Venture debt terms in Asia, explained

Key figures

• US$1.23bn Venture debt raised by Indian start-ups in 2024, up from US$0.8bn in 2022

• US$25.7bn · US$8bn Indian start-up equity funding in 2022 and 2023

• US$92bn Projected Asia-Pacific private credit market in 2027, from US$59bn in 2024

• 732 days Median gap between Series A and Series B in late 2024

• 1.2x A venture lender’s best case, against 3x to 5x for equity

Contents

1. Why venture debt grew

2. The clauses that decide control

3. Material adverse change clauses

4. Investor abandonment clauses

5. Cash sweeps and account control

6. Registering the security with ACRA

7. Warrants and the share register

8. Cross-default and the capital stack

9. Rates and currency

10. What the record shows

Indian start-ups raised US$1.2 billion of venture debt in 2023, up from US$800 million in 2022, according to Stride Ventures. Equity funding fell from US$25.7 billion to US$8 billion. Debt filled part of the gap. US$1.23 billion in 2024. The money came with clauses.

1. Why venture debt grew

Debt grew because equity slowed. Carta put the median gap between seed and Series A at 774 days in the fourth quarter of 2024. Series A to Series B took 732 days. Both far longer than in 2021. Runways did not stretch with them.

Private credit grew alongside. The Alternative Investment Management Association's Alternative Credit Council puts the Asia-Pacific private credit market at US$59 billion in 2024. It projects US$92 billion by 2027. Australia, India, Japan and Singapore lead.

The longer wait changes the loan. A facility sized to bridge 18 months must now survive two years or more. Every covenant is tested for longer. So is the founder's control.

2. The clauses that decide control

Five clauses decide who controls the company after a bad quarter. None of them is the interest rate. Three create a default. Two control the cash once a trigger is hit.

Warrants sit outside the table. They decide who shares the upside, not who calls the default. Section 7 treats them separately.

These terms move before signature. Rarely after. Auberique's Advisory team reviews venture debt term sheets before founders sign. The work is commercial. A narrower material adverse change definition. Objective tests and a cure period in an abandonment clause. Sometimes deletion of both.

3. Material adverse change clauses

A material adverse change clause rarely survives a courtroom. It does not need to. Its value lies in the threat, not the judgment.

The clause usually appears twice in a facility. As an event of default, it lets the lender demand early repayment. As a repeated representation, it lets the lender refuse the next tranche, because each drawdown is conditional on no default. The definition is often drafted around the lender's own opinion of the business, its assets or its prospects.

The leading authority is not a loan case. Akorn v Fresenius was a Delaware merger dispute. It matters to an Asian facility for one reason. It shows how high the bar sits. English courts set a similar bar for loans, and Singapore courts commonly draw on English contract authority. Grupo Hotelero Urvasco v Carey Value Added, decided by the English High Court in 2013, is the leading loan case. Carey, the lender, had cancelled a facility to a Spanish hotel group and relied on a material adverse change. The court put the burden of proof on the lender. The change had to be significant, lasting and unknown at signing. Carey's material adverse change argument failed. It won on a different clause, covered in section 8.

So lenders rarely litigate the clause. They use it. A lender that can plausibly allege a material adverse change can hold back the next tranche and unsettle the next round's lead investor. The company pays for certainty. A waiver fee. Tighter covenants. A board observer seat. The clause is a negotiating chip.

Case in point

The Delaware benchmark

On 1 October 2018 the Delaware Court of Chancery allowed Fresenius to walk away from its acquisition of Akorn. The facts were extreme. Akorn's quarterly revenue had fallen 25% to 34% year on year. Its 2017 earnings before interest, tax, depreciation and amortisation fell 86%. The court also found serious data integrity failures, including fabricated data submitted to the US Food and Drug Administration. It was widely regarded as the first finding of its kind in Delaware. A start-up that misses plan by a quarter is nowhere near Akorn. Its lender knows that. The lender also knows the founder cannot afford a year in court to prove it.

4. Investor abandonment clauses

An investor abandonment clause hands the default trigger to the company's own investors. The lender calls a default when they signal they will stop funding. Cash and performance are irrelevant.

A typical formulation turns on the lender's good faith judgement of the investors' intention. The test is whether they clearly intend not to fund in the amounts and timeframe the loan obligations need. Orrick has described the clause as less subjective than a material adverse change trigger. It sits entirely within the control of the borrower's investors. More predictable for the company. No more comfortable for the founder.

