Private Market Insights

💸 Venture debt is becoming a distant memory for early-stage startups

Per Pitchbook: One year on from the Silicon Valley Bank crisis and the widespread disruption to the venture lending market, more lenders have moved upmarket. This has had knock-on effects on startups. Securing a debt facility is significantly more challenging for seed and early-stage founders, especially those building in industries like fintech and consumer tech that have seen valuations drop dramatically.

💦 Deliciously Juicy Takeaways

🕰️ Past

Historically, venture debt has been seen as a worthwhile option for startups that need additional capital, but want to maintain their current cap table to avoid additional dilution. Many companies have taken advantage of this option throughout the years to add some extra padding to their cash position soon after a priced equity round. Additionally, it often provided the only avenue for venture-backed startups to receive debt financing.

🔎 Present

One year and two bank runs later, the environment around venture debt has changed dramatically. Terms are much less favorable, with terms often making venture debt a completely untenable option for early-stage startups. In today’s market, it remains unclear if venture debt is a viable option for Pre-Series A startups, so investors should be pushing founders to rely less on debt and focus on building real revenue.

🔮 Future

SVB’s collapse left the venture debt market wide open; they went from a 50% market share pre-bank run, to just a 20% market share a year later. Some fintech startups, most notably Mercury, have jumped headfirst into filling the void left by SVB and First Republic. However, it remains to be seen who the clear winners will be, if there are any at all.

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🔗 Links to Share & Save

• Carta: Sign up to receive Carta’s first Emerging Manager Fund Performance Benchmark report

• PitchBook: Bill Gates’ climate VC raises $839M toward new fund, sector’s largest this year

• Hope Ditlhakanyane (Founders Factory Africa): Learn what VC firms are driving Africa’s startup funding growth

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