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Debt often has been used by tech startups to pump up their balance sheets during late-stage financing, but now many are looking at it as a viable option much earlier.

鈥淚 think over the past years you can see that as a general trend,鈥� said , a partner at 聽in New York. 鈥淚 think in general, (entrepreneurs) are looking at more options.鈥�

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Just this month, edtech company announced it had raised $75 million in a debt facility from underwriter , while on-demand electric car company raised $70 million in debt through the . In September, another edtech company, , raised a $75 million credit facility from .

Earlier this year there were even larger deals, such as corporate travel and expense management platform raising $125 million in a convertible-to-IPO financing, lodging marketplace raising $2 billion in debt and equity from , andr raising $200 million in debt in June before going public.

While exact numbers on deals and amount debt raised are difficult to determine, , CEO at 鈥攁 firm that helps companies secure venture debt鈥攕aid there is rising interest in debt as founders and entrepreneurs look for ways to raise capital without diluting ownership.

Capital has seen a 250 percent increase in customer financings since March and believes that half of those can be directly attributed to COVID-19.聽聽聽

鈥淐OVID affected all companies,鈥� Silverberg said. 鈥淩egardless of how you were affected, companies want to look at all options.鈥�

Silverberg said in just the last two weeks he has seen VC-backed SaaS companies interested in raising debt to make acquisitions, and a VC-backed consumer company looking at debt to carry inventory.聽

The rise of debt

While venture capital is the form of financing most associated with tech startups, Silverberg said market dynamics started changing after the Great Recession鈥攁round 2012鈥攚hen traditional asset managers like and started to lend at attractive multiples. Right around that time, the startup fintech industry鈥攚ith the likes of and 鈥攁lso started offering tech companies alternative financing methods.

Nevertheless, it has been a slow climb for debt as compared to the more traditional venture capital route, which is nearly 20 times bigger now than during the initial technology boom in the mid-1990s. While only about 2 percent of early-stage companies鈥� capital base is debt, nearly 30 percent of the capital base of companies on the S&P 500 come from debt, said Silverberg.聽

Risk versus reward

Venture debt can have drawbacks, warns , co-founder of venture capital firm in Austin. While the cost of the capital itself is significantly less with venture debt, there is risk associated with leveraging a company, especially in the case of a startup where repeatable business can be an unknown.

鈥淭he upside is amazing, but there can be a significant downside to leveraging your company,鈥� Napier said.

Whether it’s a maturing tech market or COVID-19, it does seem more startups are beginning to eye debt as yet another way to unlock the wealth of capital currently in the market.

鈥淚 don鈥檛 think you have seen much of a change in companies accessing debt in the last six to eight months,鈥� said Brown, adding that companies did draw down on credit facilities they already had access to when the pandemic started in March and April. 鈥淚 do think that access to capital has never been better.鈥�

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