The Rise of Venture Debt Firms in Startup Financing

In recent times, the venture debt firms have played a crucial role in the startup ecosystem by providing additional capital to entrepreneurs who are seeking to scale their businesses quickly. With the rise of equity rounds and the increasing appetite for risk among investors, the demand for venture debt has grown significantly. As a result, venture debt firms have been able to offer larger deals to startups, which has led to bigger venture debt deals in 2019.

One of the primary reasons why venture debt firms are able to offer larger deals is that banks in the sector are more liquid than ever before. This increased liquidity is due to the huge equity rounds that have taken place in recent times, resulting in a surge in deposits for banks. Moreover, lenders are always looking for bigger deals as they generate higher profits, management fees, and carry.

According to Kruze Consulting's survey of startup loan officers and partners at debt funds, most lenders use a rule of thumb of 20% to 40% debt-to-equity ratio when committing to a deal. This means that venture debt firms are willing to lend a significant amount of money to startups in addition to the equity they have already raised.

The survey also found that over 70% of respondents believe that venture debt deals are getting bigger in 2019, with none reporting a decrease in deal sizes. The main reason for this growth is that venture debt firms are able to offer cheaper capital to startups compared to traditional lenders, which allows them to achieve their goals more quickly.

When asked why startups raise venture debt, the majority of respondents stated that it was to increase their runway and make their startup more valuable at the next round. This additional capital also enables startups to boost their growth and achieve value creation milestones.

In conclusion, the rise of venture debt firms has been a significant trend in the startup ecosystem in recent times. With banks being more liquid than ever before, lenders are able to offer larger deals to startups, which has led to bigger venture debt deals in 2019. As the demand for venture debt continues to grow, it is likely that we will see even bigger deals in the future.

Venture debt firms