Another question is what will happen to the venture debt market. svb was a major player, with $6.7bn of such loans outstanding when it went under. Startups used this low-cost lending to top up balance-sheets between equity funding rounds. Most now expect such loans to become more expensive, especially for the youngest firms. Venture-capital outfits are unlikely to lower themselves en masse to the comparatively small returns offered by this sort of lending. Other wheels on the venture-capital machine will need oiling, too. For example, svb often provided bridge financing to venture-capital firms, allowing them to strike deals while awaiting cash from investors.
All this means that the loss of svb is likely to have a chilling effect on an industry already suffering from higher interest rates. Bankers may have to wait some time to see venture capital’s dry powder hit their deposit accounts—after all, in the last quarter, the amount of money flowing into startups globally fell by two-thirds. Limits on financing and difficulties banking baby firms will make the industry’s adjustment to higher rates more painful still. After such an adjustment, trips to the bank will remind dealmakers of their own mortality. That is not necessarily a bad thing.
Read it all (registration or subscription).
Startups used low-cost lending to top up balance-sheets between equity funding rounds. Most now expect such loans to become more expensive https://t.co/9Ty10mOPhT
— The Economist (@TheEconomist) March 14, 2023