Mumbai: Rahul Khanna, managing director of venture capital firm Canaan Partners, is looking to launch Trifecta Capital Partners—a 300 crore venture debt fund in partnership with Nilesh Kothari, a former mergers and acquisitions (M&As) head of Accenture Plc in India.

The fund is expected to be closed in the next three to six months, Khanna said in a phone interview on Tuesday. The news was first reported by The Economic Times earlier in the day.

“The Silicon Valley Bank operates as a NBFC (non-banking financial company) in India which provides venture debts. We being an alternative investment fund (AIF) are technically the first venture debt fund in India," said Khanna, adding that approval from market regulator, the Securities and Exchange Board of India (Sebi), is expected by the year end.

Venture debt providers combine their loans with warrants, or rights to purchase equity, to compensate for the higher risk of default. Venture capital firms and NBFCs provide debt via structured deals wherein the investor has an option to convert its warrants into equity shares after a threshold period.

Also in some cases, when firms are raising equity capital, venture debt funds provide debt against the raised equity capital. In case of Trifecta Capital Partners, the fund will get a small equity option through warrant rights that would be typically 10% of the amount invested.

“The fund will be looking at investing anywhere between 5-15 crore for 16-18% borrowing cost, compounded annually, in firms in the technology, consumer and Internet space that have already raised a first or second round of funding," said Khanna.

He added that about 1,000 crore is the market opportunity for new loans to be disbursed in India every year. “We would like to disburse 100 crore each year, which would translate to 12-15 investments each year," he said.

In August, Mint reported that angel investor Rehan Yar Khan has launched his first 300 crore venture capital fund, Orios Venture Partners. In January, Anil Joshi said he is looking to launch his $50 million fund by November.

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