Silicon decay Valley Bank (SVB) wasn’t the end of venture debt, but I think it was the end of companies raising venture debt with the same ease many companies have become accustomed to.
TechCrunch+ recently spoke with five VCs about the state of venture debt after the SVB and subsequent First Republic Bank failures, and all said they don’t believe the recent bank failures signal the end of venture debt. Stated. Rather, they expect the process of raising this kind of debt will begin to change significantly.
How will it change? A few investors felt venture bonds remained a cheaper option than stock for founders, but all agreed they would be more expensive down the road.
It’s hard to pinpoint just how expensive it is, though. Collabo Fund partner Sophie Bacalar believes macroeconomic trends will drive prices higher. “Capital markets are certainly changing, so founders should expect the price of this form of capital to rise as economic trends increase and the dynamics of supply and demand in the market shift dramatically. We tell founders that they need to prepare for a possible increase in the cost of capital now and in the near future.”
Crossbeam general partner Ali Hamed has already seen price increases and expects lenders to increasingly demand strong underlying unit economics as the trend continues. ing. “We expect venture bond lenders to rely less on ‘value lending’ of businesses and instead start focusing on things like capital efficiency and profitability,” he said.
