WOODSIDE, Calif., Oct. 28, 2020 /PRNewswire/ -- Runway Growth Capital LLC ("Runway" or the "Company"), a leading provider of growth loans to both venture and non-venture backed companies seeking an alternative to raising equity, released today its inaugural Runway Venture Debt Review. The study surveyed 439 US-based entrepreneurs who have taken on both early- and late-stage venture funding, as well as 50 venture funding providers within the venture capital, venture lending, and commercial banking communities. Top-level report findings indicate that 80% of entrepreneurs who were surveyed have used venture debt, and that 94% of them would recommend it to fellow entrepreneurs. Additionally, nearly 50% of entrepreneurs regretted using equity to fund growth when they could have used venture debt.
Venture debt is not a new mechanism for raising capital, however, it is still in its infancy relative to traditional venture capital financing. According to Pitchbook, of the $160 billion in venture activity in 2019, venture capital (receiving money in exchange for giving up equity) comprised $135 billion, while venture debt (borrowing money and repaying it with minimal equity dilution) comprised $25 billion.
In recent years, venture debt has become an increasingly popular part of the capital structure for high-growth companies. The Runway Venture Debt Review found that most entrepreneurs claim to be comfortable using it; rating their comfort at a 7.7 on a 10-point scale. However, the study also revealed that many of these same entrepreneurs have misconceptions about when, how, and why venture debt should be used. This highlights an opportunity to further educate the market and business community about venture debt.
"According to our findings, 43% of entrepreneurs see debt as a backup option when equity capital is unavailable, rather than a complement to their capitalization strategy as they continue to grow," said David Spreng, Founder and CEO of Runway. "If equity is available but too expensive, then entrepreneurs should consider debt as an alternative or complement to equity. If equity is not available at any cost, debt is probably not the solution."
When asked to describe the "main benefits of using venture debt," 90% of venture providers agree that its main benefit is to avoid the dilution of an equity raise. However, only 28% of entrepreneurs identified this as a key advantage. Instead, 53% of entrepreneurs described the main benefit of venture debt as an opportunity to extend a company's runway to reach an important milestone. Both groups see venture debt as a valuable insurance policy to implement to fuel growth initiatives or help overcome an economic downturn.
"The COVID-19 pandemic has created opportunities unaddressed by the traditional venture capital / equity investors," said Spreng. "Numerous industry sectors are being overlooked by traditional venture capital providers, leaving many companies without fresh capital. This activity, and positive word-of-mouth from entrepreneurs who have relied on venture debt, are driving a strong surge in use of the financial instrument."
Other Key Entrepreneur Findings:
Of those who regretted using equity, nearly 50% said they were unaware of venture debt as a viable alternative.
Those who have used venture debt to fund their businesses rate the experience 8 out of 10 on a 10-point scale.
60% felt that venture debt has become more founder-friendly, and that it has become a more attractive option over the past 12 months.
90% of entrepreneurs agree that venture debt is under-discussed in the media, and that more business owners should be aware of the financial instrument.
Other Key Venture Provider Findings:
60% felt that venture debt has become more founder-friendly.
86% felt venture debt was key to extend a company's runway to reach an important milestone.
Study Methodology The Runway Venture Debt Review surveyed 439 entrepreneurs and 50 venture capitalists/venture debt providers. In addition, Runway interviewed eight entrepreneurs and eight venture capitalists to provide a more qualitative perspective to the findings. The margin of error for the entrepreneurs is 5% and the margin of error for the venture providers is 10%. The full report can be viewed at www.venturedebtreview.com.
About Runway Growth Capital LLC Runway Growth Capital LLC is the investment advisor to investment funds, including Runway Growth Credit Fund Inc., that are lenders of growth capital to companies seeking an alternative to raising equity. Led by industry veteran David Spreng, these funds provide senior term loans of $10 million to $75 million to fast-growing companies based in the United States and Canada. For more on Runway Growth Capital LLC and its platform, please visit our website at www.runwaygrowth.com.