The American venture capital world has staged an impressive comeback from the early months of the COVID-19 pandemic. For a moment, there was worry that startups would struggle to raise for quarters, leading to layoffs, slowed hiring and budget cuts.
But as the pandemic accelerated plans to shift operations online, many startups wound up more popular than expected. Those tailwinds helped the venture capital world get back into its own game in a big way, leading to Q3 being an outsized quarter for domestic venture capital activity.The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday. Today, in a first, we have two editions of The Exchange for you. Get hype.
As The Exchange reported last week, “How much money was raised by U.S.-based startups in Q3 2020? $36.5 billion, according to CBInsights, $37.8 billion according to PitchBook. [The former data provider] calls the number a seven-quarter high, up 22% from the Q3 2019 number and 30% from the Q2 2020 result.” This lends itself to a question: What’s up with venture debt during all of this? Venture debt, in various forms, is a type of capital provided to startups that may or may not have raised equity-based funds, like venture capital. One variety comes from institutions like Silicon Valley Bank, which might provide a growing startup with well-known backers an additional fraction of its last raise in debt, allowing the young company to take on more total capital than it otherwise might without greater dilution. Other forms of venture debt, like revenue-based financing, share startup income streams to repay borrowings. And there are other, more exotic forms of the capital source. I’ve been curious about the space for a few quarters now. So, when some survey data on the venture debt market from Runway Growth Capital came in, I started collecting my notes into a single entry. Venture debt has a place in today’s market, but while venture capital is back to setting records, it appears that its less-known sibling won’t manage to match its last few years’ worth of results, according to new PitchBook data. Let’s talk about it.