HSBC took a bold step on June 5, 2025, by announcing plans to launch India’s first commercial venture debt fund, setting the stage for a strategic shift in how startups access alternative financing. With this move, HSBC aims to address a growing funding gap in India’s startup ecosystem, especially for ventures that seek non-dilutive capital to scale operations without giving up equity.
HSBC already plays an active role in Indian startup banking, with over $600 million in startup-focused assets under management (AUM). However, this new initiative marks the bank’s first foray into structured venture debt through a dedicated fund vehicle, separate from traditional credit lines.
This fund positions HSBC as a serious contender in the evolving Indian venture landscape — one where startup founders increasingly explore debt as a financing route in tandem with equity.
What HSBC Plans to Build
HSBC’s venture debt fund will launch with a target corpus of ₹1,000 crore (approximately $120 million). The bank will anchor the fund with its own capital and bring in institutional investors — including family offices, sovereign wealth funds, and corporate treasuries — to co-invest.
The fund will operate under the Alternative Investment Fund (AIF) Category II license issued by the Securities and Exchange Board of India (SEBI), allowing it to lend structured debt instruments such as:
- Convertible debentures
- Revenue-linked notes
- Venture term loans
- Warrants linked to milestones
HSBC will position this fund for Series A to Series C stage startups, especially those in sectors with predictable revenue growth such as fintech, SaaS, climate tech, and consumer brands.
Ajay Gupta, Head of Commercial Banking at HSBC India, explained the bank’s rationale: “We saw founders struggling to extend their runway without giving up more equity. This fund lets us support high-performing ventures with flexible debt while preserving founder ownership.”
Why HSBC Chose Venture Debt
Over the past five years, Indian startups have raised billions in equity capital, but venture debt has remained under-penetrated, accounting for less than 5% of total funding. Traditional banks often avoid lending to early-stage companies because they lack hard collateral or consistent cash flow histories.
Venture debt, however, fits between institutional equity and standard banking credit. It enables startups to:
- Extend cash runway between funding rounds
- Finance working capital or equipment purchases
- Reduce equity dilution
- Improve valuation metrics for the next round
HSBC wants to address this gap by offering credit structures that align with startup growth trajectories. The bank already works with over 150 venture-backed startups in India and believes this new fund will deepen its engagement with the sector.
Key Features of the Venture Debt Fund
HSBC designed the fund to provide flexibility and scalability. Here are the standout features:
- Tenure: Loans will range between 24 to 48 months.
- Ticket Size: Each investment will span ₹5 crore to ₹40 crore, depending on company size and revenue.
- Interest Rates: Rates will range between 12% to 17% annually, with options for partial interest deferral.
- Equity Kickers: The bank may attach warrants or rights to participate in future equity rounds, tying returns to company performance.
- Speed: HSBC plans to disburse funds within 45 days of term sheet agreement, a significant improvement over conventional bank loan timelines.
By launching this fund, HSBC intends to combine the rigor of banking with the speed and risk appetite of venture capital.
India’s Growing Appetite for Venture Debt
India’s venture debt market has grown at a 30% CAGR over the past three years, driven by rising startup valuations and investor caution around equity overextension. Leading firms such as Trifecta Capital, InnoVen Capital, and Alteria Capital already deploy hundreds of crores each year, but their capacity remains limited compared to demand.
Moreover, startups increasingly view venture debt as a strategic tool. For example:
- A logistics startup may raise debt to buy electric vehicles rather than fund them through equity.
- A SaaS firm may borrow against annual contracts with enterprise clients.
- A D2C brand may fund inventory cycles without dilution.
HSBC wants to tap into this strategic financing segment and offer an institutional-grade option with global best practices. “Founders trust HSBC’s brand and balance sheet,” said Meera Iyer, Head of SME Lending at the bank. “We want to give them credit that’s fast, fair, and founder-friendly.”
A Strong Regulatory and Macro Tailwind
SEBI’s push for a vibrant alternative investment industry, alongside India’s digital and entrepreneurial boom, has created fertile ground for venture debt. HSBC identified three powerful tailwinds:
- Regulatory Enablement: SEBI’s relaxed AIF guidelines and India’s strong insolvency resolution frameworks reduce risk for structured debt players.
- Digital Cash Flows: Startups now operate with digital trails, enabling banks to underwrite risk using APIs, data analytics, and open banking.
- Public Market Exits: India’s maturing IPO pipeline gives banks more confidence in terminal value realization, especially with embedded warrants.
In short, India no longer poses the structural barriers that once kept banks out of startup lending. HSBC believes it can use its existing compliance, legal, and audit infrastructure to manage venture debt at scale.
HSBC’s Strategic Intent in India
This fund also signals HSBC’s broader strategy to make India a center of innovation banking. The bank has already:
- Opened an Innovation Banking Division in Mumbai, modeled after its London and New York arms.
- Partnered with India’s top accelerators and VC firms for joint programs.
- Built a proprietary credit scoring engine for startups, combining metrics like burn rate, net revenue retention (NRR), and customer concentration.
With the venture debt fund, HSBC now completes its three-layer capital stack for startups:
- Operating Accounts and Cash Management
- Credit Lines and Working Capital
- Structured Venture Debt
This holistic approach creates a strong competitive advantage in a market where founders seek partners who understand their business life cycles, not just balance sheets.
Market Response and Industry Commentary
Industry experts quickly praised HSBC’s move. Anirudh Damani, Managing Partner at Artha Venture Fund, commented: “Banks entering venture debt gives legitimacy to the asset class. Startups will benefit from better pricing and deeper pools of capital.”
Startup founders also welcomed the announcement. Ishita Agarwal, CEO of CleanCart, a fast-growing sustainable packaging startup, said: “We recently raised equity but didn’t want to dilute again. If HSBC lends to companies like ours with strong revenue, it will change how we plan growth.”
Some investors expressed cautious optimism, noting that HSBC must build underwriting capacity tailored for startups, not just apply traditional credit norms. The bank seems aware of this, having hired a 12-member venture debt team from fintech and venture capital backgrounds.
What Comes Next
HSBC will file the necessary regulatory documents with SEBI in the coming weeks. It expects to complete fundraising for the fund by September 2025 and deploy the first tranche of capital by November. The bank aims to back 30-40 startups in the fund’s first year.
HSBC also plans to expand this model to Southeast Asia by early 2026, starting with Singapore and Indonesia — creating the first cross-border venture debt platform from a global bank in the region.
Conclusion
HSBC didn’t just launch a fund — it launched a message. The bank signaled that Indian startups deserve flexible, world-class debt products just like their global peers. With its strong brand, regulatory credibility, and local insight, HSBC now sits at the forefront of a financial transformation in India’s startup ecosystem.
As equity markets fluctuate and founders seek capital with fewer strings attached, HSBC’s venture debt fund promises to fill a vital need. It offers not only capital — but confidence, continuity, and strategic choice.