|
What the numbers say: In Q1 2023, U.S. startups secured $3.5B in funding through venture debt, the lowest quarterly sum since 2017. Venture debt reached record levels last year as sourcing equity funding became difficult amidst the global VC funding pullback. What happened: Venture debt allocation for startups reduced this year due to climbing interest rates and macroeconomic volatility. Additionally, the downfall of Silicon Valley Bank (SVB) —one of the biggest venture debt lenders— further aggravated the venture debt shortfall. SVB's new owner First Citizens BancShares Inc., assured investors that the bank remains committed to providing venture debt to startups. Other lenders, however, don't share the same view and are reducing their venture debt commitments as economic growth slows. Where to see the impact: Startups may face a challenging fundraising environment due to the lack of venture debt, prevailing equity funding pullback, and difficulty in raising funding through IPOs. According to John Haltiwanger, an economist at the University of Maryland, this will most likely result in more businesses collapsing. Haltiwanger added, "These companies are heavily dependent on financing. If that financing dries up, they're in trouble." |
