Ishpreet Gandhi Managing Partner of Stride Ventures on the Upsurge of Venture Debt in India
"Venture Debt does not replace equity capital and vice versa. Rather, venture debt is a tool that complements equity capital. It is imperative for entrepreneurs to maintain the optimum allocation of capital and allocate capital efficiently", says Mr. Gandhi from Stride Ventures
Started by Ishpreet Gandhi in 2019, Stride Ventures have been able to make significant investments despite the adversities brought in by the pandemic. The New Delhi based venture debt firm has successfully financed 10 companies so far, and are targeting a corpus of Rs. 350 Crore. Read this exclusive tête-à-tête from BW Disrupt with the Managing Partner of Stride Venture on forecasting the growth of venture debt, the impetus to start his venture, and value addition brought by them.
How do you perceive the debt investment scenario in India post-COVID 19?
With uncertainty around equity rounds, startups are exploring venture debt. Venture debt currently stands at 2-3% of volumes of the Venture Capital market, and there is a great potential for growth especially with incremental Venture Capital infusions into the ecosystem. COVID has greatly accelerated venture debt and the ecosystem is increasingly recognizing the agility characteristic of venture debt and its complementary nature to equity capital. Moreover, we believe the opportunity for Stride is larger given our flexibility in structuring credit for various use cases as well, and our relationships across banks and corporates.
What inspired you to develop Stride Ventures? What type of companies are you looking forward to funding in the future ahead?
The seed for the conception of the fund was planted while I was leading venture debt transactions in my previous organisations. I realized that there was a need to enable growth stage companies to access traditional channels of financing such as direct or on-book lending, along with alternative channels. There was a clear void between the banking ecosystem and the startup ecosystem. Most importantly, the ecosystem lacked a one-stop financial institution catering to all credit needs of growth-stage startups. We believed we could leverage our banking background and revolutionize the lending ecosystem amongst startups. Our underwriting is focused on the fundamentals of the business, independent of equity infusion. This has enabled us to pick companies with strong business models and operating cash flows, with the willingness of top-tier VCs to support the company. We expect to maintain this going forward.
What was the conviction that inclined you to pursue a career in Venture lending?
My experience in corporate banking spans 15 years across MNCs, MSMEs, and startups. I realized the limitations on banks to scale up venture debt, the lack of awareness around debt amongst startups, and the lack of innovation in the space. This served as an opportunity to start Stride Ventures.
During the initial years of Stride Ventures, how did you maintain a client base? Can you name two growth-stage companies that have been funded by Stride Ventures?
Since its inception, Stride has had a team possessing immense experience across banking and venture capital. Furthermore, startups were quick to recognize the value that we were bringing to the table. Hence, we have been able to scale up rapidly. Our two most recent transactions are – SUGAR Cosmetics, a leading cosmetics brand, and Zetwerk, the largest tech-enabled contract manufacturing platform.
How does Stride Ventures differentiate itself from the traditional venture debt firms in India?
Stride focuses on tailor-made working capital solutions suited to the requirements of the company. Additionally, we enable our portfolio companies to leverage our network of banks and further augment debt through a plethora of offerings. We are not transactional lenders, we play an active role in our portfolio companies in order to provide credit solutions to the company and its entire value chain. Hence, we get a special invitee seat in most portfolio companies. My partner, Abhinav Suri, has immense experience across credit across large institutions and widens the scope through his underwriting experience. The depth of the team with respect to equity and banking enables us to view a situation from multiple vantage points, broadening our perspective.
What investment approach do you follow at Stride Ventures?
Stride invests in VC backed growth-stage startups, Series A and beyond, with strong unit economics and operating cash flows. We create tailor-made solutions, structured according to the business demands of each startup with a focus on working capital requirements. We leverage our robust banking network to provide comprehensive credit solutions which reduces the blended cost of financing for our portfolio companies. Our average ticket size is $2 mn, which can further go upto $7-8 mn with banks. We take a long-term perspective in all our companies and only invest in businesses that are leaders in their respective fields and have the potential to scale-up exponentially.
According to your point of view which is the best way to access capital - Debt or Equity, and why?
Venture Debt does not replace equity capital and vice versa. Rather, venture debt is a tool that complements equity capital. It is imperative for entrepreneurs to maintain the optimum allocation of capital and allocate capital efficiently. Growth-stage companies can become more nimble by raising debt along with equity while scaling up. While early-stage companies must gravitate towards equity capital, they can access venture debt after achieving a certain scale. In some cases, replacing equity capital with debt is more efficient such as in working capital use cases – inventory, receivables, etc. Stride aims to create solutions around such uses.
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