The Exchanges

Q Ankur, also would like to know from you that, ah, what's the interest rates that you come in, ah, for, for a startup? What are the repayment cycles like? And for how long, let's say, if you deploy 40 crores for you, ah, at what point in time do you fully, you know, receive your principal and interest back?

A So, for us, ah, the, we have been a bit flexible on that part of it. So, our interest rates range between, ah, 14 to 18%. Ah, then that is one. Second is our loan tenor can range and we have done transactions as short as four months also, ah, at one off and we have done transaction as one off as five years also. But if you look at average tenor it will be between like 24 to 36 months. Ah, in terms of the when the money starts coming back is the interest servicing starts from day one, right? So, the moment the money goes, ah, the next day itself we start getting our interest accrual. And when you look at the principle part of it, generally it can range from a average duration of principle moratorium that we give is three to six months and post that on an EMI basis on a monthly basis we start getting a principle back.

AI assessment note: “our interest rates range between, ah, 14 to 18%.”

Q And, uh, Ankur, uh, Would be great to know from you that you mentioned, you know, in our offline conversations that your NBFC is backed by a few family offices. Who are they? And how did you build that credibility with them?

A Sure, sure. So we, uh, unlike other, most of the players in the market, we were able to get support from two large family offices. Uh, one is, uh, Mr. Shashi Kiran Shetty, who is a promoter of a listed company called All Cargo Logistics. Uh, this company was one point of time had Blackstone as their investor. Uh, so they have in their personal capacity have been the big supporters of Blacksoil. Uh, the other family, uh, who sort of supported us is, uh, Gala family, which is the promoters of a company called Navneet Education, which is one of the largest, uh, listed education players in the country on the private side, and very profitable as well. So these two sort of families came together and started us, started with supporting us back in Mentioned about our real estate debt fund, but quickly as we sort of progressed to our NBFC structure, they were happy to sort of come in and provide us the capital to begin our operations. And since then they have topped up over the last three, four years and given further funding to sort of reach where we are right now and continue to support us in various ways through their network and expertise in various parts of our business. So the common link for both of them was actually my father, Who sort of was sitting on the board of these two companies for over a decade, and the relationship with them has been over two decades, I would say. So t…

AI assessment note: “The common link for both of them was actually my father”

Q So, how, how, how would a 20% IR accrue for a 14 to eight percent interest on, on the capital you have given?

A So what happens is that is the interest, ah, the IRR on those transactions is much higher because you also have fees etc on it and your principal also starts coming back. So the IRR can range from 16% to 21% plus in some cases you will get warrants. So that will give you further IRR, ah, and what we do at our balance sheet level as I was mentioning offline is that we leverage it, right? So our, ah, we are able to leverage it one is to one. So that sort of debt is borrowed at a much lower cost, right? So we are borrowing that at maybe 11% or 12%. So that provides you further, uh, upside to your, to your IRR when you start looking at it. So obviously right now we're only able to leverage one is to one because of current credit market situation. But if you are able to leverage it, one is to two, uh, that I can, and that money is at a lower boarding cost, then you, our IRR, our ROE will shift. And once our ROE also improves, you're able to get a higher valuation for the company.

AI assessment note: “IRR on those transactions is much higher because you also have fees etc on it”

Q For our listeners, you know, who are new to venture debt, would you please explain what does one is two, one and one is two mean?

A I'm talking about the debt to equity at the NBFC level. So, if we have like a 200, right now our book, our assets under management at our NBFC level is 400 crores. 202 150 crores is equity side, one 50 crores is on the debt side. So, if we take from one is two one, if you are able to take one is two two, so if you are able to take a debt from 150 crores to almost 500 crores, that will sort of, Be able to give us a extreme, uh, improving our ROE, right? Because, uh, we'll be able to leverage it up. We'll be able to lever it up and get interesting returns on it.

AI assessment note: “I'm talking about the debt to equity at the NBFC level.”

Q Understood. And Ankur, so for these, ah, investors, what would be their exit cycle like? When would, when would they get, ah, you know, their principle and back and, and what would be their expectation, you know, on, on their principle?

A Correct. So they have not, they have invested this company, they have invested in this company more like a NDFC itself, right? So you have to earn good return on equity a good roe on your business and good return on assets on the business so that's been their focus is to sort of create this into a big trade platform and not just sort of look at a very short term horizon of getting capital back that's how sort of the business is there is not really any uh very it's too early to sort of think about exits now because the business is now getting really transformed and we are really getting our act together and the business is really sort of falling into place especially you know the current Times after COVID that has become more important for companies to sort of, uh, fund. So that's where sort of, uh, we are feeling that there is not really an exit question. It's all about growth right now. And how we can take the advantage of a first mover and try and build the business out further. So our exit will happen. I think that only sort of time will tell. Possibly it could be another strategic investor coming in. It could be for the funds that we may end up raising because for them, this is not like they really need the capital tomorrow. This is from their personal side. So they are not really having as such any exit, exit expectation at this point of time.

AI assessment note: “they are not really having as such any exit, exit expectation at this point”

Q Understood. And Ankur, ah, for the listeners who are new to venture debt, can you, ah, explain what warrants are and in which transactions do you, do you get a warrant and what's your return on those warrants?

A So, ah, basically venture debt, ah, typically is where, ah, there is a venture which a company which has raised actually, ah, institutional backed capital from a VC or generally a PE, not necessarily from angel investors, ah, at least in the country. Most of them are focused on having a large marquee and institutional investor in the company and they sort of are able to give around 10 to 20% of the equity as debt right so the benefit of it is that it is non-dilutive and you don't really can you get the money obviously alongside the equity and then you can sort of uh you have to pay it back over a period of three years it's not that you have to pay it back in the next three months and more interestingly unlike the particular bank debt Uh, one does not really need to, uh, provide any kind of hard collateral. One does not need to provide promoter guarantee. One does not need to provide any personal guarantee. One does not need to provide pledge of shares, right? So it is that way without any kind of collateral. So from banking parlance, it becomes literally unsecure because there is no hard asset which is providing as debt security to the companies. So the venture debt players are taking comfort on the business model itself and the cash flows of the business and the, and the sort of the growth of the business that can happen, which should be the case even for the traditional banke…

AI assessment note: “basically venture debt, ah, typically is where, ah, there is a venture”