Note

Predictable is not the same as safe

An abandonment trigger is easier to read than a material adverse change. It still hands the decision to someone other than the founder.

Case in point

The departing investor

A biotech company closes its Series A with a strong syndicate and takes a venture debt facility alongside. One lead investor later closes its life sciences team for strategic reasons. It declines to follow on in the Series B. The lender treats that as investor abandonment and calls a default. The Series B eventually closes, but on terms shaped by the default. The founders are diluted far more than the business case alone would have required. I have seen this pattern in practice. Performance was never the trigger.

5. Cash sweeps and account control

A cash sweep is an operational mechanism, not a legal event. Once triggered, it takes cash before management can spend it.

The sweep applies cash above an agreed operating reserve to prepay the loan, often as a fixed percentage of the excess. The trigger may be a minimum cash breach, an event of default or a test date. Once hit, it runs without a further decision by the lender or consent from the borrower. A missed covenant looks backwards. A sweep looks forwards. It reaches cash before payroll, suppliers or growth spending do. Founders describe it as losing their own bank account.

Account control is a separate right. The sweep decides how much cash moves. Account control decides who can move it at all. The bank agrees to follow the lender's instructions on a specified account, often only once a default occurs. A springing right. It springs quickly.

Case in point

The automatic sweep

A company draws US$3 million of venture debt. The facility sets a minimum cash balance of US$1.5 million and a 50% sweep of cash above a US$2 million operating reserve once that balance is breached. A slow quarter takes cash to US$1.4 million. The sweep switches on. A customer then pays US$1 million. Cash reaches US$2.4 million. US$200,000 goes to the lender before the company can spend it. No one at the lender has to decide anything.

6. Registering the security with ACRA

The sweep moves cash. The charge behind it decides who ranks first if the company fails. That is a statutory matter, and the deadline is short. A Singapore company that grants a registrable charge lodges it with the Accounting and Corporate Regulatory Authority (ACRA) within 30 days of creation. Miss the window and the security fails.

Section 131 of the Companies Act 1967 lists the registrable charges. A floating charge on the company's undertaking or property is one. So is a charge on book debts, and a charge on shares of a subsidiary the company owns. A venture lender's all-assets security usually includes at least one.

The location of the business is irrelevant. The operating company may sit in Jakarta, Ho Chi Minh City or Bengaluru. A Singapore holding company that grants a charge as borrower or guarantor still lodges with ACRA.

An unregistered charge is void against the liquidator and any creditor of the company. The secured money then becomes immediately payable. The lender loses its priority. The company loses its repayment schedule. Lenders' counsel diarise the date. Auberique registers charges for companies as part of its secretarial work.

Note

30 days, then void

An unregistered charge is void against the liquidator and any creditor. The money it secured falls due at once.

7. Warrants and the share register

Warrants are the lender's equity upside. They are a company law event, not a debt term.

A venture loan earns interest and fees. Capped. A warrant gives the lender the right to subscribe for shares at an agreed price, usually tied to the last or next round. Lenders price every facility with that kicker in mind.

Exercise means a share issue. The directors need prior shareholder approval under section 161 of the Companies Act 1967. The constitution and shareholders' agreement decide whether existing shareholders hold pre-emption rights over the new shares. The company lodges a return of allotment with ACRA within 14 days. Share issues and transfers in Singapore, explained covers each step.

The last consequence is easy to miss. An exempt private company has no more than 20 members and no corporation holding a beneficial interest in its shares. Venture lenders usually exercise through a fund or holding vehicle. A corporation. Many venture-backed companies lost the exemption at an earlier round. For those that kept it, exercise ends it, and the company files its financial statements with ACRA from then on. Exempt private companies in Singapore, explained sets out the rest.

8. Cross-default and the capital stack

Cross-default turns one breach into a default everywhere. Exposure depends on drafting, not on labels.

A cross-default clause treats a default under another instrument as a default under the loan. Cross-acceleration is narrower. It bites only once another creditor actually demands early repayment. Two defined terms set the reach. The definition of indebtedness decides which instruments count. The threshold decides how large a breach must be.

The risk sits in the earliest paperwork. Cooley has noted that convertible notes in Southeast Asia and India sometimes carry extensive operational covenants, such as limits on issuing new securities. US notes often carry few. The result is foot faults, which Cooley describes as minor, often unintentional breaches that can still trigger default. Through cross-default, a foot fault under a note becomes a default under the loan. Notes drafted before any lender arrived surface at the worst moment.

