European startups embrace complex debt deals amid funding crunch

European startups are increasingly turning to complex convertible debt deals as traditional venture funding becomes scarcer, according to industry insiders speaking with Reuters.

In the wake of a funding slowdown, European venture capital-backed firms are opting for convertible debt, which allows for quick and private cash infusion without disclosing updated valuations.

In 2023, the volume of convertible debt issued by these firms hit a record $2.5 billion, up from $1.7 billion in 2022, as per Dealroom data.

However, these deals are becoming more intricate, potentially offering investors greater control or higher payouts in the future.

Terms such as increased investor stakes or equity boosts based on company performance are becoming common, shifting power towards investors.

While some view convertibles as a lifeline amid tough market conditions, others caution against their risks.

Delaying revaluations may not be a sustainable strategy, as market conditions can't be avoided indefinitely.

Overall, as venture fundraising slows, start-ups are navigating a challenging landscape, seeking alternative funding avenues while hoping for a market rebound in the future.

(With Reuters inputs.)