A naukri.com initiative
Medium
2M
376
Image Credit: Medium
Venture Debt: A Lucrative Path for Institutional Investors
- Venture debt offers a way to invest in innovation, providing lower risk and attractive returns while complementing traditional venture equity.
- Venture debt consists of senior secured loans combined with equity warrants, made to venture-backed startups that have reached a growth or expansion stage.
- These loans are typically made to Series B through Series E companies that are producing between $10 million and $150 million per year in revenue and can service debt payments.
- Venture debt loans are typically short maturity, secured by all assets of the borrower, have a floating rate coupon and produce high income with historically yielding mid-teens returns.
- The Cliffwater Direct Lending Index demonstrates that the yield on 641 venture loans worth $7.4 billion held by BDCs yields 14.48 percent.
- Compounded at 15 percent per year, an investment in venture debt over 10 years produces a 4x multiple on invested capital. When the equity kickers are included, compounded returns can reach 20 percent per year, producing a 6.2x MOIC in 10 years.
- Annual venture lending in the US has increased 8x since 2010, from a little under $4 billion then to over $32 billion in each of the past two years, according to the PitchBook-NVCA Venture Monitor, Q2 2023.
- Institutional powerhouses like BlackRock and Blackstone are leading the charge into venture debt, with BlackRock’s acquisition of Kreos Capital highlighting the strategy’s attractiveness for income generation, low volatility, and portfolio diversification.
- Private market giants such as KKR and Bain Capital are considering expanding their venture debt programs, possibly through acquisition.
- Venture debt is becoming an increasingly popular investment option, offering strategic avenues for returns and diversification, and not just for minor institutional investors.
Read Full Article
22 Likes
For uninterrupted reading, download the app