Venture Debt Surges in H1 2025 as Indian Startups Prioritize Non-Dilutive Capital

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India’s venture debt market witnessed a significant uptick in the first half of 2025, with over ₹2,100 crore (approximately $250 million USD) deployed across more than 130 deals. This surge reflects a growing trend among Indian startups to opt for non-dilutive capital, particularly as equity funding tightens and founders seek to extend their operational runway without relinquishing additional ownership.

Leading venture debt funds, including Stride Ventures, Trifecta Capital, and Alteria Capital, have been at the forefront of this financing shift. Stride Ventures led the pack, deploying ₹800 crore across 47 deals, followed by Trifecta Capital with ₹690 crore across 43 companies, and Alteria Capital investing ₹700 crore over 41 deals. This substantial activity shows a sustained demand for structured debt even as the broader equity capital market remains selective.

Venture debt, a form of financing tailored for venture-backed startups, typically includes a loan component alongside equity warrants. These warrants, usually representing a small percentage of equity, provide lenders with an upside if the company performs well, while keeping dilution for founders significantly lower than traditional equity rounds. This model has proven particularly attractive in a challenging fundraising environment where startups are keen to avoid “down rounds” (raising capital at a lower valuation than previous rounds) or excessive dilution.

The increased adoption of venture debt is driven by several factors. Many startups are leveraging this capital to extend their cash runway between equity funding rounds, allowing them more time to achieve critical milestones and potentially secure a higher valuation in their next equity raise. “There is a definite uptick in the use of venture debt, primarily for runway extension,” noted Ankit Agrawal, Executive Director of Asset Management at Lighthouse Canton, a Singapore-based investment firm. “Startups are leveraging it to bridge funding rounds, avoid down-rounds, and preserve valuations without diluting equity.”

Beyond extending runways, venture debt is also being utilized for growth-oriented initiatives such as expanding into new verticals or geographies, scaling up marketing efforts, and meeting working capital needs. Sectors like fintech and Software-as-a-Service (SaaS), which often have predictable revenue streams, have been prominent recipients of venture debt, although consumer and logistics sectors are also showing increasing traction.

The trend indicates a maturing Indian startup ecosystem where founders are becoming more sophisticated in their capital allocation strategies. With equity capital flowing selectively, venture debt has emerged as a crucial complementary tool, enabling startups to maintain momentum and achieve sustainable growth while preserving valuable ownership stakes. This shift is expected to continue, with more institutional players and global funds likely to enter the space, further deepening India’s venture debt market in the coming years.