Amy Olah vividly remembers the moments in her career when startups faced “extinction-level events.”
As Head of Canada and US West Coast Originations at CIBC Innovation Banking, she is constantly tuned into the market shifts that influence high-growth startups, especially as they relate to one of the bank’s key services: venture debt.
“Venture debt is not going anywhere. It’s only becoming more and more popular.”
Amy Olah, CIBC
Olah saw these shifts during the widespread credit crisis of 2008, in 2020 when the COVID-19 pandemic hit, and again—dramatically—when several US regional banks collapsed in 2023.
Each of these events sent shockwaves through the startup ecosystem, and impacted how the sector thought about financing.
“Venture debt generally doesn’t change. Your structure doesn’t change, the use of that capital doesn’t change,” Olah said. “But what might change is how people view it, and their comfort with it.”
Indeed, after the US regional banking collapse in 2023, venture debt deals in Canada slowed to just 10 percent of non-dilutive financing, as companies across the country had to reassess their landscape of partners.
But Olah said that venture debt is more resilient to market fluctuations than asset classes like equity financing. And she believes that understanding the shifts in perception that have driven past behaviour will help founders better navigate their choices.
Here, she breaks down different market conditions that can impact common perceptions of venture debt.
When the market is hitting its stride
Venture debt differs from traditional debt structures designed for more established companies. It’s tailored for early-stage startups that are typically not yet cash flow positive and lack significant assets to secure a loan.
Offered as a term loan with both principal and interest payments, venture debt is usually provided to startups backed by venture capital during equity rounds. Lenders often rely on the VC’s due diligence to evaluate the borrower’s growth potential. The debt often serves as critical working capital, helping startups bridge to their next fundraising.
“I often remind the founder to not necessarily pick the term sheet with the best price or the largest loan size, but instead to take into consideration who you want your partner to be.”
The main distinction between equity and debt lies in control and obligations: with equity, founders give up some control but don’t face immediate repayment. With venture debt, control remains intact, but there is a clear obligation to repay the loan, which makes the option appealing to companies seeking growth capital without the dilution.
In a strong economy, startups often have greater access to equity financing at higher valuations, which can make them less discerning when it comes to choosing their lender.
Olah believes that founders need to be aware of this tendency, and ensure that they pursue the right partners, even in boom times.
“I often remind the founder to not necessarily pick the term sheet with the best price or the largest loan size, but instead to take into consideration who you want your partner to be and who you want to work with on a consistent basis,” Olah said.
Olah recommends that companies look for a lender who knows their sector well and is deeply connected to the ecosystem.
Asking questions is important, and founders should not focus solely on the financial terms. Startups should know if their lender’s risk and credit management teams specialize in tech and software, and how long the institution has been lending to the sector.
Expertise, flexibility, and clear lines of meaningful support can create the trust that represents a true partnership, said Olah.
“You should meet your lender,” she added. “Meet them in person, shake their hand, and get to know them, because you’re probably going to be spending a lot of time with them, and the better that you know them, the better and more helpful we can be.”
When capital becomes scarce
For the past two years, tech startups in Canada—and globally—have been navigating a challenging equity fundraising landscape. Investors have become more cautious, driven by market volatility, rising interest rates, and shifting economic conditions. This has tightened the flow of capital, making it harder for startups to secure funding, especially at the valuations they once enjoyed.
“We just have to bring Canadian entrepreneurs up to speed and have them understand venture debt.”
In these sorts of environments, founders may turn to venture debt as a way to extend their runway without giving up as much control.
But the market’s nervousness might also lead to more stringent lending requirements, higher interest rates, or more aggressive warrant coverage—all of which reflect lenders’ increased risk.
“When things are great, it’s always easy to raise venture debt alongside a round,” said Olah. “But when the market shifts, there’s a few things that we might look at to ensure that the founder is focused.”
She said those things include market awareness, a strong hold of cash management, alignment with a venture capital investor, and a thoughtful plan for navigating potential market downturns.
“If you’re in a place where you’re unsure of your top-line revenue or your future forecasts, venture debt might not be right for you,” said Olah. “If you’re uncomfortable with the covenants that the venture debt lender has proposed, venture debt might not be the right choice for you.”
When the unthinkable happens
In March 2023, the US regional bank collapse shocked the world. Fears around Silicon Valley Bank’s liquidity triggered a bank run, its rapid shutdown by regulators, and ultimately led to its sale.
The crisis came as the world was still recovering from a global pandemic, and startups faced heightened uncertainty and a temporary paralysis in the venture debt market.
Many companies that had credit facilities or term loans with SVB were left scrambling to secure new banking relationships and alternative sources of capital.
“There was panic that happened across the board for additional sources of capital,” Olah recalled.
But the shift also prompted startups to reevaluate their financial partners. Companies that once viewed venture debt as a smart way to extend runway were now forced to confront the vulnerability of their lenders.
Olah stresses that Canadian venture debt providers are more stable and less vulnerable to sudden collapses or liquidity crises, largely thanks to their ties with strong banks.
She believes startups should understand this context, and ask their financial lenders how they have navigated previous periods of stress with their portfolio.
The CIBC Innovation Banking team has 25 years of experience in supporting early and growth stage tech and life science, making it one of the most active venture debt providers in Canada.
“These are all things that might seem trivial when things are booming, but they really really matter when something doesn’t go as planned,” said Olah. “I’ve yet to meet a founder or CEO who told me their startup’s journey has been a straight smooth line up and to the right. They are bumpy journeys and it’s important to have capital partners who have experienced those ups and downs, when it comes to both equity and debt.”
Olah is confident venture debt will remain a vital option, no matter the economic climate. In strong markets, venture debt offers a strategic growth partner; in tougher times, it’s a way to stay agile and scale without giving up equity.
“Venture debt is not going anywhere,” she said. “It’s only becoming more and more popular.”
Olah noted that venture debt has gained momentum in the Canadian market, experiencing a “snowball effect” after gaining popularity among US founders. For Canada, she said the remaining gap in adoption isn’t about availability, but comfort.
“We just have to bring Canadian entrepreneurs up to speed and have them understand venture debt and its use,” Olah said. “The more they use it, the more comfortable they’re going to get.”
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