This edition of Spinta Bytes is a refresh on last year’s surprisingly popular Periodic Table of Growth & Venture Lenders. Common refrain from the community last year included “Holy cow, there are how many players?” and “can you please send us your list of lenders?”
As a result we’ve decided to update this analysis annually. For the uninitiated, it’s a simple chart that illustrates the depth of the lender community serving emerging growth / pre-profit technology companies. The "elements" in our periodic table include an array of institutional sources including traditional venture debt funds and banks, as well as large asset managers that have strategies dedicated to the emerging growth debt sector.
Note that bite sizes, industry foci, business model criteria, structuring philosophies, covenants (or lack thereof), and equity sponsorship requirements vary greatly across the landscape. Of course, let us know if you need help navigating.
The Full Monty - The Periodic Table of Growth & Venture Lenders
Serving emerging growth borrowers that are pre-profit or have clear path to profitability; excludes life sciences / biotech focused lenders
Subset #1 - VC not Required
Institutional equity backing is not an investment requirement for most venture debt / growth debt lenders (over 80% in fact). While many of these "Wild Catters" certainly become more cautious without meaningful institutional equity support (can impact pricing, availability, covenants, etc.), others stake their reputation on underwriting business fundamentals and prefer no other such support.
Subset #2 - Amortization Requirements
A relatively new concept to the world of venture debt is the non-amortizing "bullet" structure. Although most lenders don't utilize this structure (~30%), it can be attractive for well-established companies seeking patient capital to obviate or complement later stage equity rounds. As noted below, this structure is primarily employed by crossover lenders and only select pure play venture lenders.
Subset #3 - Natural Selection in the Credit Markets - Huh?
Thirty-eight of the “new players” in this year’s edition are what we’ve dubbed “X-Men,” lenders that historically had only focused on cash flow but have adapted their underwriting guidelines to selectively include pre-profit companies. These lenders gravitate to larger companies and recurring revenue models, as a clear path to profitability is required. X-Men are generally comfortable with risks avoided by many traditional venture debt providers. For example, none require VC backing, 70% will sit junior a bank facility, and 55% offer non-amortizing structures. This flexibility often comes with a trade off, by way of performance-based financial covenants (like minimum EBITDA and others).