Mumbai: Venture debt provider Trifecta Capital expects to hit the final close of its maiden fund Trifecta Venture Debt Fund I at around Rs500 crore by the end of this quarter, the founders of the fund said in an interview.
Trifecta is the only venture debt provider in India structured as an alternative investment fund. Others in the space—Temasek-backed Innoven Capital and Aavishkar-Intellecap group’s Intelligrow—are structured as non-banking financial companies (NBFCs).
Trifecta was founded by Rahul Khanna and Nilesh Kothari. Before starting Trifecta, Kothari was managing director of ventures and acquisitions at technology consulting firm Accenture Plc, while Khanna was part of the India team of US venture capital firm Canaan Partners.
“By June, we should be able to close the Rs500 crore fund. We are in the final leg of discussions with a few institutions,” said Kothari.
In September 2015, the firm had made a first close of Rs200 crore for its debut fund.
The final close for Trifecta comes after being on the fundraising road for almost two-and-a-half years.
While the Indian venture capital industry is a well-established one with several billion dollars of investments in the last decade, the venture debt space is a relatively new asset class, which makes fundraising for venture debt a bigger challenge, given that one needs to educate the investors on the nuances of the asset class.
“We realized that bringing in a large institution would give this asset class a lot of credibility. We made another big decision that we will not use distributors. We felt that since this is a new asset class, people need to be educated and equally, we would like to build deep relationships with investors so that we can do more with them as we grow,” said Khanna.
Trifecta was able to get RBL Bank Ltd as anchor investor in 2015. The bank invested Rs50 crore in the fund.
The need for treasuries to seek strong yields amid falling interest rates and access to high-quality technology start-ups are two factors that have helped Trifecta attract large domestic institutions. “Given where fixed income is going and given where interest rates are, there is a real challenge for them to manufacture their targeted returns; so they have to look at alternatives. Venture debt has the making of something they like—medium duration, (and) generates regular income with some upside participation,” said Khanna.
According to Khanna, in the last 10 years, 90% of the capital deployed was by dollar funds. “There is a selection bias from day one when you are rupee capital. But a Trifecta allows you to access startups such as Rivigo, BigBasket and UrbanClap, which have raised almost no rupee capital. So suddenly, you have provided access to the top tier VC fund portfolio that otherwise rupee investors couldn’t get access to,” said Khanna.
Institution, not just a fund
Kothari and Khanna have already started planning for more. The idea is to build an institution that does more than just classic venture debt.
“People are asking for various products including receivable financing. If you look at our peer funds in the US, not only do they do the $1-5 million venture debt, they also play along the continuum of the financing needs of these companies. We are asking ourselves what more can we do with these companies, either on our own balance sheets or on our partner balance sheets,” said Khanna.
Trifecta is also thinking of entering acquisition financing and pre-IPO financing.
“The way to think about Trifecta is a platform. The platform is looking to develop multiple products. Each product will have its own structure - the structure could be a fund or an NBFC, depending on the underlying product,” he said.
Trifecta’s investors have already started asking for more opportunities to invest with the firm. A second, slightly larger, fund could soon be on the anvil, though the duo has not set any timeline for the same. “As we look at the pace of deployment and we look at the demand side, we will look at timing fund two accordingly. It could be six months from now or it could be 12 months,” said Khanna.