TLDR:
- European startups are turning to convertible debt as funding becomes scarce.
- Convertible debt allows founders to raise cash quickly without establishing new valuations.
As funding for European startups becomes harder to secure, many are resorting to convertible debt. These deals, which become equity over time, have grown in popularity for venture capital-backed firms. Companies and investors are shying away from equity funding rounds due to lower valuations, leading to a record $2.5 billion in convertible debt issued by European firms in 2023. However, these complex deals come with risks, potentially giving investors greater control and putting startups at a disadvantage. The decline in tech startup funding in Europe, as reported by Atomico, has also contributed to the rise of convertible debt, as investors and companies adjust to the changing landscape. PYMNTS also highlights the challenges faced by startups in the AI and cryptocurrency space, where VC investors are focusing more on infrastructure plays rather than service providers.
