2016 Venture Debt Market Outlook
A Robust Market in Spite of Headwinds
Following a healthy run-up in total venture capital investing in the U.S. in 2014 and 2015, venture capital-backed companies now are sailing against economic and financial headwinds. In 2016, stock market volatility, a dramatic slowdown in new IPO listings, and the possible tapering of the growth of total venture investments have injected new uncertainty into their ability to raise additional capital.
Therefore, early-stage technology, e-commerce, life science, healthcare and other companies seeking additional near- and intermediate-term financing are looking at all possible options. Venture debt, long a staple of emerging growth companies that need to extend product-development runways, is one that many will turn to. Three-to-four-year (or sometimes longer) term loans that include a small equity stake, executed through warrants, have become standard financing vehicles for venture-backed companies.
Like everyone else in an uncertain economy, both lenders and borrowers in the venture-debt marketplace currently find themselves on a shifting playing field. But in spite of the uncertainties, we expect to see a continuation of robust activity in debt financing for emerging companies in 2016. Borrowers should continue to have access to a competitive group of well- established lenders. And we expect those lenders will continue to innovate with an expanded array of debt vehicles designed to meet the unique requirements of early-stage companies.