Factors Driving Venture Debt Growth

Venture debt hit $50+ billion last year, up 95% YOY driven by fewer but much larger deals. 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. Now, it’s not an unreasonable ask at all. -Marshall Hawks, senior market manager, Silicon Valley Bank. 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 is just less of a fit today than it was previously, 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. 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. We have a lower bar in that respect. Because of that, debt has really hit primetime. - Jeff Bede, head of growth capital. Orix USA. 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. 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. They’re not just moving quickly and throwing money everywhere anymore. - Patrick Lee, founder and managing partner, Top Corner Capital.

My latest exclusive for The Wall Street Journal: Venture-debt firms are shifting their focus to larger deals with mature private companies as more startups stay private for longer. Venture debt value hit a record $53 billion in 2024, up from $27 billion the prior year and more than a previous high of $42 billion in 2021, according to a report that venture debt firm Runway Growth Capital issued in partnership with PitchBook Data. As the value of deals rose, however, venture debt deal count fell to 1,341 transactions in 2024, its lowest level since 2016, the report shows. The trend continued during the first half of 2025, with a little more than $19 billion of venture debt deal volume, according to a separate report issued by Capital Advisors Group, a Boston-based registered investment adviser and debt financing consultant. “Debt must react to equity,” said Stefan Spazek, director of debt placement at Capital Advisors Group. Venture-debt providers have to target stable companies with solid revenue if there is a lack of equity or sponsors decide to pull back on equity commitments to their portfolio companies, he added. https://lnkd.in/d__fCAMC

This is a very interesting, and not surprising, report on venture debt. Less deals, 2x the dollar amount of debt deployed in '23. But the companies that are taking venture debt vs venture capital are not created equal. Venture debt is being used more than ever to support growth in capital efficient companies without having to take further dilution to the cap table. Yes, most of these companies took inflated valuations between '19-'22 and won't be able to raise VC again, but if they are still around and getting venture debt, they are in pretty good shape (the diligence is extensive in these banks since SVB). So where does that leave VC money? You will see the same graphs on that side of the house, less deals, more money. B and C rounds have disappeared, but seed, A, and D+ are increasing. It will be interesting to see the performance of these venture debt backed companies vs. venture capital backed in the future M&A world if the first question the acquirer asks is, "How much debt do you have on the balance sheet?" My guess is that we will see less M&A in this group and them all signing up for the long haul 5-10 years for an outcome. Just my 2 cents.