Partner Steven Keeler was quoted in a March 2021 Financier Worldwide article titled “Capital Idea: The Rise of Venture Debt.” The article discussed the increasing use of venture debt as a way to access new funding during the ongoing COVID-19 pandemic.
The article reported that venture debt has become an attractive option for investors because it involves moderate risk and provides superior returns, and can help companies quickly adapt to new market conditions. Venture capital, on the other hand, follows a high-risk, high-reward risk-return profile.
“The main objective of venture debt is to avoid owner dilution, especially during a period where a company’s valuation may be artificially low due to external factors,” Keeler said.
Unlike in previous downturns, Keeler noted, many companies continue to have good fundamentals and prospects. “As a result, access to short-term debt financing that is not dependent on the borrower’s receivables or assets but, rather, is more dependent on its venture capital investor relationships and burn rate, is particularly attractive now as a way of bridging a company through to a future equity round during more certain times,” he said.
Many entrepreneurs expect the COVID-19 pandemic to lead to a permanent increase in the use of venture debt, the article reported. “Venture debt relies on venture capital, and venture capital looks strong going into 2021,” Keeler said. “And to be sure, venture debt will be even more attractive during economic uncertainty, at least for companies that are in a strong position for growth.”