Venture debt firms see pick up in demand as equity deals slow

Venture debt firms lend to new economy start-ups which are high-growth companies, asset-light and might have cash burn. Photo: Priyanka Parashar/MintVenture debt firms lend to new economy start-ups which are high-growth companies, asset-light and might have cash burn. Photo: Priyanka Parashar/Mint

Mumbai: The slowdown in the availability of equity funding and a downward pressure on valuations in the venture capital ecosystem in the country has emerged as a business opportunity for firms which lend to technology start-ups.

Lending to start-ups is referred to as venture debt, and is substantially different from regular corporate lending which is generally asset-backed and provided to profit-making companies. Venture debt firms lend to new economy start-ups which are high-growth companies, asset-light and might have cash burn.

Typically venture debt firms charge interest rates in the mid teens, while equity investors look for returns which are above 25%.

While 2015 was a record year for venture capital (equity) funding, with $5.4 billion being invested across 473 deals, a majority of the investment activity occurred in the first half of the year. The second half of the year saw a marked slowdown, as several start-ups, especially in the food-tech sector, struggled to raise funds and had to scale back operations to conserve cash.

Temasek-backed InnoVen Capital closed 2015 with a lending of Rs.275 crore to 27 start-ups, the best year for the non-banking financial company (NBFC) since it started operations in India in 2009.

The firm has lent close to $150 million since starting operations here, having backed 70 start-ups so far.

“Recently, we have seen that equity capital is not easy to come by, so this (venture debt) becomes an important diversification tool for founders, said Vinod Murali, managing director at InnoVen Capital India, adding that there is a growing realization among start-up founders that equity is not the only source of capital.

“In the global arena too, venture debt has taken off with a lag with venture equity, I think even in India we are seeing that happen at this stage,” he added.

Trifecta Capital, which is registered as a category II alternative investment fund with the Securities and Exchange Board of India (Sebi) and has raised over Rs.200 crore from investors such as RBL Bank Ltd and others, is a relatively new company involved in the business.

Since starting operations in October, the fund has already lent Rs.50 crore to four start-ups and is witnessing a strong pipeline of deals.

“Clearly there are times when equity is available more easily and valuations tend to be more flexible, but what we are seeing in 2016 is that valuations are under pressure. Companies are realizing that they need to stretch their money as far as they can,” said Rahul Khanna, founder and managing partner at Trifecta Capital.

“In many ways, venture debt taken along with or after an equity round can give the company a three-to-five-month runway, which could mean a difference between raising money at X valuation or 1.5X valuation,” he said.

Apart from providing additional capital source to start-ups, venture debt has other benefits such as helping start-up founders reduce their equity dilution, while looking to raise capital to fund growth.

“To some extent if they are raising money and they are not getting the terms they want, then taking venture debt also helps in terms of dilution. For example, a start-up looking at raising $10 million, and not getting the targeted valuation, can raise $8 million in equity and the remaining $2 in debt, thereby reducing the equity dilution,” said Khanna.

Venture debt providers are hopeful that the current momentum in business will continue in 2016, given the current scenario in venture equity funding and the strong deal pipeline that they are witnessing.

InnoVen Capital is targeting to lend around $65-70 million (approximately Rs.350-400 crore) this calendar year.

“The final number would depend on opportunities, but we are feeling comfortable with that kind of estimate,” said Murali, adding that a recalibration is happening in the industry, which is making business more efficient and cutting flab.

According to Khanna, Trifecta is looking at making one or two investments every month, going ahead, with a ticket size ranging from Rs.5 crore to Rs.25 crore.

“Lot of financing activity happened in last 18-24 months, and many of those companies were consuming cash pretty quickly. So these start-ups are now looking at extending their runway, we are seeing some of that activity play through,” he said.


Tiger Global invests $10 million in online videos creator The Viral Fever

A file photo of TVF co-founder Biswapati Sarkar. Photo: Aniruddha Chowdhury/MintA file photo of TVF co-founder Biswapati Sarkar. Photo: Aniruddha Chowdhury/Mint

Mumbai: Tiger Global Management Llc has invested $10 million (Rs.65.6 crore) in popular online video content creator ‘The Viral Fever’ (TVF), picking up a significant minority stake in the firm, according to filings made by the company with the registrar of companies (RoC).

The investment was made in Contagious Online Media Network Pvt. Ltd, which was incorporated in July last year. According to the documents, Tiger Global has picked up close to 25% stake in the firm valuing it at around Rs.270 crore.

The firm’s filings with the RoC show that for the period from 3 August to 21 October, Contagious Online Media reported a revenue of Rs.64 lakh and a profit of Rs.22 lakh.

The Viral Fever was set up by IIT graduate Arunabh Kumar in 2010. He was later joined by Amit Golani and Biswapati Sarkar.

TVF is popular for producing online videos targeting the youth. The group is known for its comedy videos such asQtiyapa; Barely Speaking with Arnub—a satirical take on Times Now’s Arnab Goswami and its original online series such as TVF Pitchers and Permanent Roommates.

In an email response, Tiger Global declined to comment on the development, while emails sent on Tuesday to TVF founders Arunabh Kumar and Biswapati Sarkar did not elicit a response till the time of going to press.

In the recent years, the trend of creating online video content, especially in the comedy genre, has picked up significantly with the emergence of several groups such as All India Bakchod, East India Comedy and several stand-up comics.

