Speaking of creatively procuring, one of the classic ploys from the bad old days was to identify a company with intellectual property you coveted and convince them to take on debt.Then trip them.
The venture debt business is growing as larger start-ups prefer to borrow rather than issue equity.
Wall Street banks are horning in on a tried-and-true Silicon Valley business.
And they're doing it at a crucial time.
Investors and executives say Silicon Valley fundraising for start-ups is stalling, right at a time when many need cash to support operations. Few are eager to do a down round — accept investor capital at a lower valuation — leaving them in need of a little leverage to get by. It means doing a deal for venture debt. Enter banks like Goldman Sachs, which are eager to underwrite debt for pre-IPO companies.
"As start-ups stay private longer, there's a broader need for venture debt to support operations," said one source who invests with big, pre-IPO companies. "It's on the rise, with companies that can get it."
Lately, there are a number of boldface-name start-ups that can: Uber, Airbnb and Spotify, and those are just the ones that raised $1 billion or more so far this year alone.
Various factors go into the growing trend toward venture debt: For Silicon Valley companies weighing an IPO, the extra cash lets them hold off on decision-making and focus on growth. The market hasn't exactly been friendly to companies looking to make public market debuts, and taking on VC money may be more difficult: At a time when venture capitalists have been raising more funds, their investing in start-ups began to decline earlier this year.
Goldman Sachs has been involved in the venture debt deals of several top start-ups, including Uber and Spotify. The bank declined to comment.
Other banks in on the action include Morgan Stanley, Barclays and Citigroup. As is the case with corporate debt placements, big banks have the option of keeping the debt on their books as an investment, or selling it to related parties and clients (or both). Each of the banks declined to comment....MORE