Startups turned to venture debt amid funding winter. Now they’re facing the heat

Venture indebtedness backers, typically loath to judge specified requests, are faced with a quandary: which 1 to honour, based connected which startups are much apt to survive.

The Good Glamm Group, backed by task indebtedness firms including Stride Ventures, Alteria Capital and Trifecta Capital, has aligned its equity fundraises successful enactment with task debt. 

Over the past 3 years, arsenic the content-to-commerce level repaid its existing debt, it besides had been simultaneously raising caller task indebtedness astatine amended presumption whenever it raised equity, said a idiosyncratic acquainted with the developments.

Also read: The enigma of Good Glamm’s planetary gambit

Supply concatenation startup Reshamandi and retail-tech startup Arzooo are besides among startups that person sought concessions for their indebtedness repayments, aggregate radical alert of the substance told Mint. 

Venture indebtedness complements equity financing and whitethorn beryllium utilized by aboriginal and maturation signifier companies to easiness liquidity concerns and marque important advancement until their adjacent fundraising round. The indebtedness is usually underwritten by the backer for a fixed period, and involves monthly repayment structures with a coupon rate.

The requests for extended repayment timelines does India’s startup ecosystem nary favour, particularly fixed the persistence of the backing winter.

Delayed payments and salaries

Reshamandi, which raised astir $6.2 cardinal from Stride Ventures, has asked for a one-year hold arsenic it struggles to wage vendors, 1 of those radical said.

Arzooo raised $2.4 cardinal from Trifecta successful September and besides counts Alteria and Stride among its investors. In March, Mint wrote astir delayed salaries astatine the startup. 

At the time, a spokesperson conceded a currency crunch but said “recent infusions of superior from existing investors and upcoming investment" had helped the institution woody with the situation.

Also read: Yet different startup resorts to layoffs, wage delays portion waiting for spring

Last month, Mint reported that agri-tech startup Waycool Foods and Products Pvt. Ltd has besides made akin requests for extended repayment timelines to its task indebtedness backers.

The startups and the task indebtedness firms did not reply to Mint’s queries connected immoderate delays successful indebtedness repayments oregon the hold requests. 

A dilemma

Lenders bash not ever judge requests for repayment extensions. 

A consumer-focused institution that had nary plans to rise equity from caller oregon existing investors precocious approached a salient task indebtedness steadfast to restructure its debt, but the lender declined due to the fact that of a deficiency of clarity connected however the indebtedness would beryllium repaid, a idiosyncratic acquainted with the substance told Mint, requesting anonymity and declining to sanction the company. 

Lenders realise that a bully performing debtor is amended than a atrocious performing one, said Sandeep Murthy, managing manager astatine task superior steadfast Lightbox India Advisors.

“Even if you alteration the terms, and you widen the period, if the institution exists to beryllium capable to wage backmost and continues to wage backmost with that aforesaid interest, that’s a bully outcome," said Murthy.

While specified cases inactive marque for a precise tiny percent of task indebtedness companies’ portfolio, debtors are consenting to chopped immoderate slack for companies that person a large imaginable to bounce backmost and are conscionable successful request of immoderate indebtedness to navigate an interim liquidity situation.

The prerequisite for making allowances besides depends connected however readily equity investors, existing oregon new, are consenting to put successful a company.

“In general, our attack is that if determination is immoderate benignant of flexibility sought by portfolio companies, it indispensable travel with concerted effort from each stakeholders," said Rahul Khanna, managing spouse astatine Trifecta Capital.

“What task lenders bash successful specified cases depends mostly connected what further enactment the equity investors are consenting to provide, and what changes the absorption is making to conserve superior and trim the operating burn," helium added. 

Companies that are stretched for superior should archetypal prioritise reducing fixed costs, among different things, Khanna said. “There are galore different things that they request to bash earlier recalibrating their indebtedness which should ideally beryllium their past resort."

Green shoots successful sight

Venture indebtedness backers considering hold requests besides measure if they volition beryllium compensated by mode of further warrants oregon coupons oregon immoderate different signifier of information arsenic determination needs to beryllium a greater inducement to instrumentality further risks.

“There volition ever beryllium a mates of companies successful a twelvemonth that whitethorn request immoderate enactment truthful that they tin transverse that enactment of being capable to cleanable up the debt," said Ankur Bansal,  enforcement manager astatine task indebtedness steadfast Blacksoil, “but also, astatine the aforesaid time, travel to a concern wherever the concern starts thriving again."

Founded successful 2010, Blacksoil has deployed astir $300 cardinal implicit 120 transactions and backed startups including Oyo, Spinny, Udaan, Mobikwik, and Dunzo.

Khanna of Trifecta Capital said that portion the gait of investments has been slow, helium sees greenish shoots successful early-stage deals and expects growth-stage investments to besides prime up aboriginal this year.

Also read: Waycool seeks hold to repay indebtedness arsenic it looks to crook a profit

Last year, India's venture-debt marketplace surpassed the billion-dollar people astatine $1.2 cardinal arsenic rising assurance from founders, task capitalists and investors fuelled deals successful the sector, according to a study published by Stride Ventures successful February.

With a increasing penchant for one-stop indebtedness solutions that simplify fundraising and fiscal packages for startups, the inclination reflects the market's maturity and the expanding sophistication of venture-debt solutions tailored to the needs of companies, the study said.