As equity funding cycles turn volatile, Indian startups are increasingly turning to alternative capital sources, with venture debt leading the shift. It has evolved from a niche capital source into a core financing instrument for the country’s high-growth startup cohort, with more than 70% of founders expecting private debt usage to increase over the next 24 months, according to the latest report by Stride Ventures.

Venture debt funding in India grew 12% in 2025 to $1.38 billion across 187 deals, up from $1.23 billion across 238 transactions in 2024, as per the report titled “The Global Private Debt Report 2026: A Venture & Growth Credit Lens.” The data showed that the market has expanded nearly 16 times over the past seven years, from just $80 million in 2018.

“The $1.3B annual deployment in 2025 across 187 deals (compared to $0.08B deployed across 56 deals in 2018) represents a 16X increase over the past seven years, showcasing a market that has moved decisively beyond early-stage experimentation and into institutional maturity,” the report noted.

This growth is driven by a broader shift in the private debt ecosystem, where venture debt is now firmly embedded in the startup financing stack, while growth credit is emerging as the next leg of expansion capital for late-stage companies.

According to the report, venture debt activity in 2025 remained concentrated in early growth stages, with Series A and B rounds accounting for 60% of deals and over half of the deployed capital. The average ticket size stood at $3.5 million. Founders, venture capitalists, and limited partners are increasingly embracing this route to extend runway without equity dilution.

Sectorally, fintech continued to dominate, attracting nearly $600 million across 49 deals, or about 46% of total capital deployed. Consumer platforms accounted for 32% of deal volume, with $188 million across 60 deals, indicating that venture debt is being used tactically for working capital and growth in consumer apps, not just for larger capital raises.

Among others, emerging sectors such as cleantech ($108 million), energy ($100 million), and agritech ($46 million) are also seeing increased adoption, the report noted.

Geographically, the market remains concentrated in key startup hubs. Delhi NCR led with $617 million across 64 deals, followed by Bengaluru at $333 million across 58 deals. Together, these two regions accounted for nearly three-fourths of total venture debt deployment.

Growth credit emerging as a complementary layer

According to the report, growth credit is gaining traction as a financing tool for more mature, private equity-backed companies. In 2025, growth credit deployments stood at $1.68 billion across 32 deals, with an average ticket size of $52 million.

Unlike venture debt, this segment is more selective and concentrated, with fintech again leading the charts, followed by consumer and B2B sectors. The geographic spread is also wider, with Delhi NCR, Mumbai, and Bengaluru emerging as key centres for such transactions.

“Growth credit represents the next institutional layer of entrepreneurial financing in India, though it remains nascent by deal count (32 deals) and concentrated by sector (fintech 58%, consumer 13%, B2B 11%),” the report highlighted.

The report also noted that private equity (PE) investors are increasingly using growth credit as a capital stack diversification tool ahead of later-stage scaling and public market readiness.

Outlook for 2026

The report notes that a “two-layer credit structure” is now taking shape in India—venture debt supporting early-stage growth alongside equity, and growth credit enabling scale at later stages, as investors seek more structured and flexible capital solutions for scaling businesses.

“While VC-led equity remains the dominant driver of Series A–D company growth, PE-backed platforms approaching late-stage scale face bank lending constraints and prefer institutional credit solutions that offer speed, certainty, and structural flexibility.”

Sectorally, the outlook for 2026 suggests that growth credit deployment will be concentrated in asset-heavy and cash flow-stable industries. Energy and utilities are expected to lead demand, followed by industrials and manufacturing, infrastructure, and real estate.