A year ago, venture debt financing was at its peak, yet the $32-billion industry rarely made headlines. After all, startups are far more excited to announce their latest capital stake from VCs than advertise that they’ve taken on debt.
Yet venture debt—any debt financing provided to venture-backed companies by a bank or private lender—has been an indispensable kind of shadow funding for many founders who use it to supplement raising capital from VCs without further diluting their equity stake in the company. When financing rounds were frequent and lucrative in 2021, taking on some debt to accelerate growth didn’t seem like a huge risk to startups or lenders when equity was easy to come by. And the king of venture debt was, of course, Silicon Valley Bank which had $6.7 billion outstanding in venture loans last year, according to Pitchbook-NVCA Venture Monitor. Fast forward to today and, “the state of venture debt is declining,” explained Peter Cohan, a business professor at Babson College.
