for expansion without changing the ownership structure. Because of this, debt is especially appealing to businesses getting ready for an IPO. With debt financing, firms can expand without immediately diluting their equity and can close the gap between investment rounds.
Some notable examples of debt funding deals in H1 2024 include:
- GPS Renewables: Secured $50 million in debt financing.
- Bira 91: Received $25 million in debt funding from Kirin Holdings.
- Ola Electric: Raised $50 million in debt financing from Alteria Capital.
Debt-Heavy Funding for IPO-Bound Companies
The report highlights a growing trend of IPO-bound companies utilizing debt financing before going public. This strategy helps them improve their financial standing and potentially achieve a higher valuation during the IPO. Companies like Ola Electric (with a SEBI-approved INR 5,500 Cr IPO), Bluestone, and Mobikwik all leveraged debt funding in the first half of 2024. Notably, non-banking lender Northern Arc Capital, preparing for an IPO, was the biggest recipient of debt funding, securing a total of $155 million from FMO and IFC.
Venture Debt Firms Take the Lead
The most active investors were found to be venture debt firms, which is consistent with startups’ growing interest in debt financing. With investments in 46 businesses, including Lendingkart, Ather Energy, Ola Electric, Zyod, and Solar Square, Stride Ventures led the field. Other well-known venture debt companies that are actively involved in the Indian startup scene are Trifecta Capital, Alteria Capital, and InnoVen Capital.
Overall Startup Funding Trends
Despite the rise in debt financing, the total funding amount for Indian startups in H1 2024 dipped slightly to $5.3 billion compared to $5.4 billion in H1 2023. However, the number of funding deals increased by 7%, reaching 504 from 470 in the same period last year. This indicates a continued interest in investing in Indian startups, with a shift towards smaller funding rounds. The median ticket size also witnessed a decline of 8% year-over-year to $2.8 million but showed a significant increase of 87% compared to H2 2023.
The H1 2024 funding report by Inc42 signifies a maturing Indian startup ecosystem. The rise of debt financing reflects a strategic shift by startups seeking alternative funding avenues for growth while maintaining ownership control. Venture debt firms are capitalizing on this trend, playing a crucial role in fueling the ambitions of Indian startups. With a continued influx of funding and a growing number of deals, the Indian startup landscape remains promising, attracting investors and fostering innovation.
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