Credit managers see a potential business opportunity for non-bank lenders in the venture debt sector, now that Silicon Valley Bank has left the stage.
Silicon Valley Bank held roughly $6.71 billion in venture loans, mostly to early stage technology and life sciences companies, according to PitchBook Data Inc.
SVB's money management arm, SVB Capital, had about $9.5 billion in assets under management, including a venture capital debt investment business.
"Venture debt is a perfect area to be in, because the biggest player, Silicon Valley Bank, which had 65% market share, is gone," said Theodore L. Koenig, chairman and CEO of Chicago-based credit manager Monroe Capital LLC.
In February, Monroe Capital acquired venture capital debt manager Horizon Technology Finance Management, which added new investment offerings for institutional investors. Horizon had about $1 billion in assets under management at the time, including a business development company. Monroe has $15.9 billion in assets under management.
"We've been looking to get into venture debt for quite a while," Mr. Koenig said.
The acquisition is part of Monroe's move into areas that could produce returns over and above what investors could earn in passive investment sleeves, he said.
"Our goal is to generate returns for institutional investors, and generating returns for institutional means generating alpha," Mr. Koenig said.
The venture debt sector is in the midst of big changes caused by the banking crisis, he added.
"The whole venture debt business is moving from banks to the non-bank sector," Mr. Koenig said.
Silicon Valley Bank provided venture debt to a significant number of small businesses, said Ben T. Smith IV, Los Gatos, Calif.-based partner at global management consulting firm Kearney.
Silicon Valley Bank had lots of little instruments it perfected over time, in a very good risk managed way, that made the life of an entrepreneur easier, Mr. Smith said.
"Everybody knows your company is worth a fortune, but how do you get a mortgage? How do you get liquidity to pay taxes," Mr. Smith said. Silicon Valley Bank had "accretive instruments for that."
To offer lines of credit, Silicon Valley Bank required that businesses and their owners maintain bank accounts backing up the loans. Other banks are trying to step into that space, but are not doing a great job, he said.
"An entrepreneur needs to walk down the street and put $5 million in a bank account," Mr. Smith said. "Today, some major banks are taking 30 days to open accounts for startups."
Generally, the collapse of Silicon Valley Bank was "a real shock to the ecosystem system in financing technology businesses," said Craig Packer, Blue Owl Capital Inc.'s co-founder and CEO of its business development companies, including its flagship BDC, Owl Rock Capital Corp.
Owl Rock is a lender to private equity-backed technology companies, particularly software companies, with a smaller business providing structured capital with downside protection to late-stage companies, he said. There's an increased appetite now from late-stage and private equity-backed companies for debt because they want to make sure they have extra liquidity, Mr. Packer said.
They had a "harsh reminder that liquidity is not something to be taken for granted," he added.
Blue Owl's direct lending business has about $68.6 billion in assets under management.
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