Silicon Valley Bank’s Demise Tightens Spigot On $30 Billion Of Venture Lending
Startups borrowed so they didn’t have to give up equity. After the collapse of market leader SVB, they should expect higher rates and fewer deals in the near future.
In 2017, when David Rabie first launched Tovala, which pairs a smart oven with a food-delivery service, the idea seemed a little crazy. Then came the pandemic and the idea took off. He’s raised around $100 million for the Chicago-based business, and also borrowed a few million dollars in venture debt from Silicon Valley Bank as an alternative to selling pieces of the company. That allowed him to expand Tovala, which now employs 350 and has three food facilities in Illinois and Utah.
“SVB lent us money when the business was deeply unprofitable and early stage,” Rabie tells Forbes. “A lot would have been different if SVB had not lent us the money at the Series A [venture-funding round]. There were not other banks willing to do that.”
Rabie is just one of many entrepreneurs who took out venture debt from Silicon Valley Bank — the failed bank that was the largest issuer of it — as debt financing for venture-backed startups grew. The use of venture debt reached $32 billion in 2022, a more than four-fold increase from $7.5 billion in 2012, according to the Pitchbook-NVCA Monitor. SVB’s share of that issuance last year was $6.7 billion. Its rates ranged from 7% to 12%, plus warrants that allowed the lender to gain a small equity stake in the business.
Since the collapse of Silicon Valley Bank last weekend, founders and investors have raised many questions about what might happen to their existing debt. As panic spread during the run on the bank, founders who’d taken out venture debt with SVB worried that if they took their money out of the bank they could be in violation of loan covenants requiring them to keep cash there. Now some wonder who might buy the debt — private-equity firms including Apollo Global Management have been reported to be interested — and ultimately wind up with a minority stake in their businesses. “It’s a little uncomfortable that you’re sending investor updates to a mystery player,” says Matt Michaelson, founder and CEO of Smalls, a high-end cat-food startup that took on venture debt with SVB.
More broadly, there’s the question of what happens to this market, which had been rapidly growing but largely under the radar, at a time of rising interest rates and investor skittishness. “Venture debt is going to get more expensive,” says Jeff Housenbold, former CEO of Shutterfly and a venture capitalist at SoftBank who now runs his own investment firm, Honor Ventures. “Companies that are fragile are not going to be able to raise debt.”
On Tuesday, Tim Mayopoulos, the new CEO of Silicon Valley Bridge Bank, the name of the entity operating under FDIC receivership, said in a memo that the bank would be “making new loans and fully honoring existing credit facilities.”
That allayed some immediate concerns, but it doesn’t answer the longer-term questions.
To understand how cheap this money once was, consider the case of Rajat Bhageria, founder and CEO of Chef Robotics. He took out a $2 million debt facility with SVB in December 2021 at an interest rate of just 50 percentage points above prime, which was then 3.25% — an extraordinarily low cost of capital for a robotics startup. “Obviously prime has changed quite a bit,” he says. “At that point, it was extraordinarily low, and it was like, ‘How in the world are we getting this?’”
For a robotics company, where the capital costs are high, the venture debt helped a lot, and Bhageria still views it as a positive even as the prime rate has risen to 7.75%, increasing his borrowing costs. “There are a lot of complaints about venture debt,” he says. “They market it as a ‘runway extension’” — the time the business can keep operating without raising new funds — “but it’s not totally true because very quickly you’re going to have big debt-service payments per month.”
Michaelson, the cat-food CEO, has raised about $30 million in equity and has a $4 million debt facility with SVB. He says he’s rethinking his company’s financing in the wake of SVB’s failure. When the bank run began, he says, “we were getting a lot of pressure from our investors to take our money out.” But he worried that the loans would be in default. When he finally tried to get cash out, the transfers failed due to the surge in demand. Though that’s now in the past, the experience has caused him to rethink.
“I do worry,” he says. “We talk about, ‘Do we refinance the debt elsewhere?’ The question is what does the debt market do and will there be debt like this available? The wind is blowing towards less debt available, and the people less likely to get that debt will probably feel the squeeze.”
Michaelson says he recently heard of a founder with a similar-stage startup who got a term sheet for venture debt at a 13.5% interest rate. “That’s way higher than what we’re looking at,” he says. “At a certain interest rate, it stops being as attractive. You’re not just comparing debt to debt, but debt to equity. Depending how valuations move in the venture markets, it becomes less competitive.”
