Ajay Hattangdi pioneered venture lending in India
Venture debt is now available to Indian startups courtesy the just launched SVB India Finance. Led by Ajay Hattangdi, who started dabbling in venture debt during an earlier 12-year stint with Citigroup India, the outfit is based in Mumbai and will provide debt capital to venture-backed early and mid-stage companies — see press release. In terms of the company’s corporate structure, Hattangdi operates as the firm’s senior lender based in Mumbai while Ash Lilani, president, India and China, of SVB Financial Group, who brings 17 years of venture lending experience primarily in the US market, will oversee the operation as its CEO, said a company spokesperson.
The launch of the Reserve Bank of India-licensed non-banking financial company (NBFC) is an important milestone for the Santa Clara, California-headquartered SVB Financial Group (NASDAQ: SIVB) which started building a presence here in early 2004. As a complement to venture capital, which is just beginning to take off in India, the launch of SVB’s venture debt services opens up a critical flanking source of capital for early-stage companies both in technology and non-technology sectors.
How does venture lending or venture debt help young companies?
Typically, startups fund their businesses by selling equity to venture capitalists in exchange for cash. This process is repeated at regular intervals (as and when fresh cash in required), often with multiple investors until the startup turns cash-flow positive. Over time the venture capitalist could end up owning a controlling stake in the company — a common cause of heartburn between entrepreneurs and venture capitalists at the time of exit. Venture debt, on the other hand, can come in as a bridge between equity investment rounds thereby helping the startup to make the equity capital raised last longer. How? The startup can use debt capital to finance equipment purchases and other working capital needs and reserve the equity money raised from venture capitalists to finance business activities such as research and development, marketing and recruitment — read this detailed and simple guide to how venture lending works at this Venture Intelligence post in 2005 when Hattangdi launched Citigroup’s venture lending service in India. A Chennai-based business process outsourcing startup, Secova eServices, was the first Indian company too raise venture debt — it raised $1.5 million.
SVB Financial Group and India
The group started in 1983 — it was the brainchild of former Bank of America executives — as a bank for early and mid-stage technology companies and venture capital firms based in Silicon Valley. It currently counts over 500 venture capital firms as clients. Commercial banking accounts for 70 per cent of the group’s business — this service is not yet available in India. In addition, it also does venture investing as a co-investor alongside venture capital firms. The venture investing arm manages $1 billion in capital which it invests either in various venture capital funds or directly in companies.
The group’s global holding subsidiary for international businesses, SVB Global, entered India in February 2004 with an office in Bangalore. This became the landing station for many of Silicon Valley’s renowned venture capital firms who now have local offices in India. Sample a few: Norwest Venture Partners, NEA-IndoUS Ventures, Mayfield Fund, Bessemer Ventures and many more. SVB Global’s Bangalore office houses SVB India Advisors which is engaged in a slew of activities, principal among which is to help US-based companies and venture capital firms navigate the setting up operations in India and offers the same support to Indian companies looking to find their feet overseas. Its other significant activity is venture investing — it launched the $54 million SVB India Capital Partners Fund in mid-2007 and has been a prolific investor, mostly via co-investment deals, over the past few months. The Mumbai office will be home exclusively, for now, to the venture lending outfit.
I will be talking to Ajay Hattangdi extensively in a couple of days about the venture lending business and will bring you his thoughts and plans here. If you have any questions specific to venture lending and how it can help your business, let me know so that I can pose them to him.
Photo: SVB Financial Group Website