These content creators are not just doing it for the laughs. There is serious money to be earned through platforms such as YouTube. According to a report by US magazineForbes in October, the 10 top earning content creators on YouTube for 2014 and 2015 earned a grand total of $54 million.

For Tiger Global, this is the second investment in the online video content space. In 2015, Tiger, along with venture capital fund Zodius Capital, invested $18 million in Culture Machine, which runs the Being Indian and several other YouTube channels. The firm helps artists create, promote and monetize their videos on YouTube and other platforms.

The American investor has stakes in close to 50 companies of varying sizes across the country, mostly in the consumer Internet sector. It has invested an estimated $2 billion-plus into these companies, earning it the distinction of being the largest and most active start-up investor here over the last decade.

However, in the last couple of the American investment firm has gone slow on investing in India.

On 12 February, Mint reported that more than half the companies in its portfolio have been told that it will not participate in future funding rounds even on a pro-rata basis. In instances where it does participate in future rounds, it will not take the lead on deals as has been the norm in the past.

This has resulted in a significant churn in its portfolio with several of its portfolio firms becoming acquisition targets. In some cases they have been acquired by firms which are also funded by Tiger Global.

In January, Bengaluru-based property search platform Commonfloor was snapped up by online classifieds platform Quikr in a stock-swap deal. Tiger Global is an investor in both companies. Last week, another Tiger’s investee firm Zo Rooms got acquired by its larger rival OYO Rooms.

Tiger Global counts unicorns such as Flipkart, Quikr and Ola as its portfolio firms.


Chennai Angels invests in Finance Buddha

Finance Buddha raised its first round of external funding and is slated to disburse more than <span class='WebRupee'>Rs.</span>1,000 crore loans in the current financial year.

Finance Buddha raised its first round of external funding and is slated to disburse more thanRs.1,000 crore loans in the current financial year.

Chennai: The Chennai Angels (TCA) on Friday said that it has invested an undisclosed amount in Finance Buddha, a financial services firm.

“There have been many start-ups in the fintech space, but what excites me about FinBud is the quality and thinking of the entrepreneurs, which is informed by their extraordinary domain competence and fantastic execution skills. Unlike unidimensional start-ups, this business has scale as well as technology,” said Shankar V, who led the investment from TCA.

Finance Buddha is a three-year-old company for financial service products- personal loans, unsecured business loans, home loans, loans against property and insurance.

“This pre-series A round of funding will be used to further develop our technology platform which will be integrated with various stakeholders in the loan origination, underwriting and disbursal process,” said a statement from the company.

The company, which raised its first round of external funding, is slated to disburse more than Rs.1,000 crore loans in the current financial year.

The financial services firm said it aims to make the entire loan process paperless and one where a customer can get instant approval, without compromising on the underwriting and verification process.


Taskbob raises Rs28 crore in series A funding

The funding comes at a time when home services platform operators have raised fresh capital to remain afloat, pursue consolidation efforts and to remain competitive and scale rapidly.The funding comes at a time when home services platform operators have raised fresh capital to remain afloat, pursue consolidation efforts and to remain competitive and scale rapidly.

Bengaluru: Taskbob, a home services company run by Mumbai-based Crenovative Ideas Pvt. Ltd, has raised Rs.28 crore ($4.5 million) in a series A funding round led by IvyCap Ventures, Orios Ventures and Mayfield Ventures.

The funding will be used to expand product growth, innovate and pursue strategic acquisition to help scale the company’s orders to 10,000 per day within the next 18 months from around 1,000 currently, the company said in a statement. Taskbob had raised $1.2 million in April 2015.

The funding comes at a time when home services platform operators have raised fresh capital to remain afloat, pursue consolidation efforts and to remain competitive and scale rapidly.

“Fulfilment, not discovery, is the real problem in India’s local services space. With this in mind, we have been more focussed on supply and fulfilment issues rather than plain demand aggregation,” Aseem Khare, chief executive officer of Taskbob said in the statement.

Norbert Fernandes, co-founder and principal at IvyCap will join the board at Taskbob.

There are over 100 home services companies providing services like electricians, home cleaning, pest control and other services. Both local and home services companies have so far raised around $180 million cumulatively so far, according to data by start-up tracker Traxcn.

Founded by Aseem Khare, Abhiroop Medhekar, Ajay Bhatt and Amit Chahalia in 2015, Taskbob offers home services like cleaning, drivers and maids.

The company acquired Zepper Services Pvt. Ltd in November 2015 to expand its offerings in Bengaluru.

The three most well-funded companies in the home services space are Housejoy (Sarvaloka Services On-call Pvt. Ltd) which raised Rs.150 crore in December 2015 by a clutch of investors led by online marketplace Amazon India; UrbanClap Technologies Pvt. Ltd which raised $25 million by Bessemer Venture Partners in November 2015; and Quikr India Pvt. Ltd which has committed to investRs.250 crore into its home and local services arm QuikrServices.

Others like Rejuvenate Solutions Pvt. Ltd-run Zimmber are in advanced talks with online marketplace Snapdeal to raise around $7 million.

The funding has been mainly used to expand to new cities and strategic acquisitions. Housejoy has acquired laundry start-up MyWash and fitness start-up Orobind, Zimmber has acquired laundry start-up Dhulai and hyperlocal market place Findyahan.