Lenders know cross-default is the cleaner weapon. The Grupo Hotelero case from section 3 shows why. The court found a material adverse change in the borrower's finances. Carey, the lender, still could not rely on it, because it could not show the borrower had repeated the relevant representation on the date in issue. Carey won anyway. The borrower had negotiated a rescheduling of its senior debt because of financial difficulty, which triggered the cross-default in Carey's facility. The cancellation stood.

Note

The cleaner trigger

A material adverse change must be proved. A cross-default needs only another creditor's paperwork.

9. Rates and currency

A floating-rate facility is partly a bet on rates. The borrower holds the bet. An 18 to 36 month term spans several rate decisions.

Currency is the quieter risk. A company earning in several Asian currencies while servicing a single-currency facility carries the gap. Asian currencies have moved in opposite directions against the US dollar within the same year. A fall in the revenue currency raises the real cost of every repayment.

10. What the record shows

Venture lenders enforce. The Indian record proves it.

Case in point

BluSmart Mobility

The National Company Law Tribunal in Ahmedabad admitted BluSmart Mobility into insolvency on 28 July 2025. Catalyst Trusteeship brought the petition as debenture trustee for an InCred credit fund. BluSmart had issued ₹15 crore of secured, redeemable non-convertible debentures in April 2023. It defaulted on more than ₹1.28 crore of instalments due in March and April 2025, above the ₹1 crore insolvency threshold. An interim resolution professional was appointed. The founders no longer ran the process.

GoMechanic shows the other side. In January 2023 its founder admitted errors in financial reporting. A consortium led by Lifelong Group bought the company in March 2023. The episode put venture lenders' risk appetite under scrutiny. Their economics explain their caution. As Ankur Bansal of BlackSoil put it to Business Standard in February 2023, venture lenders “can't compensate for write-offs the way venture capital guys can afford to”. A loan's best case is about 1.2 times. Equity investors look for three to five.

That asymmetry is the whole story. Equity investors are paid to back big bets. A lender with a capped return has one tool to limit the downside. Covenants. Once venture debt sits in the capital stack, the board that encouraged aggressive growth may need a lender's consent to fund it.

Common questions

What is an investor abandonment clause in venture debt?

It lets the lender call a default when the company's existing investors clearly intend not to keep funding it. The lender judges that in good faith, against the amounts and timeframe the loan obligations need. The trigger is investor behaviour. Not cash. Not performance.

Can a lender rely on a material adverse change clause?

Rarely in court. Akorn v Fresenius in 2018 involved revenue falls of 25% to 34%, an 86% fall in annual earnings and fabricated regulatory data. English courts, in Grupo Hotelero Urvasco v Carey Value Added, put the burden on the lender to prove a significant, lasting change unknown at signing. In practice the clause gives lenders leverage to negotiate waivers, fees and tighter terms.

What is a cash sweep in venture debt?

A cash sweep applies cash above an agreed operating reserve to prepay the loan once a trigger is hit. It often takes a fixed percentage of excess cash and runs automatically, without a fresh decision by the lender. It is separate from account control, which decides who may operate the account.

Does a Singapore company need to register security given to a venture lender?

Yes, if the charge is registrable under section 131 of the Companies Act 1967, as a floating charge or a charge on book debts is. It must be lodged with ACRA within 30 days of creation. An unregistered charge is void against the liquidator and any creditor, and the secured money becomes immediately payable.

What are warrants in venture debt?

Warrants give the lender the right to subscribe for shares at an agreed price, usually tied to the last or next equity round. They act as an equity kicker on top of interest and fees. In a Singapore company, exercise means a share issue that needs shareholder approval under section 161. A corporate holder also ends exempt private company status.

Does venture debt cross-default to SAFEs and convertible notes?

It depends on the drafting. Convertible notes are debt and can fall within a broad definition of indebtedness unless subordinated. A standard SAFE carries no repayment obligation before conversion, so its direct exposure is low. Cross-acceleration, rather than cross-default, bites only once another creditor demands early repayment.

Auberique registers charges and keeps the statutory registers that follow a venture debt facility for companies. Clients track ACRA deadlines in the Auberique client portal.

About the author

Gavin McDaid is a practising solicitor (England and Wales) and former venture capitalist, with an LLM in Law and Technology from Queen’s University Belfast. He writes on company law, fundraising and governance in Singapore.