Mumbai-based venture capital firm IvyCap Ventures is planning to launch a Rs500 crore venture debt fund in the next three months.

The VC firm typically invests in early-to-growth stage companies. It raised its first fund of Rs240 crore in 2012 which is now fully deployed across 10 investments which includes, Clovia and Bluestone, among others. IvyCap is currently in the process of deploying its second fund of Rs600 crore raised in 2015.

Unlike traditional bank lending, which is provided to profit-making companies, venture debt is available to startups and growth companies that do not have positive cash flows or significant assets to use as collateral. Venture debt providers combine their loans with warrants, or rights to purchase equity, to compensate for the higher risk of default.

"While we are almost in the final stages of our Fund 2, we are also working on launching our own venture debt fund. We have set up the team and see a huge opportunity in this space of AIF (alternative investment fund) II category," said Vikram Gupta, founder and managing partner of IvyCap Ventures in a statement.

The debt fund will focus on mid-stage start-ups, typically in companies at a series B or C fundraise stage. It will look to invest in ticket sizes that would range between Rs20 crore and Rs25 crore.

Vikram further said, "We would deploy the fund where there are no conflicts with IvyCap equity investments and that’s the reason we have set up a completely separate venture debt team with separate decision bodies. The debt fund would help businesses showing current or future positive cash flows in the company. It will look for funding mostly working capital and help in growth of the businesses,"

The Indian venture debt market has been picking up pace in the last couple of years and is now seeing newer firms such as IvyCap that are looking to tap the potential.

In 2008, InnoVen Capital provided the first-ever venture debt of about Rs.5 crore to Sequoia-backed Prizm Payments (now Hitachi Payment Services), and ever since, its popularity has been on the rise. Venture debt is slowly coming of age in India. In 2014, Rahul Khanna and Nilesh Kothari launched a Rs500 crore venture debt fund Trifecta Capital.

Former InnoVen Capital executives Ajay Hattangadi and Vinod Murli too are raising a new venture debt fund of up to Rs1,000 crore, The Economic Times reported in August.

IvyCap is also likely to start raising its third venture capital fund by the middle of 2018, said Vikram to Livemint. The firm is currently planning to raise around $300-400 million for the third fund, which will make it the firm’s largest till date.

The development was first reported in LiveMint.

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