Are debt financings the new venture round for fintechs?




  • In Business
  • 2022-08-14 14:16:39Z
  • By TechCrunch
 

Welcome to The Interchange! If you received this in your inbox, thank you for signing up and your vote of confidence. If you're reading this as a post on our site, sign up here so you can receive it directly in the future. Every week, I'll take a look at the hottest fintech news of the previous week. This will include everything from funding rounds to trends to an analysis of a particular space to hot takes on a particular company or phenomenon. There's a lot of fintech news out there and it's my job to stay on top of it - and make sense of it - so you can stay in the know. - Mary Ann

More debt financings means flat is the new up

Last week, I wrote about Founderpath, an Austin-based company that offers debt financing to B2B startups.

As I started thinking about debt and credit facilities as increasingly attractive alternatives for startups who are seeking capital - especially during a downturn such as the one we are currently experiencing - I realized that the number of companies that were securing debt capital or credit facilities appeared to be on the rise. This could be for any number of reasons. Some founders might be struggling to raise venture dollars, while others don't want to - preferring not to dilute ownership.

On August 8, Mexico City-based expense management startup Clara announced it had been approved for financing from Goldman Sachs for up to $150 million. The facility, it said, would allow Clara to continue to grow its corporate card, accounts payables and short-term financing offerings for businesses in LatAm. The company says it's currently working with over 5,000 businesses across Mexico, Brazil and Colombia with ambitions to double that number by year's end. Notably, Clara was believed to be valued at about $130 million at the time of a $30 million raise in May of 2021. Just eight months later, it had raised a Coatue-led $70 million Series B and achieved unicorn status.

Here in the U.S., Yieldstreet announced on August 11 that it had secured a $400 million warehouse facility from Monroe Capital LLC. A spokesperson from the alternative investment startup told me that the financing is the largest of its kind to date for Yieldstreet. In June of 2021, I covered Yieldstreet's $100 million Series C at "near unicorn" status. In announcing its latest financing, the company said it has had more than 400,000 users since its 2015 inception and more than $3 billion in funding across an ever-evolving suite of investment products. The spokesperson also told me: "This isn't normal corporate debt - it uses a warehouse facility, which means it is targeted to support the creation of new funds and products for Yieldstreet's platform - growing the number of available investments for users, rather than general ops or expenses."

A quick note about the difference between warehouse facilities and debt financings - debt is lending capital for operating reasons. Warehouse facilities are essentially a line of credit. (Thanks to TC+ editor and resident finance expert Alex Wilhelm for the lesson.)

Healy Jones, VP of FP&A at Kruze Consulting, noticed my recent tweet about seeing a lot of debt financings and shared the following via email:

"Lots of reasons this is happening, but a big one is the drop in equity valuations is driving founders to find less dilutive ways to extend runway in the hopes that they can grow into at least a flat round."

Kruze COO Scott Orn, who used to be a partner at a venture debt fund, added his own thoughts via email:

  • You have to plan ahead for venture debt. Put it in place relatively soon after an equity financing. That way there is no adverse selection for the lenders; everyone (founders, VCs and lenders) around the table is happy at that time. If you try to put something in place with less than six months of cash, you will not be able to get debt. If you put it in place after an equity round, you can draw it down way into the future - that's called a forward commitment/drawdown. That gives the startup a lot of optionality.

  • It's super important to understand all the terms. Often, founders don't realize there are things like funding MACs, investor abandonment clauses, etc. These terms can be used by the lender to block the startup from either drawing down the money or creating a default after the money has been drawn. Either way, the company is in trouble and can't count on the capital. So you really need to know your lender, have your VCs know your lender and pay attention to your terms. This is why we created the Sample Venture Debt Term Sheet, to explain all the terms.

  • Don't borrow your own money. Often lenders will structure a deal with a lot of covenants, including minimum cash requirements. For example, they will lend you $4 million if you keep $2 million in the bank at all times. In that case, you're really only getting $2 million of new capital. Furthermore, the threat of an investor abandonment or MAC clause can keep you from really using the money as well.

  • While startup interest in venture debt is up a lot, lenders are getting more conservative. Across the board, startups are asking us about venture debt way more often. Simultaneously, when I talk to the lenders, they are reducing the dollar sizes of new commitments, reducing interest-only periods, asking for more warrants and being much more picky about which startups to lend capital to.

On my end, I know of at least two other fintechs planning to announce debt raises and/or credit facilities in coming weeks. So, this definitely feels like a trend.

For other TC coverage on this topic, head here and here.

