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Speaking with TechGraph, Ishpreet Singh Gandhi, Founder & Managing Partner of Stride Ventures said, “The startup ecosystem is well poised to drive digital adoption in India and hence, will be the real delta driving the economy in this decade.”
Here’s an excerpt:
TechGraph: What’s the investment philosophy that you follow at Stride Ventures?
Ishpreet: Stride invests in VC backed growth-stage startups, Series A and beyond, with strong unit economics and operating cash flows. We create tailor-made solutions, structured according to the business demands of each startup with a focus on working capital requirements.
We leverage our robust banking network to provide comprehensive credit solutions that reduce the blended cost of financing for our portfolio companies. Our average ticket size is $2 mn, which can further go up to $7-8 mn with banks.
TechGraph: What is Stride Venture’s fund approach in the current market? Are you looking at new sectors too or using more stringent norms to evaluate a business?
Ishpreet: Currently, we are focusing on evaluating sectors such as Edtech, HealthTech, Content, D2C, and B2B Essentials. Our risk assessment framework mirrors banking rigor and hence, has been consistent since the advent of the fund.
TechGraph: Stride Ventures has a lot of family offices and HNI as investors. How did you convince them to invest in your fund?
Ishpreet: Stride has developed a strong risk assessment framework spearheaded by veterans of the banking industry. We work closely with top tier funds and handpick the winners from their portfolios. In terms of structures, we are focused on providing shorter tenor working capital solutions, which further mitigates risk.
Furthermore, we believe in participating actively with our portfolio companies. We sit on the board of our companies and help them leverage our strong network of banks, which is unprecedented in the industry.
While these measures ensure capital protection, we also have an equity upside in the form of warrants in all our companies and hold a right to invest in them.
TechGraph: How are you handling the funds existing portfolio and responding to challenges faced by startup founders?
Ishpreet: At Stride, we follow an engagement manager approach for post-investment monitoring. This enables us to actively engage with our portfolio companies with a board observer position.
In recent months, we have actively helped our companies with various personalized credit solutions through the fund as well as through activating banking channels. This has greatly helped our portfolio companies access a wide array of financial tools available from us and through banks.
Fundamentally, our portfolio companies are in a strong position, with high gross margins and robust cash position. Hence, they have successfully navigated through the pandemic.
TechGraph: What is your view on the Indian startup ecosystem?
Ishpreet: COVID-19 has resulted in major changes such as digitalization across industries, the rapid rise of health tech, widespread adoption of remote work, etc.
The startup ecosystem is well poised to drive digital adoption in India and hence, will be the real delta driving the economy in this decade.
Concerning the venture debt landscape, while the Indian start-up ecosystem is the third-largest in the world today with more than 20 unicorns and approximately $10 billion in capital deployed by venture capitalists in 2019, venture debt as an asset class is yet to penetrate this ecosystem.
We expect this to change, as venture debt comes to the fore, especially since the pandemic. With the announcement of RBI to include startups under PSL norms, financial institutions would be more open to exploring the startup ecosystem. Venture Debt players can play a pivotal role for banks to identify the right startups for investments.
TechGraph: How do you see the debt investment scenario in the country over the next two-three years?
Ishpreet: The COVID-19 pandemic has expedited the growth of the already growing venture lending space. With uncertainty around equity rounds, startups are exploring venture debt.
Venture debt currently stands at 3-4% of volumes of the Venture Capital market, and there is a great potential for growth especially with incremental Venture Capital infusions into the ecosystem.
Moreover, we believe the opportunity for Stride is larger as the basis of our underwriting, we are comfortable with lending in-between equity rounds as well.
TechGraph: Since coronavirus has affected almost every startups and business, Even many VC deals have closed down. How it has impacted Stride Ventures’ portfolio startups?
Ishpreet: Our underwriting is focused on the fundamentals of the business, independent of equity infusion. This has enabled us to pick companies with strong business models and operating cash flows, with the willingness of top tier VCs to support the company.
There have been no delinquencies or delays in our portfolio. Consequently, we have been one of the most active funds and have successfully closed seven deals since the onset of the pandemic.
TechGraph: Any note for startup founders, who are looking to raise funding?
Ishpreet: Startups looking to raise funding must have an optimum capital allocation between debt and equity. This gives the startup more operational flexibility, apart from extending their runway, protecting dilution, and creating a credit track record.
The founders most also strongly focus on profitability in the long run, as the revenue increases. This will enable founders to build fundamentally strong businesses.