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Mumbai: IvyCap Ventures is planning to launch a Rs500 crore venture debt fund in the next three months, a senior executive said.

The Mumbai-based venture capital firm typically invests in early-to-growth stage companies. It raised its first fund of Rs240 crore in 2012 which is now fully deployed across 10 investments. IvyCap is currently in the process of deploying its second fund of Rs600 crore raised in 2015.

Lending to start-ups is referred to as venture debt, and is substantially different from regular corporate lending, which is generally asset-backed and provided to profit-making companies.

“While we are almost in the final stages of our Fund 2, we are also working on launching our own venture debt fund. We have set up the team and see a huge opportunity in this space of AIF (alternative investment fund) II category," said Vikram Gupta, founder and managing partner of IvyCap Ventures.

IvyCap plans to raise the venture debt fund entirely from domestic investors, he said, adding existing investors in the venture capital funds of IvyCap will also participate in the new fund.

The debt fund will focus on mid-stage start-ups, typically in companies at a series B or C fundraise stage. It will look to invest in ticket sizes that would range between Rs20 crore and Rs25 crore.

“We would deploy the fund where there are no conflicts with IvyCap equity investments and that’s the reason we have set up a completely separate venture debt team with separate decision bodies. The debt fund would help businesses showing current or future positive cash flows in the company. It will look for funding mostly working capital and help in growth of the businesses," he added.

The Indian venture debt market has been picking up pace in the last couple of years and is now seeing newer firms such as IvyCap that are looking to tap the potential.

In 2014, Rahul Khanna and Nilesh Kothari launched a Rs500 crore venture debt fund Trifecta Capital, the first of its kind in the country. Temasek-backed InnoVen Capital is another major venture debt provider, having started operations in India in 2009.

Former InnoVen Capital executives Ajay Hattangadi and Vinod Murli too are raising a new venture debt fund of up to Rs1,000 crore, The Economic Times reported in August.

IvyCap is also likely to start raising its third venture capital fund by the middle of next year, said Gupta. The firm is currently planning to raise around $300-400 million for the third fund, which will make it the firm’s largest till date.

“As soon as we are done with deployment of over 50% of our second fund, we will launch our third fund in AIF I or II equity fund category in the range of $300-400 million. By mid of next year we will take a call for the third fund. Investors are talking to us and even willing to be anchor investors for our third fund," said Gupta.

From its second fund, IvyCap has funded three companies—GrabOnRent, an online product rental service; Taskbob, a home-service start-up; and Ftcash, a payments start-up. The firm has also participated in follow-on rounds of few existing portfolio companies such as Purplle, Clovia, Bluestone, Leixir and Vinculum.

IvyCap has also expanded its team, in line with its growth plans.

The firm has recently hired Anand Batra, former business head at online furniture retailer Pepperfry and Anshuman Khanna, who was previously associated as vice-president with Rajasthan Asset Management Co. Pvt. Ltd, said Gupta.

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