Startups turned to venture debt amid funding winter. Now they’re facing the heat

livemint.com:

BENGALURU : When the fundraising route for startups began drying up a couple of years ago, several emerging companies turned to venture debt. With the macroeconomic environment becoming tougher, a few of those startups, including the Good Glamm Group, are now negotiating extensions for repaying those loans. Venture debt backers, typically loath to accept such requests, are faced with a quandary: which one to honour, based on which startups are more likely to survive.

The Good Glamm Group, backed by venture debt firms including Stride Ventures, Alteria Capital and Trifecta Capital, has aligned its equity fundraises in line with venture debt. Over the last three years, as the content-to-commerce platform repaid its existing debt, it also had been simultaneously raising fresh venture debt at better terms whenever it raised equity, said a person familiar with the developments. Supply chain startup Reshamandi and retail-tech startup Arzooo are also among startups that have sought concessions for their debt repayments, multiple people aware of the matter told Mint.

Venture debt complements equity financing and may be used by early and growth stage companies to ease liquidity concerns and make significant progress until their next fundraising round. The debt is usually underwritten by the backer for a fixed period, and involves monthly repayment structures with a coupon rate. The requests for extended repayment timelines does India’s startup ecosystem no favour, especially given the persistence of the funding winter.