The collapse of Silicon Valley Bank (SVB) wasn’t the end of venture capital, but it was probably the end of companies raising venture capital with the same ease many had come to expect.
MinRegion+ recently spoke to five different VCs about the state of venture capital in the wake of the SVB and subsequent collapse of First Republic Bank, and they all said they don’t think the recent bank failures herald the end of venture capital. Rather, they expect the process of taking on this type of debt to look very different.
How will it change? While several investors thought venture capital will continue to be a cheaper option than equity for founders, they all agreed it would get more expensive going forward.
However, how much more expensive is difficult to determine. Sophie Bakalar, partner at Collab Fund, thinks macroeconomic trends will push prices up. “Capital markets are certainly changing, so founders should expect this form of capital to rise in price as economic trends accelerate and the dynamics of supply and demand in the market change dramatically. We tell founders to be prepared for the possibility of higher capital costs now and in the foreseeable future.”
Ali Hamed, a general partner at Crossbeam, has already seen prices rise, and as that trend continues, he expects lenders to increasingly look for strong underlying economics. “Our prediction is that venture capitalists will begin to rely less on what a company’s loan-to-value is, and instead focus on capital efficiency, ability to become profitable, etc.,” he said .