When the accounting Startup -Bank failed abruptly last month, the closure was forced when the lender lenders from the company called the startup. At the end of 2023, the Digital Freight Company Convoy was faced with financial challenges, the leading venture credit company Hercules Capital to undertake control over the company to recover its investments.
Divvy Homes, who sold about $ 1 billion to Brookfield -property last week, left some of the company shareholders without any payment, Techcrunch reported last week. Although the specific role of Divvy’s lenders in the sale is unclear, the company is borrowed $ 735 million Van Barclays, Goldman Sachs, Cross River Bank and others in 2021.
After so many weak startups were financed in 2020 and 2021 with the famous lax dedication, many of the weakest startups have already failed. But data suggests that we have not yet reached the soil, and will die much more in 2025. And venture debt will play a role after investing $ 41 billion in 2,339 deals, a record for the time in 2021, According to Silicon Valley Bank.
“We come for many companies at the end of the rope,” said David Spreng, founder and CEO of the landing road growth capital of venture debts.
Dealed about the future of their investments, lenders are increasingly insisting on selling startups to sell themselves to minimize potential losses, Spreng believes.
Almost every lender now has problems in their portfolio in their portfolio, estimates John Markell, a managing partner at Arentum Partners of Venture Debt Advies.
Although debts can help to help fast -growing startups to meet their cash needs without selling chunks of the company to VCS, it also increases the risk of negative results. Too many debts compared to the income or cash reserves of a startup can lead to a forced fire sale, where a company is sold for a fraction of its earlier value. Or lenders can resort to shielding, so that they can claim that underlying assets are used to protect the loan, to reclaim at least part of their investments.
If startups can convince new or existing VCs to inject more money by buying more equity, they can prevent a lender taking action if they are left in payments or other aspects of their agreements. For example a few VSDIDENT DIFFERENCES have the requirements for liquidity and working capital ratio. If the money from a startup is too low, a lender can take action.
But investors are reluctant to continue to finance startups that grow too slowly to justify the sky -high valuations they achieved in 2020 and 2021.
“At the moment there are so many troubled companies,” said Markell. “Many unicorns will not be in business soon.”
Spreng also predicts that many startups will have no other choice than to sell for a low price or to close this year. But for now, most lenders still hope that these startups can find a house through a sale, even a fire sale.
In situations in which lenders force a takeover, stock investors generally do not get much of the money that is paid, and often not even earning their money, Markell said. Losses on investments in startups are risks are risks that daring capitalists know will occur.
When a sale happens, Spreng says that many of those transactions are not known by unfavorable results for venture investors. Nobody wants to take a victory round when they lose money in a sale.
However, since debt holders have a priority for reimbursement, venture money lenders are less likely to lose all their capital.
But the risks related to venture debt have not delayed the profession. In 2024, the issue of new venture debts reached a peak of 10 years of $ 53.3 billion, according to PitchBook -Data. A significant part of that capital was aimed at AI companies, with remarkable examples, including CoreWeave, that $ 7.5 billion in debt financing, and OpenAi, which obtained a credit line of $ 4 billion.