Spotlight on Africa

On August 10, TC's man on the ground in Nigeria, Tage Kene-Okafor, wrote about fintech TeamApt raising over $50 million in a funding round led by U.S.-based QED Investors. As Tage wrote: "In a move rarely made by Western VCs, QED announced the hiring of Gbenga Ajayi and Chidinma "Chid" Iwueke to lead its investments in Africa this January. Nigel Morris, the firm's co-founder and managing partner, in an interview with TechCrunch, said Africa was the final piece of the puzzle for transforming QED into a global fintech-specialist VC firm."

I thought this was so interesting, I asked Tage if he could elaborate on the significance of this news. Below are his thoughts:

And if you don't already, follow Tage's work! He is awesome. For more on Africa's venture scene, head here.

Weekly News

From TC's Lauren Forristal: "Amazon's 'One' palm scanner payment technology will be launching at over 65 Whole Foods stores in California. This is the biggest rollout to date, with stores in Malibu, Montana Avenue, Santa Monica, Los Angeles, Orange County, Sacramento, the San Francisco Bay Area, and Santa Cruz receiving the tech that aims to modernize retail shopping." More here.

From TC Contributor Vadym Synegin: "Ukrainians have often pioneered market-leading companies and built products that positively impact society, especially in the fintech sector. Despite the hurdles of war, the Ukrainian fintech community is working to create better infrastructure and regulation for the country, which can attract valuable companies and institutional investors from different backgrounds." Read "5 reasons why Ukraine's fintech sector is growing despite war" here.

Real estate technology startup Homeward, which in May of 2021 raised $136 million in a Series B funding round led by Norwest Venture Partners at a valuation "just north of $800 million" and secured $235 million in debt, has laid off 20% of its workforce. Reports Real Trends: "'Buy before you sell' firm Homeward has laid off roughly 20% of its workforce, according to a letter from CEO Tim Heyl to employees…Despite recording what Heyl calls the firm's "strongest month ever" in May and solid second quarter results, "Heyl said the market shift was more sudden than anticipated, forcing the firm to make cuts." At the time of its May 2021 raise, the company had 203 employees, so based on that, Homeward potentially let go of about 40 people.

Fundings and M&A

Seen on TechCrunch

Truework, which helps lenders verify borrowers' income and employment, raises $50M

Farther, a wealth tech firm, banks $15M Series A as valuation hits $50M

Finix raises $30 million as fintech's spotlight picks its sides. The startup earlier this year announced that it was becoming a payments facilitator, in addition to enabling other companies to facilitate payments. The move puts it in direct competition with Stripe.

And elsewhere

DD360 receives $91 million to boost its proptech and fintech offering in Mexico

Modern Life bags $15 million to back insurance advisors

Financial Venture Studio (FVS) closes $40 million Fund II - A spokesperson told me via email that "the fund continues to outperform…Fund I is up 4x." In February, TechCrunch reported that FVS had named Cameron Peake, a former startup founder and advisor, as its newest partner.

Food stamp-focused Forage raises $22 million - TechCrunch first covered Forage emerging from stealth in March.

Well, that's it for this week. I don't know about you, but it feels like this summer just flew by. I'm not ready for it to end… Until next time, xoxoxo Mary Ann

COMMENTS

More Related News

China told US banks like Goldman Sachs and JPMorgan to avoid publishing politically sensitive research ahead of a key Communist Party summit, report says
China told US banks like Goldman Sachs and JPMorgan to avoid publishing politically sensitive research ahead of a key Communist Party summit, report says

JPMorgan's private banking arm in Asia was advised not to comment on sensitive subjects for the time being, sources told the Wall Street Journal.

Goldman Sachs has started laying off workers across the US - with a focus on cutting mid-level investment bankers. Here
Goldman Sachs has started laying off workers across the US - with a focus on cutting mid-level investment bankers. Here's why that's a bad sign for the economy

Wall Street deal-making isn't doing too hot.

Fed to kick off climate scenario analysis in 2023 with six large banks
Fed to kick off climate scenario analysis in 2023 with six large banks

The Federal Reserve announced Thursday that six of the nation's largest banks would participate in a pilot climate scenario analysis exercise in 2023. Bank ...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

  • CBD
    (2022-08-14 17:33:07Z)

    CBDevor votre producteur de fleurs CBD indoor et fleurs de CBD outdoor pas cher disponible dans toute la France et l'Europe.
    Nos fleurs de chanvre sont sélectionnées avec le plus grand soin. CBDevor c'est votre cbd shop disponible toute l'année en ligne avec du CBD à prix cassés!

