Growth Lending Market Terms - Q125

Venture lending's big bounce, or just a mirage?

• Pitchbook declared 2024 a record for US venture debt funding at $50B

• And…BDC filings show a 34% surge in funded venture loans year-over-year

But adjusting for late-stage AI lending, the overall picture is likely more bleak

• Adjusted, the innovation lending market is mostly flat vs 2023, and remains depressed vs ’21 / ’22 levels

• Drilling deeper, just two venture lending BDCs drove nearly all of the venture BDC growth in 2024, while others stayed in a slump, hampered by portfolio distractions, ownership transitions, tighter credit boxes, or capital instability

Of note, rates have come down, particularly for stronger borrowers

• Coupons for select later stage lending has improved nearly 200bps vs 18 mos ago

• Bank pricing has also improved, driven by recent fed rate reductions and a continued competitive environment for companies fresh off equity raises

Headwinds persist…

• Regulatory uncertainty and market gyrations hamper lender appetite

• Stronger financials are a must - revenue visibility, positive unit economics, and clear profitability pathways; expect continued heightened scrutiny of borrower financials, and covenants or structural protections

• Capital cost is still elevated, though easing

• While BDC portfolio quality has improved vs a year ago, a large swath of mid-stage companies are shut out of the equity markets and pivoting to profitability; those that over-borrowed in headier times face a financing dead-end

• Lender risk appetite is very murky - who's “risk-on” vs “risk-off” vs “completely frozen” is tougher to assess; approaching the lender market with a coordinated effort, a sober plan and multiple loan repayment pathways, is critical