Print this article

Lighthouse Canton Lifts Lid On India's Venture Debt Sector

Editorial Staff

20 November 2024

Singapore-headquartered Lighthouse Canton, which has been building out its business in jurisdictions such as India, has lifted the lid on the venture debt sector and its impact on India’s startup business ecosystem.

The firm’s study finds that the top reason why founders prefer venture debt over traditional debt and equity is its less dilutive nature , with repayment schedule flexibility also being a significant factor . This preference shows a growing recognition of the strategic advantages venture debt provides, especially in capital-intensive and rapidly-evolving industries, Lighthouse Canton said. Its report is called Silent Bloom: Venture Debt’s Growing Influence. 

Venture debt is a type of loan offered by banks and non-bank lenders which is targeted at early-stage, high-growth companies with venture capital backing. Crucially, venture debt does not replace equity; it follows it. According to one explanation from Silicon Valley Bank , the amount of venture debt tends to be calibrated to the amount of equity the company has raised, with loan sizes varying between 25 per cent and 35 per cent of the amount raised. Innoven Capital SEA about the venture debt sector.)

Avoiding undue dilution
Indian founders are increasingly turning to venture debt to bridge funding gaps and avoid excessive equity dilution, the Lighthouse Canton report said. This shift has been primarily driven by the scarcity of equity funding in the market and the desire to preserve ownership while accessing the capital necessary for growth. 

The study examines how venture debt works in different sectors, such as in the electric vehicles space.

The EV sector, for example, has become heavily reliant on venture debt to drive its growth. About 67 per cent of EV startups rely on venture debt for more than half of their debt funding.