Rahul Khanna’s Trifecta Capital Hits First Close of Rs 750 Crore for Third Debt Fund

Rahul Khanna, the Managing Partner at Trifecta Capital, has marked the first close of the firm’s third debt fund by raising Rs 750 crore. This successful milestone comes as part of their plan to raise a total of Rs 1,000 crore, with an additional green shoe option of Rs 500 crore. Trifecta Capital secured regulatory approval in August, and they are well on track to achieve the full fund target in the first quarter of 2022. Khanna expressed the significance of reaching Rs 750 crore for the first close, highlighting that this capital was sourced from existing investors. Their investor base comprises insurance companies, financial institutions, and prominent family offices in India. The final closure of both the debt and equity funds is expected to involve international institutional participation.

Founded in 2015 by Nilesk Kothari and Rahul Khanna, Trifecta Capital initially started as a venture debt fund. In their debut fund, they successfully raised Rs 500 crore. In 2018, the firm expanded its services by launching a growth stage equity fund, amassing Rs 1,300 crore under the same. Currently, they are looking to raise Rs 1,500 crore for the equity fund. Trifecta Capital further bolstered its equity portfolio by appointing Lavanya Ashok, formerly the Managing Director of Goldman Sachs Private Equity in India, to lead the initiative.

Khanna emphasized the transformation of Trifecta Capital from a pure-play venture debt provider to a comprehensive platform that actively engages with start-ups throughout their journey. They have established a strong track record and consistently attracted capital from their limited partners (LPs) through direct outreach efforts. This direct engagement has led to deep and enduring relationships with their LPs. The success of Trifecta Capital lies in their ability to deliver returns to investors. Khanna shared that they are well on track to achieve a net internal rate of return (IRR) of approximately 17 percent from their first fund and a mid-20 percent net IRR from their second fund. The new fund has set return expectations in the range of 16-18 percent.

Over the years, Trifecta Capital has built a portfolio of around 85 companies, including 15 unicorns and 12 valued between $500 million and $1 billion. Their disciplined approach to investments has played a pivotal role in this achievement. Notable investments from their second fund include BigBasket, Infra.Market, MyGlamm, and Dailyhunt, among others. Khanna pointed out that the Indian private equity and venture capital ecosystem has deployed a record $49 billion in Indian companies, primarily in tech-enabled businesses. The market has witnessed an increase in Series A investment sizes, prompting more funds to raise capital.

While venture debt deals at Trifecta Capital usually start with an initial deployment of Rs 20-30 crore at a 14-15 percent coupon rate to establish a relationship with founders, they are open to subsequent rounds of financing for companies in need. The flexibility of allocating up to 10 percent of the fund to a single firm offers scalability and adaptability. As start-ups evolve into larger companies, their capital requirements expand, leading to various debt structures beyond basic working capital loans. Debt is now used for financing acquisitions, funding working capital, and other strategic purposes.

Khanna anticipates significant growth potential in the debt business, especially as start-ups embrace more complex and diversified use cases for funding. As start-ups scale and raise larger rounds of capital, Trifecta Capital aims to meet their capital needs through their balance sheets or by securing commitments from their investors.

In a dynamic market, Rahul Khanna’s Trifecta Capital has established itself as a versatile platform, providing a range of financial solutions to India’s thriving start-up ecosystem. With the successful first close of their third debt fund, they are poised for another chapter of sustained growth and innovation in venture debt and equity funding.