Mumbai-based venture debt and non banking finance company (NBFC) BlackSoil Capital runs a diversified alternate credit platform for startups, small and medium enterprises, and real estate firms.
It offers customised credit solutions to borrowers based on their business models and cash flow structures.
Founded in 2016, the company claims a spike in cumulative disbursements from Rs 300 crores across 31 deals in March 2019 to Rs 420 crore across 40 deals by March 2020. In FY20, it claims to have disbursed around Rs 125 crore in nine deals in FY20 across sectors such as logistics, ecommerce, financial services, healthcare & SaaS.
In total, it has deployed Rs 460 crore in venture debt across 45 deals over the last four years.
Its portfolio includes hospitality major Oyo Rooms, online beauty marketplace Purplle, online lending platform EarlySalary, interior décor startup HomeLane, logistics platform LetsTransport, online furniture rental platform Rentomojo, edtech firm iNurture, and supply chain solutions provider Holisol Logistics.
In an interview with TechCircle, Ankur Bansal, co-founder and director at BlackSoil, spoke about the firm’s performance through the pandemic-induced lockdown, strategies going ahead and exits.
How has the pandemic impacted the business momentum at Blacksoil?
It’s been interesting not just by the volume of transactions but also the quality of transactions. We have been seeing all kinds of businesses now talking about what lenders love… profitability and cash flows. And, that has become the prime driver for any company currently, whether you have raised as little as a million dollars to something that raised more than $30 million.
… of course, there are some businesses for which the pandemic has proven useful in their businesses where they have already taken advantage of it and seen more tailwinds towards growth. Things are actually looking up in terms of the way the businesses are shaping up.
In terms of the metric, in the June portfolio already, on average, we are seeing 70% numbers have come back from Jan-Feb levels. So the overall economy may seem slow, the kind of businesses we are spending in, are seeing benefits.
Happy to see the way businesses are progressing and the new kind of entrepreneurs and the founders who we are backing are very solid guys, who have that domain expertise. They are no longer those college dropouts. The new guys who are coming in are a combination of technology as well as product. If not that, at least they know the domain very well.
So… I don’t think that if you were sitting with liquidity then you could get a better time to invest.
Did venture debt become the first choice for startups during the lockdown? Was there a surge in the number of startups that approached the firm?
I think for them the first choice is anybody who's given capital, to be honest. Those who have capital with them, venture debt becomes more interesting to them because it does not lead to any dilution. And it helps you achieve your business goals, maybe at least for the short term instantly, because anyway a conversation with venture capital will be a longer conversation.
We are not taking a view of five years or seven years, so for us it's not a valuation call. I don’t need to see another six months of performance. So that way we can take faster decisions.
Apart from that, what we are seeing is that people have started realising debt as an asset class.
But if you are asking me whether venture debt will do more than venture equity, that’s not possible because we are very small in numbers. But as a percentage, I think it will still follow the venture equity thing and will not be significantly different.
Tell us more about your deal run during the lockdown.
First we backed three companies from the existing portfolio. In the month of July, we disbursed close to Rs 35 crores. Our average last year monthly was almost Rs 20 crores a month.
So you can say that there was a significant pent up demand for our product. That shows that we had a good pipeline coming in during this period of time.
Some of the deals of June would have gone to July and some new deals were also there. The current pipeline is also looking strong and we've been working around the clock in terms of trying to work with as many companies as possible, because it's now obviously an investor’s market, you can really dictate the terms, as long as it's reasonable.
March for us was a very interesting time because we did quite a few deals. In March, we closed 6 deals and deployed Rs 6 crores including venture and structured debt. Then April and May were almost nothing. But we started picking up in June and did deals worth Rs 35 crore in July.
How did the pandemic and the lockdown change or impact the way you work as a firm?
We are a large platform with a presence in structured debt and real estate too. Because we are an NBFC and running into two funds, we have our own investor base from whom we raise money, which is typically HNI (high-net worth individual) capital. So from that perspective, it's been quite a busy time because we have been busy on the liability side also, fundraising at our NBFC level.
We started working from work just one week before the lockdown got announced and have been hooked on or on Zoom calls, Microsoft Teams calls and using various other applications MS is providing.
Being a young team relatively, with average age around 27-28 years old, we've been able to adapt technology quite quickly. And there has literally not been any disruption in terms of the kind of work we used to do. Although offices are yet to open up in a big way, we plan to open up slowly maybe from next month. But the deal evaluation is happening, existing portfolio management is happening, fundraising is happening.
April was a bit slow but it picked up later. We have also been investing on the technology side for our entire business operations.
What sectoral themes are you bullish on in the near to medium term?
So sectors have become very prominent for us. Earlier sectors wouldn’t have played that major role because all sectors are so interesting in India. But after Covid-19, we have to be careful with consumer facing businesses and sectors like fintech.
Some of these businesses have become lower priority and the ones on the healthcare side, I mean the essential segment and the ones that are working with enterprise customers or SaaS, logistics have become more interesting for us. We are giving a higher priority to these segments.
We haven’t had segments like agri in the past and will do something on that side.
So as a strategy, we will continue to be as granular as possible, to work for many interesting companies because we see debt as not a one-time transaction. We continue to support them over 2-3 years and help them build a credit history so afterwards can help raise money from more traditional banks and NBFCs. So that's why we want to have a large customer base we can work with and provide them with some extra capital, which is not necessarily there for them in the market.
How does the exit scenario look this year?
We had multiple deal exits there. And we have a lot of exits happening during the lockdown too. To put a number, we have seen more than Rs 100 crores in exits since March 2020. Not trying to boast, but this talks about our underwriting that even in these times people are returning our capital. Unfortunately, I can't really share any names. But companies are in various segments like e-commerce, hospitality, engineering services, etc.
Any major challenges you anticipate over the next few months?
Competition is increasing as more players are coming in the segment. But I don’t see it as a challenge; rather it helps more in the development of the ecosystem asset or the asset class.
As long as all players work in a way that they are working into prudent strategies and not underwriting risk they should not be, or not pricing the risk at a level that it becomes untenable for the asset class to grow, I think it is a positive situation.
There were a few transactions that we did recently where an existing venture debt player was already there. There will be some competition when you are looking at a fresh deal but not much. On the equity side, there are enough syndicates happening with a lot of co-investors. We are likely to see a similar scenario in the debt side too as the asset class grows.