Trifecta Capital Launches Fourth Venture Debt Fund, Aiming to Raise $240 Million
- ByStartupStory | August 2, 2024
Venture debt firm Trifecta Capital has announced the launch of its fourth fund, targeting to raise up to Rs 2,000 crore (approximately $240 million), including a greenshoe option of Rs 500 crore. The news was confirmed by founder and managing partner Rahul Khanna in an interview with The Economic Times.
Trifecta Capital, known for backing prominent startups like Zepto, Meesho, BlueStone, and Urban Company, has so far deployed Rs 6,000 crore from its previous three funds, including recycled capital. The new fund will continue this investment strategy, focusing on a broad range of sectors while steering clear of “risky sectors” such as cryptocurrencies, gaming, and peer-to-peer (P2P) lending.
“We’re coming up to our tenth year and we have a formula that works…so the idea is to do more or less the same,” Khanna said. “Of course, with every fund, the underlying sectors are different, and so from a pipeline perspective, it’ll be a different cohort of companies. For our fund-I, BigBasket was a big investment for us, and for fund-III, Zepto is a big investment.”
Founded by Rahul Khanna and Nilesh Kothari in 2015, Trifecta Capital has invested in over 30 unicorns—startups valued at over a billion dollars—and more than a dozen companies nearing unicorn status. The firm expects significant interest from global financial institutions, domestic conglomerates, banks, insurance firms, and development financial institutions.
Despite a challenging environment for venture investment, Trifecta Capital has maintained a low write-off rate of just 0.6% of its investments. Khanna attributes this success to the firm’s cautious approach and robust risk management framework. “Venture capital losses would’ve been higher in the same period. The reason for that is we’ve built a very well tested underwriting process and risk management framework that thinks about this not just at a company level but also at a portfolio level,” he explained.
The Indian startup and private investment ecosystem has faced a slowdown over the past two years, following the low interest rate-driven boom of 2020 and 2021. Nevertheless, venture debt has shown resilience, with around 190 Indian startups raising a total of $1.2 billion in venture debt in 2023, a 50% increase from the previous year. Globally, venture debt stood at approximately $60-65 billion in 2023, according to a report by Stride Ventures.
Khanna noted that Trifecta Capital deliberately slowed its fund deployment pace in 2023, investing 20% less compared to 2022. However, the pace picked up in 2024, with an anticipated deployment of Rs 1,400-1,500 crore this year. “This asset class has been able to come through the funding winter without too much pain because there was an expectation that there will be a lot more write-offs and so far we haven’t seen that. We consciously slowed down our pace of deployment during 2022 and 2023…net we deployed 20% less in 2023 than 2022. The pace then picked up in 2024, and we’re seeing that there’s an opportunity to deploy Rs 1,400-1,500 crore this year,” he said.
The recent funding winter has led to the shutdown of multiple venture-funded startups, including Bluelearn, Koo, FrontRow, and Zest Money. In response, Trifecta Capital opted for a conservative approach, prioritizing capital preservation over higher internal rates of return (IRR). “For us, we made a conscious decision that we would trade off on a slightly lower IRR (internal rate of return)…than risking capital. We took that call, and coming through the cycle…we haven’t taken any big credit hits,” Khanna said.
Other key players in the Indian venture debt market include Stride Ventures, Alteria Capital, and InnoVen Capital. Recently, Alteria Capital closed its third fund at Rs 1,550 crore (around $195 million), while Stride Ventures announced the final close of its third fund at $165 million in May.
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