October 12, 2023

It’s the perfect time to take venture debt — but not all lenders want to be lending 

Venture debt lenders are becoming much more selective in giving out loans to founders

Zosia Wanat

4 min read

Venture debt — a high-risk loan given to growing but not-yet-profitable companies backed by VCs — had a record 2022 in Europe. European tech companies raised over €30.5bn in venture debt — almost double the amount raised a year before, according to GP Bullhound.

This year, as investors continue to hold back and valuations take a beating, startup founders are just as keen to take on venture debt — but lenders are becoming more cautious and selective. They, like VCs, don’t want to give money to startups that are running out of runway. 

Damian Polok, one of the founding members of the German branch of Silicon Valley Bank (SVB), says that we can observe a “more nuanced” approach towards venture debt than last year. “With the decrease in valuations, equity became significantly more expensive, which increased the attractiveness of growth debt — despite the increase of reference interest rates,” he says. 


“Volumes have come down in terms of the deals that we are doing, but the requests are much higher,” says Fatou Diagne, cofounder and partner at a Swiss venture debt lender Bootstrap Europe

In the US, the slowdown is already visible: data from Q1 2023 suggests a 60% decline in total venture debt funding from the prior quarter and more than 40% from the same period in 2022. There’s no data available for Europe, but the lenders expect a sharp decline too, Sifted understands. 

“Europe has been extremely quiet this year,” says John Markell, managing partner at Armentum Partners, an advisory group on venture debt. 

Venture debt stigma

Despite the recent boom in venture debt funding, it’s still not a very popular tool across the continent, says Diagne.   

“Even after 25 years of the instrument being super well used in Europe, it’s still not very well known,” she says. “You speak to CFOs in startups and they’re like: ‘How do I use it?’”

She adds that even the word debt has negative connotations: for example in German, debt is “schulden” — the same word also translates into guilt and blame.

“Debt often has bad names,” Diagne adds. “But today, we are really here to help companies continue growing.”

It’s not just the name: Europe simply has far fewer venture lenders and banks that offer venture debt than in the US — and the loans they do offer are also usually much smaller. 

The collapse of SVB in March, which was a major player in the European venture debt market, also didn’t help in keeping the momentum.  

But, Diagne says, there’s never been more news out there about venture debt. In June, BlackRock, the world’s biggest asset manager, acquired Kreos, a London-based venture debt lender, strengthening the position of the venture debt as an asset class. 


And, in March, SVB’s UK division (and its robust debt portfolio) was bought by British banking giant HSBC, creating HSBC Innovation Banking, a new branch for financing tech companies. SVB’s German venture and growth portfolio was bought by Diagne’s Bootstrap Europe. 

The financial markets have also, obviously, changed. 

“A couple of years ago, we were getting beaten out by equity,” says Tom Smith, VP at HSBC Innovation Banking. VC money was so cheap and easy to get that founders were not interested in taking loans. 

But now capital is much more scarce and expensive, founders are looking for alternatives to traditional venture capital. 

“Europe experienced a huge increase in equity investment in a short space of time. And then there’s been a tremendous pullback in the perceived valuations of these companies. And that creates really ideal market conditions for venture debt,” says David Bateman, managing partner at Claret Capital Partners, a UK venture debt lender. 

Who is it for?

Venture debt isn’t a good — or even a viable — option for all founders struggling to raise a round, however. 

“[Venture debt] is not a substitute for startups who cannot raise equity; it’s an option for the ones who can and decide not to do it at that specific time — because you want to grow faster in a certain amount of time because you want to reach the milestone quicker,” says Diagne. She says venture debt could help founders who have a specific purpose for spending their money: investment into new growth areas, geographies, or hiring for specific roles.  

“The quality of companies we see is quite different compared to Q1 2022: they have raised a lot of money, but we’re getting to the end of that runway.” 

Diagne says good venture debt candidates are proactive — rather than reactive.

“The best cases we see are the ones who can see the end of the runway, which is like 12 months away. And they know that maybe 2024 is not going to be a great year either, so it’s better to anticipate — those are the ones we finance and represent. The ones who come and they’re like ‘I’m out of cash next month’ — why would you want to add a burden of debt on that?”

Markell at Armentum Partners also says that especially in terms of early-stage companies, venture lenders very often rely on the underwriting of VCs when signing off the loans — and there are many more early-stage startups in Europe. If they struggle to raise equity, they’ll automatically also struggle to get a loan.  

Polok, ex-SVB, says that taking venture debt should be part of a long-term fundraising strategy. “Venture debt is also referred to as growth debt, hence it is not designed as ‘money of last resort’.”

Zosia Wanat

Zosia Wanat is a senior reporter at Sifted. She covers the CEE region and policy. Follow her on X and LinkedIn