Updated March 18th, 2024 at 15:29 IST

European startups embrace complex debt deals amid funding crunch

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.

Reported by: Business Desk
Startup ecosystem | Image:Freepik
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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.

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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.

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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.

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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.

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(With Reuters inputs.)

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Published March 18th, 2024 at 15:29 IST