16 years after Citibank shot him down, his venture debt firm scores in India and SEA

At first glance, the idea of venture debt financing sounds totally useless. Startups are enough of a risk already, and they tend to burn cash at a speed that makes lightning seem slow – why would anyone lend to them?

Ajay Hattangdi faced that skepticism as he tried to introduce venture debt to Citibank over a decade ago. Today, his venture debt firm, Mumbai-based InnoVen Capital, announces that it’s closed two cross-border financing deals with Singapore-headquartered online engagement and commerce startup Capillary Technologies, and Bangalore-based online certification company Simplilearn.

The deals, which amount to around US$6 million, further cement Innoven’s presence in India and Southeast Asia (by way of Singapore). They’re also symbols of progress, in Ajay’s opinion, for venture funding in Asia.

What in the world is venture debt?

While venture capital funding often comes in the form of equity, venture debt operates a lot like a payday loan for startups. It’s some extra funding that helps tide them over as they try to hit their next milestones on the way to landing more money.

Ajay, who serves as both InnoVen Capital Group’s COO and CEO of InnoVen’s India affairs, refers to venture debt as both “extra runway” and an “insurance policy” for companies. It’s not meant to take the place of equity funding – according to him, each has its place in a startup’s progress. Equity is in it for the long haul – strategic actions like research and development. Venture debt helps out with shorter term issues like asset purchases and acquisitions where using equity can get “expensive.”

For us, it’s like trying to find a Goldilocks company.

“Say a company raises US$10 million in a series A or a series B,” he explains. “It [can] raise an additional US$2-3 million dollars in debt.” That means that the startup now has access to US$13 million for the time being, while only having to sell off US$10 million in equity. Potentially, that gives it more control over its growth.

Like all VC funding, venture debt comes with risks. But while traditional venture capital bets on startups long-term, venture debt is a bet that they can make it to that next funding round. “Startups tend to underestimate the time it takes to reach [critical milestones],” says Ajay. But sometimes slow and steady wins the race with a little help from venture debt.

Bridge funding serves a similar purpose – tiding a startup over until that next round – but ultimately differs. “We’re not betting on the next Google,” Ajay explains. “I want the company to raise the next round and repay my loan.” In other words, there’s a set ending point. Bridge funding doesn’t guarantee how long it will take a company will make it to its next round.

So what makes an ideal candidate for venture debt? Somewhat of an all-around champion – it should have raised money from good investors in good places, be scaling up nicely, and look like it’s able to comfortably raise its next round – all qualities Innoven decided Capillary and Simplilearn possess.

“For us, it’s like trying to find a Goldilocks company,” he tells Tech in Asia.

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