Since SVB’s collapse, non-bank lenders have been looking to grab more market share in the venture-debt market. “While SVB did have a concentration of startups, it wasn’t so concentrated that you couldn’t find an alternative somewhere,” says Arjun Kapur, managing partner at Forecast Labs, a startup studio that’s part of Comcast NBCUniversal.
The big question for the future, as always when it comes to financing, is risk and cost. “It’s expensive right now because people are risk averse,” Housenbold says. “So there will be less venture debt early on, which means founders are going to take more dilution. The venture capitalists are going to make more money, and the founders will own less of the company.”
8 Tips to Get the Most Out of You Co-Working Space
The following is an excerpt from The Remote Worker’s Handbook, the new book from Entrepreneur Press, available now at Amazon, Entrepreneur and Barnes & Noble.
Being a remote worker means different things to different people. It could mean working from home, a hotel room, a coffee shop, an airport, or anywhere else their life or job takes them.
And despite what the spectacular crash and burn of WeWork dramatized in the Apple TV+ miniseries WeCrashed might have people believe, co-working spaces are still very much a viable option.
Related: Are Co-Working Spaces Worth the Money?
If you’ve never checked one out, co-working allows people to work on their own within a traditional office environment that offers a bunch of amenities and services that range from IT support to complimentary food to conference rooms.
If you are thinking of taking this path, ask yourself some questions. First, determine exactly what you hope to get out of working from a shared workspace. Next, choose a location with the resources, culture, and overall atmosphere where you’ll be comfortable working. Then, before signing up for a long-term commitment, try it out for a week or a month. Once you begin using a shared workspace, the following guidelines should help you stay productive and focused.
Tips for working from a shared workspace
- Use noise-canceling headphones to drown out unwanted noise and reduce distractions.
- Just as you would when working from home (or anywhere else), create a plan and detailed schedule for each day, complete with a prioritized to-do list. Set realistic expectations, and then plan and prioritize what you need to accomplish.
- Take breaks throughout your day, and limit your socializing to before your official workday begins, during scheduled breaks, and after your work hours. Avoid the temptation to wander into shared lounges when you’re supposed to be at your desk.
- Develop a plan for participating in phone calls, video calls, and virtual meetings that won’t distract others while giving you the privacy you’ll need.
- Determine what office equipment and supplies you’ll need and bring along whatever the shared office space does not provide. This might require you to bring your own box of supplies to work each day if you can’t securely leave personal items at the location when you’re not there.
- To get the most out of the social experience offered by a shared workspace, participate in the scheduled events that are open to everyone, as long as they don’t interfere with your work.
- Use digital documents and files, so you have access to everything you’ll need without having to rely on file cabinets or lugging large, heavy file boxes to and from the shared workspace.
- Dress comfortably, but professionally. Because you likely won’t be able to customize or control the temperature of the shared workspace, wear clothing that won’t cause you to be too hot or too cold while you’re working.
How to find the right workspace for you
With the mandate to provide flexibility and affordability and increase productivity, while furnishing a work setting that offers networking and socializing opportunities, WeWork, Industrious, Regus, and Office Evolution are just a few of the larger nationwide (or in some cases global) providers of co-working spaces. To find additional options in your city or state (or wherever you need to work from), enter the phrase “local shared workspaces” or “local co-working spaces” into your favorite search engine.
Now that you have a general idea of what you can expect from this type of work environment, decide what exactly you’re looking for, how often you’ll need the workspace, and what amenities and services will be beneficial. Then depending on your budget, choose the option that best matches your work habits.
In addition to the information you find online, almost all shared workspaces will provide free tours and one-day guest passes so you can try working from their location for at least a day before signing up for a membership plan.
The Remote Worker’s Handbook is available now at Amazon, Entrepreneur and Barnes & Noble.
Traders Union release new prediction about FTT crypto price
It’s important to consider their potential price in the future before making a decision to purchase new cryptocurrencies. Recently, the Traders Union experts predicted what the price of FTX Token will be. Their analysis indicates that large price increases for coin are anticipated in the upcoming years.
What is a FTT crypto?
A well-known group of financial experts called Traders Union has released a forecast for the price of coin, a e-currency utilized as a utility token within the FTX ecosystem.
TheTU prediction was based on a number of variables, such as the expansion of the e-currency marketplace, the rising popularity of FTX, and the distinctive value proposition of coin itself. They claim that one of the major factors contributing to the increase in coin’s pricing is the spread of the FTX exchange. Given its high utility value, the company thinks the coin is currently undervalued and has the potential to top all other cryptocurrencies in the near future according to Trades Union.
