Tech companies consider debt financing as funding dwindles

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The decline in startup funding globally and the uncertainty surrounding the raising of new venture capital funding has drawn attention to new sources of capital for tech companies to address liquidity and capital issues. operating through venture capital debt financing.



The recent decline in capital markets and the valuation of technology companies has had a significant impact on the venture capital industry as funding for startups continues to decline. Global development saw funding for European startups fall 38% in the second quarter of 2022 from a peak of $38 billion a year earlier. Meanwhile, funding for Asian startups fell 20% in the same quarter compared to 2021, according to data published by CrunchBase.


The decline in startup funding globally and the uncertainty surrounding the raising of new venture capital funding has drawn attention to new sources of capital for tech companies to address liquidity and capital issues. operating through venture capital debt financing.


Unlike typical equity financing, which dilute existing shareholders, venture debt financing provides a company with a loan that can be used for specific purposes, such as capital expenditures, liquidity for the next funding round or acquisitions. It is not a substitute for equity financing, as lenders analyze the risk profile of the loan based on future fundraising and the company’s ability to raise additional funds based on its positive performance and momentum. of growth.


The financing model works well for growing businesses since the debt is not backed by positive cash flow or outstanding corporate assets, which can be resolved with standard loans or bank lines of credit . Loan terms change depending on the maturity profile of the business and often interest is only paid in the first two months to allow businesses to easily manage their capital structure.


Juni, a Swedish fintech company, raised $106 million in venture debt funding from TriplePoint Capital, a Silicon Valley-based financial institution, in June. Go Green, an Indian agri-tech integrated product management platform provider, also raised its June funding with a debt financing transaction.


Additionally, the recent decline in startup equity funding and the rise of alternative funding methods has led to new or expanded venture debt funding and other funding platforms. MUFG, Japan’s largest bank, has launched a new $300 million fund to provide venture debt financing to early-stage tech startups in the Asia-Pacific region. Similarly, Capchase, a US technology debt financing provider, raised an additional $400 million in July to expand its seed funding. In June, another US-based fintech startup, Arc, launched its AI-powered Arc Treasury platform, which provides rapid initial capital repaid from future income streams.


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