ANALYSIS: A Shift in Venture Debt Terms May Be on the Horizon

Credit investors are now poised to be more collaborative in negotiations with venture-backed companies. The portion of loans issued without strong covenants intended to protect investors has surged fivefold from 15% in 2008 to 88% in 2022. Though they’ve increasingly forgone contractual protections, credit investors are showing an emerging receptiveness to creative loan structures—even going so far as to lend with no expectation of receiving interest in return. All the while, startups are becoming more reliant on debt to fill funding gaps, meaning that credit investors may have an opportunity to buck the trend and demand more protective ...