A venture debt involves debt financing, specifically structured to support startups and early-stage businesses that require flexibility in loan amounts, collaterals and repayment structures, for which traditional bank loans are rarely available. US-based Silicon Valley Bank (SVB), which has completed three decades in the business, specialises in venture debt. It floated a non-banking finance company (NBFC) in India back in 2008 and has been active in financing Indian startups. In this interaction with Techcircle, Ajay Hattangdi, managing director of SVB Finance India Pvt Ltd, explains the NBFC’s experience and learning, performance of its portfolio and future prospects.
Your portfolio companies have a strong overtone of e-commerce and tech. Will you be lending more to the same sector? How will you deal with the concentration risk?
Our India portfolio has a fairly secular mix of companies spanning technology, medical devices, logistics, quick service restaurants, branded retail, matrimonial services and e-commerce. That reflects our approach, which is tailored for India. We have limits on individual loan size, as well as industry exposure, to ensure that we don’t have a concentration risk and are able to maintain ‘granularity’ in our portfolio.
As one of the niche investment partners to companies backed by private equity players or venture capital funds in India, what’s your learning?
One of the key things we did in India was to modify our lending approach to suit the varied business models and startup lifecycles in India. In other markets, SVB largely focuses on technology and life sciences companies simply because that’s where a lot of innovations are happening in those markets. But in India, innovation is happening across a range of industries. So our approach has to be attuned to the Indian context to accommodate a much wider range of business models.
Our learning at a transaction level has been to start engagements with modest debt sizes and build those with successive tranches as companies achieve scale. This enables the companies to take the right amount of leverage, appropriate for their size of growth. SVB’s approach, therefore, ensures that innovative companies with good growth prospects have access to appropriately structured risk capital at all stages of their development.
Given the total funds at disposal, how many companies have you funded so far?
We have a total capital base of $50 million and the cumulative total of the loans we have given till date is significantly higher than our initial capital. Roughly, a third of our loans amortise each year and the funds released from loan repayments allow us to redeploy the capital to make fresh loans. The $50 million, therefore, gives us more runway to lend than the amount suggests.
We started here in late 2008 and till date, we have provided more than 40 loans. Currently, the number of our portfolio companies is just a shade below 30. Typically, our debt to early-stage companies will be in the range of $1-5 million while the debt for growth-stage capital will be $2.5-5 million. We have a mix of early-stage pre-revenue companies which have just raised Series A rounds and more mature businesses which are at Series C or D, and may have up to $100 million in revenues. So the drivers for taking the debt from us vary.
For the full interview, please click here.
(Edited by Sanghamitra Mandal)