TLDR:
European start-ups are turning to complex convertible debt deals as venture funding dries up. This trend allows companies to raise cash quickly without lowering public valuations, but it also poses risks if markets don’t recover. Convertibles offer longer-term funding options for firms waiting for better venture capital conditions. However, some fear delayed revaluations may not be a sustainable strategy.
European venture capital-backed companies are increasingly relying on complex convertible debt deals amid a slowdown in venture funding. Key points from the article include:
- Ultra-low interest rates allowed companies to raise equity at high valuations in 2020 and 2021.
- Volume of convertible debt issued in Europe hit a record of $2.5 billion in 2023, up from $1.7 billion in 2022.
- Deals are becoming more structured, offering investors more control and potentially higher payouts in the future.
- Traditional bank loans are expensive alternatives for companies running out of cash.
- Some firms are using debt to bridge the funding gap while waiting for better market conditions.
The article also highlights concerns about the sustainability of delaying revaluations and the potential implications for companies if market conditions do not improve as expected.
Europe’s start-ups are navigating a challenging funding landscape, with convertible debt deals offering both opportunities and risks as they seek to raise capital and sustain their growth in uncertain market conditions. As venture funding tightens and companies face the prospect of lower valuations, the use of complex debt structures has become a popular financing option. While these deals provide a way for companies to secure cash without immediate revaluation, experts warn of the potential pitfalls, especially if market conditions do not improve as anticipated.
