This is indeed a timely validation of venture debt and the market opportunities that founders and VCs are aligned to. The study is conducted in the US led by Kruze Consulting, a leading CFO consulting company for startups. Respondents represent over $25B in venture debt or about 85% of the venture debt dollars invested in the last 3 years. The complete survey along with detailed analysis can be found here.
Extracting an important paragraph from the article to share:
“Most startup entrepreneurs are not sure about the use of venture debt and the best time to take on venture debt is when you actually don’t need it. Debt providers view the debt as less risky when companies have sufficient cash levels when raising the debt.” Often times companies wait until they are very tight on liquidity and the debt analysis becomes harder. It is easier to raise – and draw down an existing line – when a company is doing well (or has a lot of cash on the balance sheet). Lenders are not in the business of helping failing startups extend their runway, so trying to raise this kind of capital when the company does not have a lot of runway is a mistake. And since most agreements have covenants about the startup is allowed to draw down/access capital from the lender, an entrepreneur will find it harder to get capital from their lender if they wait until the company is close to running out of cash.
This is very true and we emphasize that a lot to the entrepreneurs we talk to. Start a conversation early, and we can help you along the way – whether you need venture debt today, or in the near future.