Venture debt is still a small part of the venture capital market in Asia and has plenty of room to grow, Ajay Hattangdi of India-based venture debt firm InnoVen Capital said on the sidelines of the Global Corporate Venturing Symposium today.
Venture debt consists of any form of debt financing provided to a company that is dependent on venture capital. Debt financing makes up about 2%-3% of the venture capital market in Asia, compared with between 10%-15% in the US, said Hattangdi, who is chief executive and chief operating officer of InnoVen Capital.
The firm is the first venture debt platform in Asia, with investor commitments of $200m. Venture debt interest rates vary across the region, ranging from the mid-teens in India to the “late single digits” in Southeast Asia, said Hattangdi.
One of the key benefits of venture debt is that it minimises equity dilution. Rather than purchasing a sizeable stake in the company, debt holders receive equity warrants. InnoVen offers loans of up to $5m with a three-year term.
Limited financial covenants are imposed since borrowers are early-stage companies, but debt holders do expect senior security over the borrower’s assets, Hattangdi said.
InnoVen Capital looks for startups that are backed by top-tier VC firms, boast strong enterprise value, have recently secured a round of VC financing, and have solid senior securit, and a credible team.
Set up in 2008, InnoVen Capital was bought out by Singaporean state-owned investment fund Temasek Holdings and financial services group UOB in 2015, and now has additional offices in Singapore.
The firm has so far deployed $150m in loans and established relationships with 30-plus funds across venture and private equity including Microsoft Ventures and Sequoia Capital.