Silicon Valley Bank’s collapse in March 2023 set off ripple effects that reverberated far beyond the venture landscape. With the most prominent name in venture debt involved, many feared a chilling effect on the sector.
What a difference a year and a half makes.
Non-bank lenders, which swooped in as banks pulled back, are reaping the fruits of their labor amid a rise in the value of startup loans.
Total venture debt deal value has surpassed last year’s total and is on track to eclipse 2022 levels, according to the latest PitchBook-NVCA Venture Monitor. Lenders deployed $34.7 billion through Q3.
The increase is primarily driven by loans to venture growth-stage companies. Early-stage lending has dropped substantially, and the total number of venture debt deals is on track for a 10-year low.
James Turner, founder and CEO of venture debt advisory firm 5th Line Capital, said more growth-stage companies are seeking debt financing because traditional VC expectations have become unattainable for many.
“VCs have a very standardized model,” Turner said. “They want to focus on that one company that’s going to hit a home run. They want to see not 50% growth, they want to see 100%, 200% annual growth. That’s just not realistic for 99% of companies out there. The company might not be the sexiest VC target. But you take a lender, they look at things very much in the opposite sense.”
According to Turner, companies are turning to non-bank lenders because of the regulatory pressures felt by the big banks. Banks have become more risk-averse, shifting companies toward private lenders, he said.
“When you have the FDIC breathing down your neck for the past 18 months, banks have really had to tighten up, which has created a lot of opportunity for the private credit funds,” he said.
Kyle Brown, CEO of venture debt lender Trinity Capital said that after SVB, debtors want safe and secure access to capital. More companies are willing to prize stability over anything else.
“The pipeline has exploded since the volatility with Silicon Valley Bank … We’re winning deals right now because we’re a permanent capital solution,” he said. “There’s no bank run with us, we’re not going anywhere.”
Featured image by Rebecca Noble/Getty Images
Learn more about our editorial standards.
