Venture Debt Lenders: The Silent Executioners of 2025’s Startup Apocalypse
The Dominoes Are Falling: Venture Debt’s Role in Startup Shutdowns
When Bench, an accounting startup, abruptly collapsed last month, it wasn’t just bad management or market conditions that sealed its fate. It was the cold, hard hand of venture debt lenders calling in their loans. This isn’t an isolated incident. From Convoy’s financial meltdown to Divvy Homes’ fire sale, venture debt is emerging as the grim reaper of the startup world in 2025.
“We’re getting to the end of the rope for a lot of companies.”
David Spreng, CEO of Runway Growth Capital
The Debt Trap: How Startups Are Being Squeezed
Venture debt, once seen as a lifeline for startups to fuel growth without diluting equity, is now a double-edged sword. In 2021, venture debt hit a record $41 billion across 2,339 deals, according to Silicon Valley Bank. But as the market tightens, lenders are pulling the plug on struggling startups, forcing fire sales or outright shutdowns.
- Forced Fire Sales: Companies like Divvy Homes, which borrowed $735 million, are being sold for pennies on the dollar, leaving equity investors with nothing.
- Lender Takeovers: Hercules Capital took control of Convoy to recover its investments, a move that’s becoming increasingly common.
- Hidden Losses: Many deals remain undisclosed because no one wants to publicize a loss. But behind the scenes, venture lenders are prioritizing their own survival.
The Unicorn Graveyard: Too Big to Survive
Even unicorns aren’t safe. John Markell, a managing partner at Armentum Partners, warns, “A lot of unicorns are not going to be in business soon.” The problem? Sky-high valuations from 2020 and 2021 are now unsustainable. Investors are reluctant to pour more cash into startups that can’t grow fast enough to justify their worth.
“Right now, there’s so many troubled companies. A lot of unicorns are not going to be in business soon.”
John Markell, Armentum Partners
Why Venture Debt Still Thrives
Despite the risks, venture debt remains appealing. In 2024, new venture debt issuance hit a 10-year high of $53.3 billion, with AI companies like CoreWeave and OpenAI securing massive loans. But as the startup graveyard grows, the question remains: Is venture debt a lifeline or a noose?
The Bottom Line: Survival of the Fittest
2025 is shaping up to be a brutal year for startups. Venture debt lenders are no longer silent partners—they’re calling the shots. For startups, the message is clear: Grow fast, manage debt wisely, or prepare for the fire sale. The era of easy money is over, and only the strongest will survive.