Venture Views: venture debt set to proliferate further into UK market

The use of venture debt has proliferated in the UK market as more providers look to provide the finance offering, writes Real Deals' Jennifer Forrest.

Shard Credit Partners Limited is an alternative lender for UK SMEs, and has just held its first close on its maiden Venture Debt Fund, raising £75m.

The fund will focus on venture-backed, UK-based fintech and B2B SaaS opportunities at Series A/ Series B level, securing loans with equity warrants. Shard’s typical loan size will range between £2m-£6m per borrower, with maturities of up to five years.

As part of the fundraise, £16.5m of commitments comes from UK and European institutional investors, alongside UK tech industry entrepreneurs.

Speaking to the Real Deals on the fundraise, William Chappel, head of venture debt at Shard Credit Partners, said: “It’s come to the attention of family offices and institutional investors as a steady asset class. Returns are extremely attractive and yet default rates are surprisingly very low, compared with more mainstream private credit strategies. This ideal combination of high cash yields and attractive risk-adjusted returns make this an asset class to watch for the future.”

The topic of venture debt certainly isn’t a new one, having first gained traction in the US market. Chappel acknowledged: “Venture debt in the [United] States has been established as a product offering since the late 1990s, dot com boom. It was created as a facility that would push companies that were reluctant to sell huge amounts of their shareholding early on.”

However, its uptick in the UK and Europe has been slow, but an increase in venture capital in the market is causing increasing awareness. At the Real Deals Mid Market Debt Conference last autumn, Craig Netterfield, managing partner at Columbia Lake Partners Growth, explained that venture debt is “not really understood” in Europe at present.

“Venture debt’s increasing popularity corresponds with the significant growth in the volumes of venture capital and private equity capital being deployed in the UK,” explained Chappel. “I do see a very strong and active growth platform for venture debt in the UK moving forward. It is a market that will expand, and has proven to be very buoyant over the last few years.”