“We’ve already started to see a huge shift in Australia,” he says.
As founders increasingly seek non-dilutive funding options to bolster their capital stack, the landscape is poised for transformation, with venture debt playing a pivotal role in helping Australian startups scale. Ryba predicts that venture debt could grow significantly, potentially expanding fivefold over the next decade if trends observed in the US are any indication.
While Ryba acknowledges that debt will never replace equity, he says that it will begin to receive similar levels of visibility and reporting.
“Equity will always be vital, particularly in supporting early-stage ventures and innovation. We don’t see debt as a replacement but rather an option to foster a more diverse funding environment.”
“Successful venture debt deals and narratives of founders who still own greater portions of their businesses will be celebrated and even covered in the AFR,” he says.
This shift not only expands funding options for businesses but also fosters a more founder-friendly market.
Justin Lipman, partner at EVP, says: “Non-dilutive venture debt can offer a strong alternative to more traditional equity capital for businesses under the right circumstances.”
EVP supports startups, focusing on early-stage technology investments, particularly in the B2B software sector.
Lipman says that while the prevalence of venture debt in Australia lags behind global benchmarks, there’s growing recognition of its importance.
“Around half of the EVP portfolio utilises venture debt to support their growth trajectories and optimise returns to shareholders,” he says.
“This is particularly relevant for B2B software companies, which often enjoy predictable revenue streams – making them ideal candidates for raising venture debt.
“Where there is a chance to delay dilution and bring in capital to accelerate growth, there is a clear win for all shareholders and enterprise valuation.”
On the co-existence of debt and equity in the funding landscape, Lipman says, “We continue to see a rise in funding rounds that combine both equity and debt capital.”
“At Mighty Partners, we also often see founders benefitting most from a hybrid approach, where equity is combined with debt to achieve substantial growth whilst minimising overall dilution” adds Ryba.
As the venture debt landscape continues to evolve, certain sectors are likely to benefit most from this form of financing. Ryba identifies mature startups with proven product-market fit as prime candidates for venture debt.
“These businesses can retain more ownership while also benefiting from future growth potential.”
Education is crucial for ensuring that startups understand the strategic use of venture debt. Ryba says that the company is committed to educating the startup community about this relatively new product in the Australian funding landscape.
The firm plans to provide resources through webinars and online content, helping to raise awareness of venture debt’s potential benefits.
“We’ll work closely with our partners to tell their stories – those who are leading the charge with the growth of venture debt in Australia, have already benefitted from it and are advocates to the community,” he says.
Looking at global trends, Ryba says that best practices in venture debt have emerged overseas, particularly in collaborative approaches that integrate debt with venture capital.
“Key trends include increased adoption, integration with venture capital and greater flexibility in terms,” he says.
Ryba says that founders should only consider debt when they have predictable cash flows and confidence in their ability to repay it.
To find out more, please visit Mighty Partners.
