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IntelleGrow, the country’s first homegrown venture debt provider, moves growth into top gear in 2014. The Mumbai based firm, which raised its first major institutional round of funding last week — $4.5 million led by Omidyar Network — is just getting started on a fundraising campaign that will see it raise nearly $80 million (around Rs 500 crore) over a two-and-a-half year period. Of this, $8-12 million (Rs 50-75 crore) will be raised in the form of equity capital and the balance will be raised through long term and short term debt instruments.

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“The targets we’ve set may seem ambitious, we’re talking about nearly 10X growth. But consider that in the context of the addressable market, where we’re looking at a $8 billion gap,” IntelleGrow CEO Sanjib Jha told StartupCentral in a telephonic interview recently. Jha, who earlier led corporate affairs and finance at Intellecap, which is IntelleGrow’s promoter, has been involved with the firm from its inception in 2010. “Until now we operated like a startup and the primary objective was to demonstrate that the business model was viable. The latest round of funding validates that,” he said.

Impact investor Omidyar Network invested in the latest round with existing investor Michael & Susan Dell Foundation. Including this round of funding, IntelleGrow has so far raised Rs 50 crore ($8.1 million) in equity capital to date from Omidyar, Dell Foundation, the Shell Foundation and promoter Intellecap. In addition, it has raised Rs 35 crore ($5.7 million) in debt.

Chasing 10X growth

The big targets in the next two and a half years is to extend venture debt to more than 250 companies and build up a loan book of at least Rs 500 crore (about $80 million) by the close of financial year 2016. It also plans to have a presence in the top 10 cities against 8 at present.

So far, it has disbursed more than 60 loans worth over Rs 60 crore ($9.7 million) to SMEs (small and medium enterprises).

“Since we now have more capital at our disposal we can experiment more, penetrate deeper into the market,” said Jha. As a first step, the firm plans to forge more partnerships with various stakeholders in the startup ecosystem, including incubators and early stage venture capital investors. It already has existing partnerships with 15-odd early stage venture capital firms and several incubators, notably those located on-campus at the IITs and IIMs.

The partnerships with the venture capital firms and incubators are non-contractual in nature. In the case of incubators, IntelleGrow leverages the relationship to gain market intelligence on new and promising startups. The partnership benefits with venture capital firms kick in a little later, usually after IntelleGrow has invested in a company. “The response from venture capital firms in terms of bringing in follow-on funding has been encouraging,” said Jha. So far, across its portfolio of 60-odd companies, 49 per cent have raised nearly Rs 700 crore in follow-on equity capital. Importantly, the remaining 51 per cent did not need to raise any equity capital after raising debt from IntelleGrow.

The firm offers loans ranging from Rs 50 lakhs up to Rs 3 crore across sectors such as agricultural supply chains, clean energy, education, financial inclusion (excluding microfinance), affordable healthcare and water and sanitation. Some of the companies that have raised debt from IntelleGrow include Milk Mantra, EduSports, Orb Energy, Bioserve and Banka Bioloo.

Don’t have VC backing? No problem

IntelleGrow is India’s first homegrown venture debt provider, but it isn’t the first to offer venture debt here. Venture debt was pioneered in this market by Silicon Valley Bank (SVB), the Santa Clara, California headquartered commercial bank that specializes in banking technology companies and venture capital firms. SVB launched its venture debt operations here in 2008 under SVB India Finance and has backed nearly 40 companies with debt finance to date.

There’s, however, a fundamental difference between SVB and IntelleGrow in the way they operate.

SVB typically lends to companies that already have venture capital backing. It usually extends loans as bridge financing between equity rounds. This helps both investors and startups. Raising debt enables the startup to access capital without giving away more equity. The debt can be used to finance capital expenditure and the equity capital can be reserved for more critical activities such as product development or senior management hires.

IntelleGrow, on the other hand, doesn’t require the presence of a venture capital firm in a company to extend loans. More than 35 per cent of the companies that it has backed so far did not have an equity investor on board at the time of raising debt. It relies on its own due diligence and checks and balances to assess the viability of prospective investee company. If it does not think that a business will be able to generate cashflows and scale, it does not invest. It does seek collateral, when it is available, in the form on hypothecation/ mortgage of assets, soft security like the pledge of promoter shares, personal or corporate guarantees, or even mechanisms like share warrants and escrowing. However, such collaterals are usually not pre-conditions for raising capital.

The firm claims that despite its flexible approach it has had zero delinquency to date on loans extended to startups.

Image credit: IntelleGrow

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(c) StartupCentral 2014