Because of its sophisticated trading capabilities, reasonable costs, and cutting-edge product offerings, like leveraged tokens and futures contracts, FTX has grown significantly in popularity in recent years. The demand for the token is anticipated to rise as more dealers and investors accept FTX and utilize coin for trading and other uses, which should raise its price.
The Trades Union also points out that coin differs from other cryptocurrencies in a number of specific ways, including its deflationary nature and robust use case inside the FTX ecosystem. The token is likely to become increasingly in demand as more dealers and investors embrace it as a result of realizing the utility of FTT crypto price.
Notwithstanding the upbeat pricing forecast, the Trades Union issues a warning that there are still dangers and unknowns that could affect the price of coin in the future. Experts reviewed modifications to regulations, heightened competition from other e-currency exchanges, and the market’s continuous volatility.
Before making any investment decisions, investors thinking about buying coin should be aware of these risks and perform their own due diligence. Nonetheless, people who want to learn more about the potential dangers and benefits connected with investing in coin can utilize the Trades Union research as a helpful starting point.
In general, e-currency dealers and investors are likely to be quite interested in the Traders Union article prognosis regarding the price of FTT. Even though there are still a lot of unknowable variables that could have an impact on coin’s price in the future, the Traders Union’s analysis offers a helpful road map for those attempting to traverse the challenging world of e-currency investing. FTT is likely to keep playing a significant role in facilitating trades and transactions on the FTX exchange as the e-currency industry develops and matures. Regardless of whether the Traders Union’s price forecast turns out to be correct, coin’s strong utility value and expanding user base indicate that the token is likely to remain a significant player in the e-currency ecosystem.
Disclaimer: This article is a paid publication and does not have journalistic/ editorial involvement of Hindustan Times. Hindustan Times does not endorse/ subscribe to the contents of the article/advertisement and/or views expressed herein.
The reader is further advised that Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.
Hindustan Times shall not in any manner, be responsible and/or liable in any manner whatsoever for all that is stated in the article and/or also with regard to the views, opinions, announcements, declarations, affirmations etc., stated/featured in same. The decision to read hereinafter is purely a matter of choice and shall be construed as an express undertaking/guarantee in favour of Hindustan Times of being absolved from any/ all potential legal action, or enforceable claims. The content may be for information and awareness purposes and does not constitute a financial advice.
Chris Do of The Futur on his 1 Billion Mission
Opinions expressed by Entrepreneur contributors are their own.
Walking away from a company that generated an estimated $80 million took a great deal of faith and conviction. But Chris Do knew needed to step into The Futur to complete his 1 Billion Mission.
“I’m going to put the big goal in front and not the little goal. The little goal is I need to make money. I need to convert clients. I want followers. I want to be loved and liked and appreciated. The big goal is about self-development, about learning,” explains The Futur CEO Chris Do to Restaurant Influencers host Shawn Walchef of CaliBBQ Media.
Chris Do is no stranger to both praise and criticism as an influencer. Nevertheless, his ultimate goal is one of empowerment.
The Futur provides coursework, community, and coaching online to help people develop businesses so they can make a living doing what they love.
In the age of new media, founder Chris Do believes that anyone can have a platform to share their message. He notes that the power of social media and content creation has allowed the best content to rise to the top.
“Old Media sounds like book publishers, TV and radio and in certain events that are so exclusive that to be invited would be like an achievement in your lifetime,” Do explains. “New Media comes along and says, ‘You know what? Let’s democratize access. Let’s give everyone who’s willing to use and exercise their voice a platform and let the best content win.'” says Do.
Admittedly, though, that doesn’t always make for a fair playing field, but it does give a voice to those who choose to tell their story.
“If you have a thought in your head and you can articulate it in one form or the other in written and spoken word on stage and performance and puppetry, shadow dancing, whatever it is that you do, if you can express and communicate an idea that touches someone, that entertains them, that helps them to achieve a goal that they want in their life, (then) you have tremendous power.” said Do.
Combining his love for travel and sharing knowledge about business, Do is embarking on The Futur Euro Tour. The tour will consist of two workshops — a business clinic and a personal branding workshop — hosted by Do in multiple cities across Europe.
“I taught at a private art school. And I wanted to recreate that experience at scale because it’s all about scale.” explains Do of the tour. “I like to travel, so this makes a lot of sense for my European friends. Let’s do this. But that’s just the beginning, because if it works, I’ll go to, of course, the United States, Canada, South America, Africa, Asia”
For now, grab your tickets to the The Futur Euro Tour and experience the power of Chris Do firsthand.
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