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Venture Debt Update: Will the Recent Rise in Venture Lending Turn to Bust?

BY George A. Parker
December 27, 2007

Although venture debt financing is in the midst of a strong rebound, there are signs that the recovery might not last. Some of the conditions that caused a swift decline in venture lending earlier in the decade have resurfaced, threatening the growth of this form of financing.

Growth in Venture Capital Investing

Along with a revival in venture capital investing since 2003, venture debt financing has expanded sharply. Thanks to the ample funding provided by a cast of new venture lenders, startups are using this relatively efficient form of financing to extend the runway between equity rounds and to avoid ownership dilution. Along with the lenders' overflowing coffers have come looser lending terms and cutthroat competition. While startups and their investors are realizing the benefits of the abundant supply of financing, the fierce competition and compressed margins have put many venture lenders at risk of stumbling. Will the revival in the venture debt market end in an unceremonious fizzle, as it did during the meltdown earlier this decade?

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