VC funding down 18%. Private debt up 50%
It’s a bit of a problem at the moment, in fact as I write this article VC investment for early-stage is down 18% in Q4 2021 vs Q1 2022 (techcrunch). Ouch! For my friends in the tech scaleup world that’s gotta hurt.
The markets won’t be loosening those purse strings any time soon either. Valuations are down as well, in 2021 we were seeing 70 – 80 x whereas now it’s back to a more normal 10-20 x. DBT labs recently raised $222 million on a $4.2bn valuation, they were seeking $6bn. It’s not just funding valuations that are down, public ones are too which means more dilution. Not great!
All of this points to a problem brewing in the PE and VC world.
It’s not hard to see why this is happening, the last year saw a very aggressive investment market. The amounts invested went up to keep track with the market, breaking many records. The exit timeline for the funds didn’t change, simply put they burned too much cash to keep up. When you compound this with the humanitarian disaster that is Ukraine and the effect it has on the capital markets you end up with a real cluster foxtrot.
If you’re in the middle of your funding round hitting a wall what should you do to fill that funding gap?
There is one area where offers are up though, and that’s private debt. Private debt is often used mid-round or when the PE and VC providers tighten their belts.
It’s often cheaper than equity too, with minimal restrictions on the use of funds but to be successful you need a clear path to profit. Yes, that’s right, you can borrow pre-profit.
Here at Fuse Capital we have seen a monumental increase in the amount of private debt being offered, up 50% Q1 2022 over Q4 2021. That’s great news for companies still funding a growth trajectory. Our funds have put a real rocket under their own fundraising and it’s already trickling through to our customers.
To find out more about our private debt options please get in touch with the form below.