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April 21, 2023

Bootstrap Europe closes third venture debt fund of €130m to back sustainability businesses

Venture debt is increasingly being used by startups wanting to grow during the downturn


2022 was a bumper year for venture debt in Europe, with cash-hungry startups gobbling up a record €30.5bn in debt financing, double that of the previous year, according to GP Bullhound. 

With equity financing scarce, that trend is set to continue into 2023. And new, much larger, funds are being raised to meet that demand.

Bootstrap Europe, a Swiss venture debt firm, is the latest, having just closed its third fund of €130m to back sustainability startups. It's already backed 10 companies out of the fund, including No Issue, which makes compostable delivery packaging, and MiNa Therapeutics, which develops medicines to restore normal function to patients’ cells for use in cancer treatment. It expects to back 35 in total. 

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It’s especially keen on SaaS — and has an interest in climate tech, genetic testing, fintech and life sciences.

Its investors include previous backers British Business Investments (BBI), the investment arm of the British Business Bank and the European Investment Fund (EIF) and new backer Visa Foundation, the philanthropic arm of US payments giant Visa.

Bootstrap Europe’s €130m fund

Bootstrap Europe typically gives loans of between €1m-15m over a period of three to four years. It lends to Series A startups and beyond in Europe, particularly in the DACH region, France and the UK. 70% of the sustainability companies it looks at are SaaS, and the rest are hardware.

The loans include a warrant, which gives the fund the option to acquire shares of 0.5-0.9% in the company in a future exit event. 

Not all companies that want to raise venture debt will be able to, however, as they have to be “in good shape” to access this kind of financing, says Heller. Even in the US, where venture debt is more prominent, only 10% of companies can access it, she adds. 

Bootstrap Europe only loans to companies that are out of the “product risk stage” — “they already have a product, they know how to sell it, and they want to increase the fuel in their engine," explains cofounder and managing partner Fatou Diagne — and that are likely to be funded by VCs. The fund does rounds irrespective of whether an equity round is happening at the same time. 

And since VCs are more picky these days, Bootstrap Europe has to “apply the same level of selection”, adds Diagne. 

What are companies using venture debt for? 

Since debt, unlike equity, doesn't involve giving away a stake in the company, startups use debt financing for different things that they would use VC money for. 

A lot of companies are approaching Bootstrap Europe to finance mergers and acquisitions — “they want to acquire smaller competitors at a lower valuation, as valuations are coming down, as a way of growing in the current market,” explains Stephanie Heller, cofounder and managing partner of Bootstrap Europe. 

Others that want to gain market share want to ensure they have “at least three to six months on the balance sheet” to pump into marketing to continue acquiring customers throughout the crisis, adds Heller.

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A gap in the market

One of Europe’s largest venture debt lenders in recent years has been Silicon Valley Bank, through its UK branch, SVB UK. But since the bank's collapse and its UK arm’s merger with HSBC, some founders say they are looking to branch out and work with other debt lenders. 

Heller says that SVB UK’s purchase has also opened up an opportunity for more entrepreneurial lenders. Sifted has reported that SVB UK is lending as usual.

Bootstrap Europe says its approach as a lender is light touch in that it doesn’t take board seats. But it does step in to help startups — as a VC would — if things aren’t going well.

It also dissuades startups that approach it from raising venture debt if the companies are using it as “desperate recourse”, says Diagne, adding that venture debt should always be used as a “tool” rather than something to be totally relied upon. 

“In today’s world, because companies are starving for any sort of financing, is it good to take a line of venture debt to solve that issue? If it’s not to finance growth, the answer is no, because it just adds more issues,” says Heller. 

She adds: “If a company has three to four months of cash, it’s not a good idea to come and add (debt) to that — it only makes things harder for [the startup]. It’s important for founders not to use the tool without understanding what it means in terms of reimbursement.” 

Miriam Partington

Miriam Partington is a reporter at Sifted. She covers the DACH region and the future of work, and coauthors Startup Life , a weekly newsletter on what it takes to build a startup. Follow her on Twitter and LinkedIn