Hello and welcome back to our regular morning view of private companies, public markets and the gray areas in between.
As I write to you, SaaS and Cloud stocks are busy setting new all-time highs And as we've seen, interest in modern software companies is pushing more money into the sector. But while it seems an incredibly good time to raise equity, venture debt and revenue-based financing seem to have a moment.
Why do more people talk and talk about debt to power their startups, even when valuations are high and a lot of venture capital needs to be raised?
As with all exploration of complex, evolving trends, there is no answer. However, some data from a 2019 risk indebtedness survey and an interview with John Gallagher (Element is a Scaleworks Spinout) from Element Finance, an equity-free SaaS finance business, explain what's going on. Let's start with how big the world of risk indebtedness is and how fast it is growing, and then let's turn to what drives its expansion.
The data we are going to discuss is directional and probably pretty accurate, which is fine for what we want to do today: Detail a General Trend of increasing risk indebtedness in recent years to confirm what we have assumed to be a trend for some time.
Thanks to a report last year by Kruze (a startup accounting and recruiting firm) that the company called "the largest venture capital market survey," including companies that "control well over half of venture capital debt" in the United States. Here are the estimated total amounts of domestic risk exposure for the past half decade: