Venture debt

Venture debt is a specialised loan product extended to equity-backed startups that would not qualify for conventional bank credit. Unlike a standard term loan, venture debt lenders underwrite based on the startup's equity story, investor pedigree, and growth trajectory rather than historical profits or hard assets. In return for taking on this elevated risk, lenders attach warrants — the right to purchase equity at a fixed price — which allow them to participate in upside alongside the interest income.

For a founder, venture debt serves two main purposes: extending runway without dilution (borrowing ₹2–5 crore avoids issuing new equity at a potentially depressed valuation) and bridging to the next milestone (covering the final quarter before an anticipated revenue threshold unlocks a Series A). Because it is debt, the cap table remains clean, but the monthly repayment obligation must fit within the startup's burn model.

In India, venture debt has grown materially as an asset class. SIDBI participates both directly and through Fund of Funds structures. Dedicated venture-debt NBFCs and some foreign lenders operating through Indian structures offer ticket sizes ranging from a few crores to several hundred crore for growth-stage companies. Typical structures include a 12-to-36-month tenure with an initial interest-only period, followed by principal amortisation.

Founders should weigh the cost carefully: interest rates are meaningfully above bank rates, and the warrant coverage dilutes equity modestly. The product works best when the capital will generate returns that outpace its cost — ill-timed venture debt on a slowing business can accelerate distress rather than relieve it.