March 4, 2024

The collapse of silicon Valley Bank (SVB) isn’t the end of venture debt, but it may very well be the end of the way companies raise venture debt in the way many are used to.

TechCrunch+ recently spoke to five different VC firms about the state of venture debt following the SVB and First Republic Bank collapses, and they all said they don’t think the recent bank collapses herald the end of venture debt. Instead, they expect the process of raising such debt will start to look very different.

How will it change? While several investors believe venture debt is still a cheaper option for founders than equity, they all agree that it will become more expensive going forward.

However, it is difficult to determine exactly how much more expensive. Collab Fund partner Sophie Bakalar sees macroeconomic trends driving prices higher. “The capital markets are definitely changing, so founders should expect the price of this form of capital to rise as economic trends strengthen and market supply and demand dynamics change dramatically. We tell founders that they should invest in the present and the foreseeable Prepare for higher capital costs that may arise in the future.”

Ali Hamed, a general partner at Crossbeam, has seen prices rise, and as that trend continues, he expects lenders to increasingly look for strong base unit economics. “Our prediction is that venture creditors will start to rely less on corporate ‘loan-to-value ratios’ and start focusing instead on capital efficiency, profitability, etc.,” he said.