At times, venture capital firms move up and down the funding food chain. What I mean by that is that there are times that venture capital firms get involved in deals that are traditionally done by angel investors. There are even times that the lines between venture capital and business loans blur.
This is called venture debt.
More venture capital venturing into venture debt?
Most venture capital firms are equity investors. However, there are firms that specifically provide venture debt to companies. One of the better-known venture debt, venture capital firms is Silicon Valley Bank.
This is another trend I am seeing in the small business funding marketplace. That of investors who are used to doing much larger deals beginning to dip their toes into providing micro-funding. In fact, just before writing this post I spoke with my friend Chris Miller of Three Roots Capital.
Three Roots is run by the team that also manages the Meritus Ventures venture capital firm, which provides funding to companies in the Southern and Central Appalachia area.
Just last year they decided to begin including debt funding rather than just equity funding. That funding ranges from as low as $50,000 in capital up to millions of dollars. And, they aren’t alone. I know of multiple venture capital groups that are either contemplating or are already blurring the lines into business loans.
Some might argue that this is bad for the funding ecosystem. I tend to feel that the more funding sources available then the better things are for companies needing funding. With one caveat - firms moving into debt need to make sure they have people on the team that is experienced with small business loans. Just like Three Roots Capital did with hiring Chris, who has experience as a VC analyst and commercial lender.
Do you subscribe to the idea that the more funding sources that are available then the better things are for companies looking for funding? Or do you think that each group should “stay in its lane”? Be sure to add your comments below.