Startups borrowed so they didn’t have to give up equity. After the collapse of market leader SVB, they should expect higher rates and fewer deals in the near future.
when David Rabie first launched Tovala, which pairs a smart oven with a food-delivery service, the idea seemed a little crazy. Then came the pandemic and the idea took off. He’s raised around $100 million for the Chicago-based business, and also borrowed a few million dollars in venture debt from Silicon Valley Bank as an alternative to selling pieces of the company. That allowed him to expand Tovala, which now employs 350 and has three food facilities in Illinois and Utah.
Since the collapse of Silicon Valley Bank last weekend, founders and investors have raised many questions about what might happen to their existing debt. As panic spread during the run on the bank, founders who’d taken out venture debt with SVB worried that if they took their money out of the bank they could be in violation of loan covenants requiring them to keep cash there.
On Tuesday, Tim Mayopoulos, the new CEO of Silicon Valley Bridge Bank, the name of the entity operating under FDIC receivership, said in a memo that the bank would be “making new loans andTo understand how cheap this money once was, consider the case of Rajat Bhageria, founder and CEO of Chef Robotics. He took out a $2 million debt facility with SVB in December 2021 at an interest rate of just 50 percentage points above prime, which was then 3.
Michaelson, the cat-food CEO, has raised about $30 million in equity and has a $4 million debt facility with SVB. He says he’s rethinking his company’s financing in the wake of SVB’s failure. When the bank run began, he says, “we were getting a lot of pressure from our investors to take our money out.” But he worried that the loans would be in default. When he finally tried to get cash out, the transfers failed due to the surge in demand.
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