Venture debt has its perks – it can be a more affordable option than raising equity, particularly for companies in capital-intensive industries. However, there has been a growing sense of dissent towards this financing method, especially after the struggles faced by Silicon Valley Bank in early 2023. As my colleague Anna Heim noted while reporting on a panel at TechCrunch Disrupt 2023, some people just aren’t fans.
But despite this negativity, startup finance company Arc Technologies is boldly taking on the $30 billion venture debt industry with a new venture debt marketplace specifically tailored for Silicon Valley. Founded in 2021, the company has already raised around $180 million in equity and debt funding, including a recent $20 million Series A round in 2022.
Don Muir, co-founder and CEO of Arc Technologies, is not one to sugarcoat the reality of venture debt: “It’s not the right option for everyone,” he candidly told TechCrunch. He went on to explain that the landscape has shifted significantly since 2021, when companies could easily raise a $50 million equity round without any customers or revenue. Now, both equity and debt investors are placing greater importance on a company’s fundamentals. However, Muir also notes that there is now a larger pool of debt capital available to startups that are stronger and more resilient. Plus, the attraction of debt’s lower cost compared to equity is more apparent.
When Silicon Valley Bank’s issues were front and center, other players – such as Brex, family offices, credit funds, and new banks – quickly stepped in to fill the void and offer alternative capital. Unfortunately, this sudden influx made it difficult for startups to navigate the best option for them.
That’s where Arc comes in with their Arc Capital Markets debt marketplace. The company boasts that in just 10 minutes, startups can onboard into their marketplace and receive indicative debt terms for up to $250 million from a network of lenders within five days. Their underwriting model takes into account historical financial data to pre-qualify startups and find the best lender match based on factors such as financial health and profile. According to Arc, their platform can save startups months of time and thousands in fees, as there is no cost for receiving funding terms.
“Based on the credit metrics that we calculate through our underwriting algorithm, we can identify the top lenders that are most likely to offer indicative terms for the business in the shortest amount of time,” Muir explained. “This could be in the form of a term loan from one of our middle-market lenders, for example.”
Although it’s still early, the success of Arc’s platform is evident – with over 350 transactions closed and almost $100 billion in available assets under management. Looking ahead, the company has plans to expand their services and improve the lender experience, including the introduction of a new product in the first half of 2024 (which Muir did not disclose at this time).
“A larger segment of venture-backed tech companies are now considering venture debt as a viable option, compared to just a few years ago, and we’re here to cater to that market,” Muir emphasized. “Our goal is to assist founders and CFOs in weathering the ongoing storm in the world of venture capital funding and ensuring that they can continue to grow efficiently with minimal dilution.”