    REPLY
  • Buy dexedrine online
    (2022-08-14 22:55:27Z)

    REPLY
  • buy research chemicals online
    (2022-08-14 22:56:25Z)

    buy alprazolam online-24 hours delivery

    buy mephedrone online-legit

    buy mdma online-24 hours delivery

    buy heroin online-24 hours delivery

    buy crystal meth online-24 hours delivery
    buy quaaludes online
    buy red mercury online
    buy benzo fury online
    buy 3meo dust angel online
    buy caluanie muelear oxide online
    CONTACT US
    Email:scottandrews251@gmail.com

    WhatsApp/Text:

    +1 (816)287 9488

    Wickr:

    scottandrews1

    Web Link: https://rchemsonline.com/

    REPLY
  • Buy counterfeit notes online
    (2022-08-14 22:57:18Z)

    buy counterfeit money online

    Buy fake pounds online $%$

    Buy fake australian dollars online $$

    Buy fake canadaian dollars online $$

    buy fake dollars online $$

    Buy fake euros online %%

    Buy fake japanese yen online #1

    Buy fake new zealand dollars online $$
    buy fake swiss franc online #1
    CONTACT US
    Email:scottandrews251@gmail.com

    WhatsApp/Text:

    +1 (816)287 9488

    Wickr:
    scottandrews1

    Web Link: https://counterfeitpoppers.online

    REPLY
  • buy Qsymia online #1
    (2022-08-14 22:58:37Z)

    product/buy-acxion-30-mg-online online


    Buy Qsymia online


    Buy Phentermine online


    Buy Saxenda online


    buy Belviq online


    Buy Adipex online without prescription


    Buy Contrave online for weightloss


    Buy Sibutramine online


    buy Lomaira online


    buy synogut supplements online

    buy ozempic online
    CONTACT US
    Email:scottandrews251@gmail.com

    WhatsApp/Text:

    +1 (816)287 9488

    Wickr:

    scottandrews1

    Web Link: https://www.roseweightloss.com/

    REPLY
  • Buy Painkillers online #1
    (2022-08-14 22:59:37Z)

    Buy soma online

    Buy adderall online #1

    Buy Dexedrine online #1

    Buy Hydrocodone online #1


    buy Morphine online #1


    Buy Opana online without prescription #1

    Buy Oxycodone online for pain #1


    Buy percocet online!#

    Buy Roxicodone online for pain #1

    Buy soma online-24 hours delivery #1

    Buy Suboxone online #1

    Buy Tramadol online for pain #1

    Buy xanax online without script
    CONTACT US
    Email:scottandrews251@gmail.com

    WhatsApp/Text:

    +1 (816)287 9488

    Wickr:

    scottandrews1

    Web Link: https://royalpainpharmacy.com/

    REPLY
  • central park housing scheme
    (2022-08-15 09:12:52Z)

    Focal Park Located at Lahore's Ferozepur Road, the Central Park Housing Scheme is one of the principal activities of Urban Developers. It's implied that Urban Developers as of now has an impressive history traversing three and a half many years of conveying spearheading finishing, progressive turns of events, and proper completing of adventures. With an energetic vision and earnest collaboration, Central Park Housing Scheme has turned into a huge society that offers a prevalent personal satisfaction for its esteemed individuals. Current business patterns exhibit that the Central Park Housing Scheme has turned into a valued heritage in its short presence, which in itself discusses the genuine progress story.

    REPLY
    • TMG Investment real estate is here to provide you with unrivaled service to walk you through the new world of real estate. We are confident in our knowledge and experience with a client-centered approach, allowing you to start small and grow through time.

      REPLY
  • Mots clés:
    (2022-08-16 21:44:19Z)

    CBDevor votre vendeur de cbd eau pas cher toute l'année en France et en Europe. CBDevor votre grossiste CBD spécialiste des résines CBD, huiles CBD et fleurs CBD toute l'année à prix imbattables ! CBDevor votre fournisseur de CBD Français
    Mots clés

    REPLY
    • ice o lator prix @Mots clés:
      (2022-08-19 10:29:33Z)

      Acheter votre résine CBD ice o lator chez CBDevor votre grossiste CBD disponible en France et Europe toute l'année. CBDevor votre meilleur fournisseur français de CBD pas cher disponible toute l'année. Des prix incroyables dans les résines de CBD chez CBDevor

      ice o lator prix

      REPLY

Top News: Business