SIDBI enters venture debt market, makes 4 ‘small’ investments

KEY HIGHLIGHTS

1. SIDBI has partnered with a few funds to make early-stage debt investments

2. Venture debt investments in India jumped from $271 million in 202o to $800 million in 2022

3. SIDBI is also looking to extend its credit supply to MSMEs to Rs 5 trillion in two years
 

Small Industries Development Bank of India (SIDBI), which has backed a bunch of MSMEs by offering them access to venture capital funding, is entering the venture debt market. Speaking at the IVCA Conclave 2023 in Mumbai, SIDBI Chairman & MD Sivasubramanian Ramann revealed that the company had already made four “small” early-stage debt investments. 

“Along with equity investments, we are talking about the ability to provide debt. A lot of banks, even today, are not in a position within their straitjacket to provide debt to companies. So, SIDBI has gone into what is known as venture debt… We’ve partnered with a few of the funds that we’ve supported and we’ve been able to get leads from those funds,” he said. 

Ramann, however, did not reveal the companies SIDBI had invested in.

In the last two years, venture debt has emerged as a strong asset class, with founders mixing debt and equity components at the time of raising capital. Use cases for debt have also gone beyond equity dilution prevention. The ‘India Venture Debt Report 2023’ by Stride Ventures estimates that Indian startups raised over $800 million worth of debt across 170-180 deals in 2022. This is a little less than 4X the amount raised ($271 million) in 2020. 

The SIDBI Chairman also shared that his company was in talks with several start-up incubators to gauge whether seed-stage incubation needs to be addressed in a bigger way or if there is consolidation on the cards. “Because I was told that there were over 200 incubators in this country, and we probably don’t know what’s happening amongst them, but this all adds up to the startup space,” he explained. 

Ramann also urged venture funds to make more seed-stage investments in line with their Series A and beyond rounds. SIDBI, meanwhile, is looking to increase its credit supply to MSMEs, and grow its balance sheet to Rs 5 trillion over the next two years. This is in line with the Government’s vision of making India a $5 trillion economy, the Chairman stated.

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