![]() "The bar is higher in terms of underwriting. High demand and depressed lending levels have allowed lenders like Runway to become more selective and make loans to higher-quality companies, Spreng said. By leveraging equity raised by a startup, venture debt can reduce the cost of capital needed to fund operations and can be used as insurance against operational hiccups and unforeseen capital needs. These dynamics have empowered lenders to demand more favorable covenant packages and warrant coverage, in addition to higher interest rates, said David Spreng, founder and CEO of venture debt lender Runway Growth. Key Takeaways Venture debt differs from other forms of credit and equity, and understanding the differences and how to leverage both is important. As dealmaking and growth slow, startups increasingly fail these tests. For later-stage companies, lenders emphasize a path to profitability or cash flow break-even, when revenues match expenses. Lenders want confidence that startups are on track to receive future investment and that their investors remain committed to the company. "Since SVB's collapse, lenders have reported that they have not seen other banks stepping up to replace that specific function that made SVB so unique," said PitchBook analyst Kaidi Gao.ĭebt capital remains in high demand among startups, but it has been harder to secure during a slump in VC investment. First Citizens Bank, which purchased SVB in late March, said in May that it expects the value of the SVB loan book to fall 8% this year to around $61 billion. Following its collapse, many lenders vowed to increase efforts to serve startups, but the fate of early-stage loans remains uncertain. SVB primarily operated in the early-stage market, sometimes lending to pre-revenue companies as it sought to deepen its relationships with investors. And many startups refinanced following SVB's collapse in March, which may have provided a bump for new loans. Business development companies, among the most active venture debt lenders, have yet to file their Q2 financial statements. Time will shed more light on the state of the opaque venture debt market as more deals from the first half of 2023 are collected in the next few quarters. That's compared to declines of 27% and 39% for the late stage and venture growth stage, respectively.Īcross all stages, startups closed $6.34 billion across 931 venture debt deals in the first half of 2023, compared to $20.07 billion across 1,513 deals in the same period last year. In the first six months of 2023, the number of loans for angel-backed and seed-stage companies fell 44% year-over-year, and early-stage loans fell 45%, according to the Q2 2023 PitchBook-NVCA Venture Monitor. ![]() The trend is a sign of lenders imposing higher standards and of startups with uncertain financial prospects failing to qualify for new loans. These young companies have been the hardest hit as loan volumes decline across the venture debt landscape. 23-10367, motion 7/25/23.Early-stage venture debt deals have sharply decreased since the implosion of Silicon Valley Bank, which had catered to fledgling startups. SVB Financial said in court papers that the bonus program is “necessary in light of the Debtor’s inability to compensate the KEIP participants through other means.” SVB Financial filed for Chapter 11 after its subsidiary bank was seized by regulators amid a run on withdrawals. The proposed key employee incentive program is part of a plan to bring the executives back over to SVB Financial as it works to eventually sell or reorganize SVB Capital, according to the filing. However, they are key to managing assets under the SVB Capital business, which remain property of SVB Financial, according to the motion. when it acquired the subsidiary bank in March. ![]() The nine executives became employees of First-Citizens Bank & Trust Co. Silicon Valley Bank’s bankrupt former parent is aiming to implement a plan that would allow it to pay incentive bonuses to the executives if they meet various performance metrics, the company said in a motion filed Tuesday with the US Bankruptcy Court for the Southern District of New York. SVB Financial Group has asked for bankruptcy court permission to implement a program that would award up to $12.6 million in bonuses to nine executives involved with its venture capital and credit investment arm. ![]()
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