Fintech’s new fuel: Venture debt takes centrestage amid a funding crunch

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Subscribe to enjoy similar stories. As venture capital investments into India’s financial technology sector plunged this year amid stringent regulatory oversight, fintech companies found another funding source become more readily available: venture debt. Venture debt is essentially a high-interest loan advanced to early stage companies that want to raise capital without diluting equity, or one that they turn to when venture capital becomes scarce.

To be sure, although venture debt has gained significant ground, venture capital remains the main source of finance for startups. This year, fintech has emerged as the top sector for venture debt, with companies securing $671.1 million across 49 fundraising rounds, up from the $307.2 million they raised across 25 rounds in 2023, according to data from analytics firm Tracxn. Regulatory sanctions and uncertainty in the fintech landscape have kept venture capital funds at bay, reducing equity funding to Indian fintech by almost half.

Equity funding to India’s fintech sector in January-November dropped from $2.6 billion in 2023 to $1.6 billion in 2024, a decline of about 38% year-over-year, Tracxn data showed. “Many of these (fintech) companies have scaled well, become profitable, and increased their retained earnings, which gives us comfort to lend to them, even as venture capital funding has slowed," said Apoorva Sharma, managing partner at Stride Ventures, a venture debt firm. Consumer startups followed, raising $459 million in venture debt across 55 rounds this year, marking a 10% growth from the $416.4 million of venture debt they raised in 2023.