Tech Startups Find One of Their Last Funding Sources Is Drying Up

A key form of financing that startups rely on is shrinking, hurting new companies that are already starved for capital. The volume of venture debt, a type of loan that younger companies line up to help pay the bills, plunged to $3.5 billion in the US in the first quarter, according to PitchBook, the lowest level since 2017. Climbing interest rates have made the funding more expensive for companies, and one of the biggest venture lenders, Silicon Valley Bank, faced a run on the bank that forced government regulators to seize it and sell it.

First Citizens BancShares, Silicon Valley Bank’s buyer, says its appetite for venture financing hasn’t changed. On a conference call on Wednesday, the company’s president said First Citizens is better positioned to serve venture-backed companies now. But many of the biggest lenders across the economy are less willing to take risk as economic growth slows. Companies drove venture lending to record levels last year as revenue was under pressure and other forms of financing were drying up. VCs pulled back dramatically on equity investments in the second half of 2022, squeezed by rising interest rates and falling market values across the tech industry. By the first quarter of 2023, venture firms invested $79 billion in startups, less than half the $178 billion a year earlier, according to PitchBook. Raising equity in public markets is harder too: There were just $2.5 billion of initial public offerings in the US in the first quarter, the lowest for the first three months of the year since 2016, according to data compiled by Bloomberg.