附近上门

It鈥檚 much too soon to proclaim the demise of venture capital raises as the market seems to be in the midst of an adjustment, but debt financing seems to be popping up in the news more.

Earlier this week, corporate card and expense automation startup announced a $750 million raise at $8.1 billion鈥�$550 million of which was debt financing backed by and . Earlier this month, banking service provider 鈥攍ooking to lend more than $200 million this year and up to $1 billion over the next two years鈥攆ollowing other fintech brethren like into the debt offering realm.

Those headlines are against a backdrop of what many see as a slowdown in startup funding as geopolitical issues, public market tumult and a lingering pandemic has brought uncertainty to the market. Investors have told 附近上门 valuations are off about 20 percent or more for many startups from late last year.

That type of decrease may explain why those in debt say things are getting busy.

鈥淎re the conversations changing? Yes, over the last month or so,鈥� said , senior market manager at . 鈥淭he equity markets are choppy.鈥�

What is it?

Venture debt can be defined differently even by those in the industry. Traditionally, venture debt has referred to debt a VC-backed company raised鈥攗sually in unison with raising equity鈥攖o both elongate its runway and cut down on dilution.

The debt鈥攐ften less structured and with less financial covenants than other forms of debt鈥攊s used for traditional growth purposes and is often lent based on the startup鈥檚 investors and/or where the company is in its growth.

Now, with the rise of fintech companies, different kinds of asset-backed debt like 鈥渨arehouse financing鈥� have become popular. That type of debt can be secured by assets and loans those companies generate鈥攕omething a typical SaaS company may lack. The debt Ramp has been this type.

However, all debt has the similarity of giving companies cash they may need while not diluting the stakes of founders and shareholders. And while venture debt鈥攊f raised in conjunction with equity鈥攎ay not prevent a 鈥渄own round鈥� in this environment, it can lessen the amount of more expensive venture capital needed and also lower dilution.

鈥淥bviously, the last couple of months has evolved the conversation around venture debt,鈥� said , CEO of Brex Asset Management, which launched the company鈥檚 venture debt product last August. 鈥淏ut more broadly, this is something that has been around for decades 鈥� it鈥檚 a product people are better understanding.鈥�

A fit for this market

Brex currently lends anywhere between a couple of millions of dollars and $15 million, and rates can range鈥攄epending on the company鈥攆rom 4 percent to around 10 percent. Despite being in the market for less than a year, Wu said Brex鈥檚 venture debt product is nearing the $800 million mark in terms of lending to a broad array of companies from SaaS to e-commerce.

With the current state of the market, he expects that lending pace to continue.

鈥淲ith the market volatility 鈥� there is strong inbound interest,鈥� he said.

, chairman and CEO of , also called deal flow strong so far this year. Runway will lend to companies with no venture backing but normally looks for late-stage clients with $75 million or more in revenue.

With the current slowdown in the growth-stage rounds in venture capital, Spreng said he has no doubt debt will have a strong year.

鈥淰Cs have a lot of dry powder, but they are focusing on their 鈥榖ig winners,鈥欌�� he said. 鈥淪o a lot of companies may get orphaned.

鈥淚 expect a record year,鈥� he added.

We鈥檝e been here before

This isn鈥檛 the first time the market has faced uncertainty and interest in debt has increased.

Allred said venture debt saw significant growth in 2008 as the global financial crisis took hold. Much more recently, venture debt became very popular in March 2020 as the COVID-19 pandemic started. While it wasn鈥檛 so much companies raising debt, more startups started to use their credit facilities then as they were eager to hold on to cash and shore up their balance sheets.

鈥淎s equity capital becomes more expensive, interest in debt goes up,鈥� Allred said.

With rising interest rates and markets that can look unstable at times, it is fair to wonder if, like equity, debt will also dry up.

鈥淚t鈥檚 true credit markets tighten when equity markets tighten,鈥� Allred said. 鈥淏ut in general, debt capital 鈥� remains more open.鈥�

While the framework around venture debt can differ鈥攆rom no covenants to facilities that are more structured鈥攊t can be a viable option not just for startups looking to weather a storm but also extend their runway and the money they鈥檝e raised.

鈥淚t鈥檚 always been a good tool against expensive equity,鈥� he said. 鈥淚t can prolong the life of that expensive equity.鈥�

Illustration: .