Venture debt dollars hit $53.3 billion last year, up 94.5% from $27.4 billion in 2023, driven by fewer—but much larger—deals, according to the latest PitchBook-NVCA Venture Monitor.
Later-stage startups are increasingly turning to venture debt as they struggle to keep up with growth expectations from VCs, and as a way to avoid raising equity financing at lower valuations.
“In my 20-plus career as a venture lender, $100 million asks have never been a common dollar amount for a check,” says Marshall Hawks, senior market manager at Silicon Valley Bank. “Now, it’s not an unreasonable ask at all.”
There are also more lenders operating in the space than ever before—something Hawks attributes to SVB’s collapse in 2023.
For later-stage startups, turning to venture debt has become a welcome option when their growth is no longer meeting VCs’ expectations.
“There’s a whole host of companies where equity [financing] is just less of a fit today than it was previously,” says Jeff Bede, head of growth capital at Orix USA. “Really, that’s driven by slower top-line growth.”
But just because these companies aren’t growing exponentially doesn’t mean they’re bad business opportunities, adds Bede.
“If you’re unable to meet the growth demands of venture equity, I think you’re more likely to meet the growth demands of venture debt,” he said. “We have a lower bar in that respect. Because of that, debt has really hit primetime.”
As for the companies, while venture debt is not always a substitute for equity rounds, it can help them avoid (or stave off) the much-disliked down rounds, says Patrick Lee, founder and managing partner at Top Corner Capital.
“The requirements, the proof points that venture folks are asking for, are greater than they were two or three years ago, and there’s a lot of companies who couldn’t raise money at those levels if they needed more money,” Lee said. “They’re not just moving quickly and throwing money everywhere anymore.”
Featured image by Julia Midkiff/PitchBook News
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