Nearly 40% of Start-Up Founders Focus on Debt Financing at Pre-IPO Level

A new trend has emerged in the start-up IPOs landscape as new-age businesses started considering debts before going public on Indian stock exchanges. Around 41% entrepreneurs cited debt’s growing role in pre-IPO bridge financing, according to a joint report on global venture debt released by Stride Ventures and Kearney. It stated that the debt funds enable companies to scale and stabilise operations ahead of public listings.

Speaking about the same, Stride Ventures founder and managing director Ishpreet Singh Gandhi said, “Pre-IPO funding has become very common in India as it helps businesses to get capital for growth. An IPO might be structured with 20-30% debt, which helps prevent dilution.”

“This allows IPO markets to offer better returns, benefitting existing investors, founders and pre-IPO investors. Hence, the returns can multiply for investors because some part of the funding comes from debt. And debt is comparatively safer option. Many start-ups have fallen below their IPO prices, but debt investors remain protected,” he added.

Around 49% of the total venture debt deployment happened in series B and beyond, largely due to late-stage start-ups opting for debt in pre-IPO fundraising, Stride Ventures said in its report.

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The venture debt market is growing at 58% CAGR from 2018 to 2024, reaching $1.23 billion last year. In 2024, sectors like fintech, consumer tech, and cleantech have significantly contributed to venture debt deal volumes, accounting for about 80% of disbursements.

“Consumer companies have taken the highest number of deals (81), particularly at the pre-Series A stage for use cases like working capital and capex financing. However, fintech saw the highest total deployment at $450 million, largely for onward lending, R&D financing, and marketing, with an average deal size of $9 million compared to $3.6 million in consumer,” said Rajit Uboweja, Partner, Stride Ventures.

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Geographically, Bengaluru has solidifies its position as India’s venture debt hub with the 40% of the country’s total share, followed by Delhi NCR and Mumbai.

In addition, the report stated that nearly 61% founders surveyed highlighted venture debt as a preferred tool for runway extension and working capital management. More than 35% entrepreneurs emphasised debt’s importance for inventory and capex financing which reflect its relevance for asset-backed business models, it added.