In the last four and a half years of its operations, Mumbai-based alternative credit platform BlackSoil has cut checks for over 70 startups through its non-banking financial company (NBFC). Its portfolio covers multiple segments and includes startups like hospitality chain Oyo, healthcare firm Koye Pharma, digital lender EarlySalary, scooter and bike rental app Vogo, logistics solutions provider LetsTransport, interior design startup Homelane, beauty e-tailer Purplle, and B2B manufacturing marketplace Zetwerk.
In November 2020, BlackSoil launched an alternative investment fund (AIF) for venture debt and structured finance, for which it has already raised INR 1.25 billion (USD 17 million) from family offices and high net worth individuals toward a target corpus of INR 3.5 billion (USD 48 million). Prior to that, it had two AIFs that were designed for real estate.
BlackSoil, which now has an NBFC and three AIFs under its umbrella, deploys multiple debt strategies to differentiate itself from other venture debt players in the market, said Ankur Bansal, co-founder and director at BlackSoil. One trait that sets the firm apart is its penchant for converting real estate investors into startup investors. Here’s how Bansal does it.
The following interview has been edited for brevity and clarity.
KrASIA (Kr): Why did you set up a new AIF?
Ankur Bansal (AB): From our first two AIFs, we financed real estate developers. Meanwhile, we were investing in startups from our NBFC. One of the reasons to establish this new fund is that many of our existing investors in our real estate funds wanted exposure to the venture part of the business that we were doing through our NBFC.
These are high net worth families that haven’t participated in venture debt earlier. They have a background in real estate and they understand hard assets. Now, they are investing in startups, where there is no guarantee or real security. This is because of the way the startup ecosystem has evolved, making people realize they have to have some exposure. They want to work with the fund manager that they were comfortable with. Thus, we extended the business that we were doing with our NBFC through a fund structure.
From this fund, we would do non-convertible debenture transactions and back growth-stage companies, which have raised a minimum of USD 10 million in equity. These companies will have a larger scale than the businesses we have been backing through our NBFC platform.
Kr: How many startups have you invested in through the new fund?
AB: We have made three investments and are currently evaluating six potential investments.
Kr: How has BlackSoil’s journey been so far?
AB: We have disbursed INR 20 billion (USD 273 million) across more than 120 debt deals through our NBFC and AIFs, and we have exited completely from 50% of them.
Our NBFC is backed by three domestic family offices. It is permanent capital because whenever money comes back, we reinvest. It is a book that keeps rotating. Since 2016, we have deployed INR 10 billion (USD 136 million) in the portion beyond real estate—VC-backed startups, high-growth companies, established promoters. Of this, we have seen almost INR 7.5 billion (USD 102 million) in exits. We currently have about INR 2.5 billion (USD 34 million) of assets under management.
On the real estate side, we have deployed INR 5 billion (USD 68.3 million) from our NBFC. From our real estate funds, we have made investments altogether worth INR 4.8 billion (USD 65.5 million). Recently, we exited our last investments from the first real estate fund and clocked a 19% gross internal rate of return (IRR) at the fund level. We have deployed 90% of the capital from the second real estate fund and will be deploying the rest in a couple of months, after which we will launch our next real estate fund.
Kr: Although BlackSoil is sector-agnostic, are there areas where you are bullish?
AB: We are bullish on all segments that continue to be resilient in the new normal, where lockdowns and potential supply chain disruptions are still a possibility. We want to focus on sectors like B2B, D2C, fintech, health tech, SaaS, deep tech, logistics, agritech, and gaming.
Kr: What are some of the most interesting trends that you see in the Indian startup ecosystem this year?
AB: Category leaders will increase their market share manifold and hence they will keep attracting capital and marquee investors. Other companies will have to focus on unit economics and profitability to sustain their business. Technology will become a great enabler, especially for all offline parts of the economy. Increased tech adoption will become the norm. SaaS, health tech, fintech, edtech, e-commerce, and consumer tech will continue to attract investors.
Kr: More VC firms are chasing seed-stage deals in India at the moment. Why do you think that is?
AB: The India story remains a powerful magnet given the talent pool, maturing ecosystem, tech-savvy generation of consumers, as well as the adoption of tech by enterprises and SMEs. This is why more people are setting up startups despite the pandemic. There is serious competition among VCs for proven entrepreneurs or those with blue-chip backgrounds. Hence, to not miss out on a multi-bagger, more VC firms are making early-stage investments.
Kr: Since last year, a lot of startups have opted to shoulder venture debt so they can make it through the pandemic. How do you think this phenomenon has changed venture debt?
AB: Yes, it has become mainstream. Just like edtech, the entire venture debt industry grew wings after the pandemic. Mostly, everyone wants to ensure they have a venture debt partner. The benefit is very obvious—you get another line of capital that can provide you with buffer capital, especially in situations like a pandemic.
The use cases of debt are increasing and becoming more sophisticated. It is no longer just taking money for runway extensions. You can use it for acquisitions, contract-level financing, and working capital. Since borrowers are getting seasoned, lenders have to match that. The ecosystem itself is growing. Our market is completely in line with the venture capital market. The number of VC transactions is increasing, so we are growing by the same proportion.
Compared to the US, where venture debt is 12–15% of the venture capital market, India is around 4–5%. So there is good scope for growth. From the perspective of an HNI or institutional investor, if you want to earn a fixed income, anything beyond 6–7% is very difficult to achieve today. Thus, venture debt is a very attractive asset class since it gives an IRR of 16–20%. Even the fundraising aspect is interesting because everyone wants to deploy money in an asset class that offers good risk-adjusted returns.