Immad Akhund, CEO & founder, Mercury.
Photo: Mercury

Venture debt is calling startups

Protocol Pipeline

Hello and welcome to Pipeline! This week: Mercury gets into venture debt, the SaaS downturn in perspective and SoftBank unloads its Cruise stake.

Debt vs. equity

Macro uncertainty with the war in Ukraine, rising inflation and volatility in public markets have caused some late-stage investors to reassess their strategies and deals. But their jitters haven’t slowed the market for venture debt. If anything, the dithering over valuations has made loans to venture-backed firms more attractive as a short-term financing strategy — a bridge to a time when conventional equity is easier to secure on attractive terms.

The fast-growing venture debt business has attracted a new player. Mercury, a startup that provides banking services to startups, just launched an offering.

  • Mercury aims to lend out more $200 million this year and up to $1 billion over the next two years. The loans are offered through its bank partner, Evolve Bank & Trust. For Mercury, the product offers a new business line; previously it primarily relied on interchange and float on deposits for revenue.
  • Rates can be as low as 4-5% now, Mercury CEO Immad Akhund said. (Rates will go up in line with the WSJ prime rate, as the Fed hikes rates.)
  • Mercury’s offering is designed to be more user friendly for startups who don't want to deal with the clunky spreadsheet documentation some banks require, Akhund said. Mercury’s service connects to a startup’s QuickBooks or NetSuite account to ingest data.
  • Mercury hired Jason Garcia, a former startup CFO and executive at Silicon Valley Bank, as head of its capital and relationship management.

Capital is competing to lend to hot startups. As valuations have ballooned, startups have been in the position of leverage.

  • SVB is a major competitor for Mercury, as are banks like Comerica or Bridge. Then there are dedicated firms like WTI, Hercules and TriplePoint. And other startups like Brex have entered the market, too.
  • The number of startups taking venture debt more than tripled over the last 10 years, according to Pitchbook.
  • Even as the macro environment has shifted, interest in venture debt remains strong for different reasons, Akhund said. “You don't know what the environment’s gonna be like in 12 months and having an extra 20% or 50% cushion” gives more options, Akhund said.
  • “Given the ‘risk-off’ investment environment we’re currently in, founders may find themselves having a harder time raising significant equity capital compared to a few years ago,” said Benjamin Wu, CEO of Brex Asset Management, which launched venture debt last August. “Having access to venture debt allows businesses to continue extending their runway, accelerate their growth and stay ahead of the competition without relying on traditional funding sources.”

With so much capital, seemingly every niche has its own lending option. With capital seeking growth investments, venture debt isn’t the only startup borrowing option.

  • ClearBank and Wayflyer offer financing for marketing costs for startups, with up-front cash that is repaid through ecommerce sales. Pipe and Capchase offer similar services for SaaS companies with predictable recurring revenue.
  • Mercury offers a guide that includes Capchase and Wayflyer to help founders find whatever funding best suits them, Akhund says. “I want entrepreneurs to get the best thing for themselves,” he said.
  • A new area for fintech startups is warehouse lending for early stage startups. This form of financing, which provides cash for loans, is common for larger lenders in the mortgage business but is now being offered to younger startups for business purposes, said Ben Narasin, founder of Tenacity Venture Capital.

Of course, debt carries its own risks. Venture debt is ideally used for things such as equipment, data centers or leasing, not operating costs.

  • That said, if a founder is very confident another term sheet is coming soon, venture debt can make sense, according to Narasin, who previously headed equity investments at venture debt shop TriplePoint Capital.
  • Venture debt, like other debt products, typically is first in line before equity holders if liquidations occur. “Debt isn’t equity,” Narasin said. “Not all entrepreneurs grok that. A knife is a tool but a weapon in another person’s hand.”
  • And bridge loans to get to a new round are more dangerous, Narasin said. “It’s fine to bridge as long as there’s a destination, not a bridge to nowhere,” he said.

In this risk-on environment, venture debt can be another helpful tool in the tool kit for founders. But founders should be aware of the risks. Handle sharp objects carefully.


VCs and journalists are fighting (again) on Twitter about anti-tech tech stories, and it’s … insidery? Part-time media critic Marc Andreessen took a break from posting Jack Dorsey memes to complain about a Business Insider story on problems at Glossier that he deemed a “hit piece.” Full disclosure: Axel Springer owns BI publisher Insider Inc. and Protocol. Fuller disclosure: Andreessen was an early investor in Insider.

I did a whirlwind tour of SXSW this past week with some Protocol colleagues. The event didn’t seem as big for VCs (or in general) as in past years due to COVID, but there was a decent startup and VC turnout — and especially crypto. First time attendee Deena Shakir of Lux Capital writes: “While I hadn't really heretofore considered SXSW as the primary go-to event for VCs (compared, for example, to Upfront Summit), I definitely ran into more VCs than expected there — as well as a large number of founders!”


Today’s job landscape is challenging for organizations looking to recruit and retain top tech talent. Recent labor trends, many of which are fueling The Great Resignation, have shown leaders across industries that their employees are searching for more.

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Inside track

People like to trash venture capital in Web3 and crypto, but one big benefit of VCs is they will stick with you in the tough times, says Fred Wilson, citing the example of Dapper Labs, which had to slog through a crypto winter before hitting it big with NBA Top Shot.

For Web3 projects with potential future tokens, SAFTs, the crypto equivalent of a SAFE, are less popular now than token side letters, especially for U.S. companies, says Robin Ji. He gave a detailed rundown on how to approach them.

The current drop in SaaS multiples could be like the 2000 or 2008 tech downturns, but probably won’t be as bad as either, said Jason Lemkin. Still, the next few months might be the worst time to raise growth capital.

Need to know

GM bought back SoftBank’s Cruise stake. The Vision Fund 1 stake in the self-driving outfit was sold for $2.1 billion.

Oyo could cut its IPO in half. The SoftBank-backed company had a $12 billion target originally. It might even cancel its India listing.

Fund caps are so 1990s. Venture funds are raising more and more, so why bother with a cap on fund size? Answer: So LPs know the fund size matches the strategy.

From Protocol: Swedish startup Normative introduced a free version of its carbon emissions tracker, which it created to help relatively small companies get a baseline understanding of their emissions. Also: Check out our new Protocol Climate newsletter!

Your weekend reading: Telegram thrives during Russia’s media crackdown.


Technology organizations need to look internally to find the talent they seek by upskilling and reskilling their existing tech workforce. For this vision to become a reality, organizations must focus on being creators, rather than consumers, of talent.

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