When the accounting bench failed abruptly last month, the closure was forced when the company’s lenders called the start loan. At the end of 2023, the Convoy of Digital Freight Company faced financial challenges, leading the Hercules Capital business lending company to take control of the company to recover its investment.
Divvy Homes, sold for about $ 1 billion in Brookfield Properties last week, have left some of the company’s shareholders without any payment, TechCrunch said last week. Although the specific role of Divvy’s lenders in sale is unclear, the company borrowed $ 735 million From Barclays, Goldman Sachs, Cross River Bank and others in 2021.
After so many weak newly established companies funded in 2020 and 2021 with famous relaxed diligence, many of the weakest newly established businesses have already failed. But the data suggest that we have not yet hit the bottom, and many more will die in 2025 and the debt of business activities will play a role after investing $ 41 billion in 2,339 agreements, a record for 2021, According to Silicon Valley Bank.
“We are reaching the end of the rope for many companies,” said David Spreng, founder and chief executive of Growth Growth Capital Growth Capital.
He is worried about the future of their investments, lenders are increasingly pushing for newly established businesses to sell themselves to minimize possible losses, Spreng believes.
Almost every lender has problematic companies in their portfolio now, he estimates that John Markell, CEO of Debt Counseling Venture Armentum Partners.
While debt can help rapidly growing newly established businesses to meet the needs of their cash without selling parts of the company to VCS, it also increases the risk of negative results. Excessive debt compared to the income or cash reserves of a start can lead to a forced fire sale, where a company is sold for a fraction of its previous value. Or lenders can resort to exclusion so that they can claim any underlying assets used to secure the loan to recover at least some of their investments.
If newly established businesses can persuade the news or existing VCs to invade more cash by buying more equity, they can avoid receiving lenders if they fall back to payments or other aspects of their agreements. For example, some Business Debt Agreements They have liquidity and capital requirements. If a start -up cash falls too low, a lender could take action.
However, investors are reluctant to maintain funding companies that are growing very slowly to justify the heaven values that have achieved in 2020 and 2021.
“At the moment, there are so many troubled companies,” Markell said. “Many unicorns are not going to attempt soon.”
Spreng also predicts that many newly established businesses will have no choice but to sell for a low price or close this year. But for now, most lenders are still hoping that these newly formed companies can find a home through a sale, and even a sale of fire.
In cases where lenders are forcing an acquisition, stock investors generally do not get much of the money paid and often do not make their money back, Markell said. The losses for investment in newly established businesses are the risks that capitalists know.
When a sale occurs, Spreng says that many of these transactions remain uncovered due to adverse results for business investors. No one wants to get a round of victory when they lose money on a sale.
However, as debt holders have a priority in repayment, business lenders are less likely to lose all their capital.
But the risks associated with Venture’s debt do not slow down its appeal. In 2024, the new business debt version of business risks amounted to a 10 -year high $ 53.3 billion, according to Data book. A significant part of this chapter was headed to AI companies, with remarkable examples, including Coreweave, which secured € 7.5 billion and OpenAi debt funding, which acquired a $ 4 billion credit.
