The economic recession is not only having an impact on the ability of startup companies to raise venture capital financing, but also their desire to take on venture debt. A few years ago, many of the venture capital deals completed in the Seattle area included some form of debt financing.
But that's changed in the past year, according to industry watchers.
"There's tremendous pendulum swings in the moods of VCs, entrepreneurs and venture banks for taking on debt in an early-stage company," said Craig Sherman, an attorney with Wilson Sonsini Goodrich & Rosati. "And I think the reason is, whenever the market turned south, everyone involved realized that a venture loan from a traditional venture lender does not extend your (cash) runway at all."
The reason is that boards will require that a loan from one of the traditional venture lenders -- Silicon Valley Bank, Comerica Bank and Square 1 Bank -- be paid back before the company implodes.
"The (VCs) don't want to damage the relationship with the bank because they have so many other existing portfolio companies doing business with the bank and they want to continue to work with the bank going forward," said Sherman, who has worked with startup companies in Seattle for more than a decade.
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