NXT Capital’s Venture Finance Group announced the release of the inaugural edition of the NXT Capital Venture Debt Index. This first-of-its-kind analysis focuses exclusively on venture debt financings between Q1 2012 and Q2 2013. The Venture Debt Index reveals the important and growing impact of non-bank debt on venture-backed companies and markets.

Among other findings, the NXT Capital Venture Debt Index confirms that venture debt is an increasingly popular source of alternative financing for later-stage companies seeking growth capital. Among other findings, the NXT Capital Venture Debt Index confirms that venture debt is an increasingly popular source of alternative financing for later-stage companies seeking growth capital. Click here for an infographic and here for a white paper.

Key findings of the NXT Capital Venture Debt Index include:

• Notable and Steady Capital Investment. With nearly $3.1 billion of venture debt deployed over the last six quarters, the NXT Capital Venture Debt Index confirms that venture debt averages 8% of all capital flowing into venture-backed companies.
• Based on the dollars invested, transactions greater than $15 million account for 50% of total venture debt financings. Forty percent are between $5 million and $14.9 million and the remaining 10% consist of financings below $5 million. The mean deal size is $7.1 million, which demonstrates that venture-backed companies are receiving substantial amounts of debt capital to help finance strategic initiatives.
• Important Source of Growth Capital. The NXT Capital Venture Debt Index reveals that debt financing is an essential source of growth capital for companies late in their investment cycle. Since 2012, companies that have been in operation for five to eight years account for 33% of deployed venture debt dollars. For these and other growth-stage companies, venture debt complements or replaces the need for equity.
• Geographic Diversity. Venture debt financings have a much broader geographic distribution than venture capital investments. While 52% of all venture capital dollars are invested in the state of California, only 35% of venture debt transactions in the Index were with companies based in that state. Additionally, nearly 40% of all venture debt was deployed outside the top five geographic markets, while only 20% of venture equity was invested outside these markets. Venture debt is clearly filling a growing void in venture capital outside the traditional hub cities.

For example, North Carolina represents the fifth largest geographic concentration of venture debt at 6% of total volume, yet is the 17th largest equity market and accounts for only 1% of the total capital deployed. Similarly, New Jersey accounts for 6% of total venture debt deployed, yet the state received only 2% of total venture capital dollars during the Venture Debt Index’s research period.

“We’re very pleased to release the first quantitative analysis of venture debt’s prevalence and impact in fueling the innovation economy,” said Jan Haas, Group Head, NXT Capital Venture Finance. “The NXT Capital Venture Debt Index will continue to track the fund flows related to debt-based growth capital and assess its influence in funding the growth of venture-backed companies.”

“The market has become increasingly educated about the availability and structural benefits of debt financing,” continued Haas. “The Index reveals that debt is an appealing alternative for successful late-stage companies seeking minimally dilutive growth capital across North America.”

The NXT Capital Venture Debt Index is a proprietary analysis of approximately 450 non-bank venture debt financings from the beginning of 2012 through the second quarter of 2013. It excludes loans made by regulated banks unless provided by a venture debt-specific bank affiliate. All benchmark venture capital data referenced above and in the Index is from the PwC/NVCA MoneyTree Report based on data from Thomson Reuters.

NXT Capital plans to update and expand the Venture Debt Index on a regular basis.

NXT Capital Venture Finance serves entrepreneurs by providing less dilutive, more flexible forms of capital. With offices in Boston and Silicon Valley, NXT Capital Venture Finance offers senior and subordinated term loans in the $1 million to $20 million range to emerging growth companies backed by venture capital and private equity firms, particularly those in the technology and life science sectors. Target clients range from emerging growth companies led by dedicated entrepreneurs to late-stage, proven businesses seeking more efficient growth capital.