The venture ecosystem is a lot more mature now: Ashish Sharma, MD & CEO, InnoVen Capital India

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September 28, 2020 5:30 AM

By and large startups have done a fantastic job navigating this unprecedented crisis and were very quick in taking actions.

Ashish Sharma, CEO, InnoVen Capital IndiaAshish Sharma, CEO, InnoVen Capital India

InnoVen Capital is Asia’s leading venture lending firm providing debt capital to high growth ventures. Started in 2008 as the first dedicated venture debt provider in India, the platform offers multiple debt capital solutions, including venture debt, acquisition finance, growth loans, and syndication. To date, it has completed over 250 transactions with more than 180 startups, including Byju’s, Swiggy, Oyo Rooms, CureFit, Myntra, Eruditus, DailyHunt and FirstCry. Ashish Sharma, MD & CEO, InnoVen Capital India, talks to Sudhir Chowdhary on the current venture investment landscape and what the recovery looks like. Excerpts:

What are your observations with regard to the current venture investment landscape? Have you seen a drastic shift towards venture debt?
Overall funding environment is clearly weaker this year but that’s expected as Covid has created a high level of volatility for many business models. However, the venture ecosystem is more mature with lots of seasoned investors who remain long term bullish on India as well as the potential of startups. Demand for venture debt has been steady though the bar is also a bit higher. Startups are looking to raise equity as well as add some venture debt to shore up liquidity as they navigate through these uncertain times. We haven’t seen any drastic shift towards venture debt but we do see a few more growth/late stage companies open to venture debt than last year.

What about the Covid impact on startup funding in India?
The severe lockdown, particularly in the first few months, created a perfect storm with supply chain disruption, demand destruction and funding market dislocation. There was very limited deal activity in April-June quarter and some of the deals announced were in fact closed before March. Over the last couple of months, demand has started to come back and the pace of investments is
picking up.

Certain startups have been able to raise funding amidst the pandemic, what is your take on this development?
While most business models have been negatively impacted by Covid, there are some sectors such as edtech, healthtech, enterprise tech, gaming, e-commerce, hyperlocal delivery which are enjoying tailwinds due to pervasive changes in customer behaviour. A disproportionate amount of the funding has gone to these sectors, with edtech leading the pack. We have also seen many internal rounds with existing investors providing some liquidity in light of delay in external fund raise.

How well did startups cope with the on-going crisis?
By and large startups have done a fantastic job navigating this unprecedented crisis and were very quick in taking actions. For many founders this is their first big crisis and no one really had a playbook of how to deal with the uncertainty. Excluding a few tailwind sectors, most had to take tough decisions, relook at their business models, reduce their cost structure and focus on the core business. Many startups have also used Covid as an opportunity to innovate faster which will help them come out much stronger out of this crisis.

How do you see the funding scenario changing in the year?
Business models that have gained from Covid will continue to see more investor interest, while sectors like travel, hospitality, mobility, offline retail will see slow recovery. The funding environment is starting to improve and I expect increased deal flow as we close this year. With entry of Jio, we also expect more consolidation and edtech and e-pharmacy space has already seen some action.

Have you done any deals in the last 5-6 months? What is your strategy for the year?
We have closed 15 transactions this year with several in the pipeline. The year had started on a strong note but our pace of investments did slow down over the last few months, when focus was on the portfolio side. The deal flow has increased over the last couple of months and we have been actively looking to make more investments. We have done deals across stages and sectors such as edtech, e-commerce, logistics, brands and media.

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