![\"\"](\"https:\/\/cdn.geekwire.com\/wp-content\/uploads\/2023\/01\/Screen-Shot-2023-01-19-at-1.17.10-PM-630x527.png\")
Minh Le<\/a> has been busy. <\/p>\n As a market manager for Silicon Valley Bank\u2019s\u00a0Washington and Western Canada region, he helps entrepreneurs access various lines of credit. And last year, as venture capitalists slowed their spending in response to the cooling economy, he had a rush of new clients. <\/p>\n \u201cWe\u2019re seeing as much velocity as I\u2019ve seen in the last decade,\u201d said Le.<\/p>\n As traditional venture capital becomes increasingly harder to raise, many startup advisors are telling founders to seek out alternative financing tools like venture debt or revolver loans as a way to secure cash and avoid taking on equity. <\/p>\n Speaking at a Perkins Coie event in Seattle in October, Bonfire Ventures Principal Tyler Churchill <\/a>said his firm is advising almost all of its portfolio companies to consider what a venture debt facility would look like.<\/p>\n Startup advisors point to multiple benefits of debt: extending cash runways without dilution, maintaining ownership control, and avoiding a potential down-round<\/a>, when companies raise cash at a lower valuation than previous rounds. <\/p>\n But debt comes with its own set of caveats: increased financial scrutiny, strict guardrails on growth and spending, and obligations to pay back the loan principal. <\/p>\n Still, many startups didn\u2019t even consider debt when the equity markets were hot a year ago, said Zachary Hoene<\/a>, a J.P. Morgan commercial banker focusing on technology companies. <\/p>\n Last year\u2019s Q2 was the second largest quarter in terms of total venture debt value over the past decade, according to PitchBook data<\/a>. By the end of the year, debt deal value for tech surpassed 2021 numbers with more than $29 billion raised across 2,188 deals, according to PitchBook\u2019s Venture-Monitor report.<\/p>\n Lighter Capital<\/a>, a Seattle lending firm that offers revenue-based debt instruments to early-stage startups, doubled its book size in 2022, marking its best year in history, said CEO Melissa Widner<\/a>. She noted that Lighter is funding more companies that were on a traditional venture capital path and don\u2019t want to risk a flat or down round. <\/p>\n The rise in venture debt raised comes as VC markets cool. Venture-backed companies raised a total of $209 billion last year, down 36% from the year prior, according to a funding analysis by Ernst & Young. <\/p>\n PitchBook analysts predict that upward trend will continue in 2023. Equity markets will remain harsh, they wrote, pushing many startups to \u201cconsider venture debt as a way to supplement their need for equity financings.\u201d <\/p>\n Poor performing public tech stocks can also be a factor in why there has been a renewed interest in debt, SVB\u2019s Le said. <\/p>\n Many startups raised their last equity round at a time when revenue multiples were high, relative to the market, inflating their valuations. With the current down market, startups are likely being valued at that same price or lower, resulting in a potential flat or down round. <\/p>\n Startups are often advised to avoid these scenarios because it could mean more dilution for the founders and their employees, Le said. It also forces their financial backers to have to mark down the company in their portfolio, reporting that drop to their limited partners, he added. <\/p>\n In down markets, it can be \u201chelpful\u201d for startups to raise enough debt to continue to operate their businesses, avoiding any potential down round, Le said. <\/p>\n \u201cEspecially growth stage rounds,\u201d he added. \u201cIt\u2019s just really hard to get them right now. And so, pursuing debt tends to be a nice alternative.\u201d<\/p>\n A number of Seattle startups took on a form of debt in 2022, including: Convoy ($100 million<\/a>), Coding Dojo ($10 million<\/a>), and Icertis ($150 million<\/a>). <\/p>\n![\"\"](\"https:\/\/cdn.geekwire.com\/wp-content\/uploads\/2018\/08\/P1000291-630x420.jpg\")