Mumbai-based IntelleGrow — a non-banking financial company (NBFC) which provides debt for working capital needs of early-stage, high-risk SMEs, typically, in the social impact sector — is launching a new fund to the tune of INR 200 crore (approximately US$31 million), its CEO Akbar Khan told e27.
The new fund, expected to go live sometime next year, aims to invest in IntelleGrow’s existing portfolios, as well as new companies.
IntelleGrow has already backed 180 companies across agriculture, clean energy, education, financial inclusion, affordable healthcare, and water and sanitation.
“IntelleGrow is launching a separate venture debt fund because we are trying to access a different pool of capital that wants to participate in the high-yield SME market in India. We will target different investors for the debt fund. Similarly, the products that will be offered from the debt fund will be slightly different to what we currently offer from our own balance sheet,” Khan said.
“The first fund that we are looking to launch will be of a size of INR 200 crore (U$31 million), but we have a programme over our business cycle to raise about INR 1,000 crore (US$156 million),” he added.
Talking about the rationale behind the new fund, Khan said: “Companies require long-term working capital and long term debt, not just for working capital needs, but also to finance their equipment, plant and machinery which has a longer gestation period. In such cases, a debt fund will be more helpful because it is more attuned to their pay-out structures.”
Started in 2010, IntelleGrow provides debt to high-growth small and medium enterprises in India. Unlike other venture debt players such as InnoVen Capital and Trifecta Capital, IntelleGrow also makes early-stage as well as growth-stage investments.
“Our key differentiator is that we are very much focused on the cash-flow, so we don’t look at the balance sheet to such an extent and lend on basis the strength of the balance sheet only. In fact, balance sheet is taken as the secondary consideration. It is actually the cash-flows of the business that matters the most because they will be able to repay our debt. We see this as a very unique way of looking at lending to early-stage and high-growth companies,” he said.
Akbar also mentioned that IntellleGrow is on track to raise US$100 million for its current fund, which is a combination of equity and debt.
Talking about market trends, Khan said that venture debt has now become an asset class and is well understood by both investors and founders. Promoters are understanding the benefits of venture debt that it gives them incremental capital to delay their next round of funding, or prevent dilution because venture debt is really not diluted equity.
“I would say in the first few years were spent on educating the founders about this product. Promoters and founders are becoming much more aware of this product. In addition to this, the venture capital community and equity providers are also becoming more familiar with this product and its importance. I would say that there is a significant amount of interest that has been created in the venture ecosystem for this product and it is becoming more and more accepted product,” he remarked.