Venture Capital
How Startups Learned to Love Debt
The percentage of venture rounds containing convertible loans has doubled since 2012.
Debt has become standard for young startups because it allows them to raise small amounts of capital more frequently.
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As venture capital reaches a high not seen since the dot-com boom, more technology startups are becoming addicted to quick, cheap loans. The percentage of U.S. venture rounds involving convertible debt has doubled since 2012, according to data from research firm Pitchbook Data.
Convertible debt allows investors to lend money to a company with the option to receive equity later. Structuring deals this way is faster than organizing an equity fundraising round and is often cheaper because it involves fewer legal fees, said Craig Jacoby, a partner at law firm Cooley LLP. Low interest rates have certainly helped, too.