A new paper argues that important advancements in health, telecommunication, mobility and other areas risk being hindered if visionary founders are not able to access the necessary funding for their ventures.

“Debt as Catalyst – Making Hard Tech Less Hard” is published by ATEL Ventures, Inc., a division of ATEL Capital Group and a provider of growth capital to startups across multiple sectors and life stages. The paper highlights the role of “hard tech” ventures in solving many of the world’s most pressing challenges, with hard tech defined as “technology that requires big breakthroughs and has a high barrier of entry.” It argues that the success of these businesses has the potential to lead to major advances in global connectivity, health outcomes, transportation, food security, sustainability and other areas.

Dean Cash, the Chairman and CEO of ATEL Capital Group, who along with ATEL’s COO Pari Choksi founded ATEL Ventures 25 years ago, said: “The startups with the most potential to have a lasting, beneficial impact on society are the very ones that struggle the most to get off the ground. Whether they are building satellites with the power to bring the world’s two billion unconnected citizens online, or developing new therapeutics to treat previously untreatable conditions, their work is both time- and capital-intensive; and many investors currently lack the appetite for that level of long-term risk.”

The State of Venture Debt

The March 2023 run on Silicon Valley Bank led to a sharp decline in the venture debt market, and while Deloitte and others predict a partial bounce back in 2024, much of the venture capital community remains wary of investments that may require them to underwrite venture debt.

Cash has a different point of view: “We can’t afford not to back these businesses,” he said. “Historically, the most important innovations have rarely paid off over a short period, but they do pay off, and the rewards are much greater than merely financial.”

Hard Tech Founders Working to Solve the Hardest Problems

The “Debt as Catalyst” paper lays out some of the societal benefits to accrue from the success of hard tech ventures:

• Global connectivity: Around one-third of the earth’s population, or 2.6 billion people, are without internet access and all of the associated benefits of access to education, information and commerce. Hard tech startups are developing Low Earth Orbit (LEO) satellites with the power to enhance internet access and communication capabilities worldwide.
• Healthcare advancements: Breakthroughs in medical devices and biotechnology that promise to revolutionize treatment protocols and patient care are being made by venture-backed startups as well as the major pharma companies.
• Industrial sustainability: Startups are leading the way in developing new technologies aimed at improving the sustainability of large-scale industrial processes including in the high-carbon energy and construction sectors.
• Food security and sustainability: Many startups are applying their innovative thinking to the agricultural sector. New technologies could enable the year-round cultivation of fresh produce in urban environments, reducing the environmental footprint of traditional farming methods while simultaneously increasing yields to feed a growing population.
• Transportation and urban mobility: Hardware solutions developed by startups and powered by the Internet of Things (IoT) and artificial intelligence (AI) will enable vehicles to ‘talk’ to each other and the road infrastructure around them, improving both capacity and safety on roads.

 Debt as Catalyst

ATEL’s Cash makes the case for a more creative use of venture debt as part of the financing mix for capital-intensive startups at all stages.

“While many founders are wary of taking on debt, venture debt can be a powerful means of accelerating growth or extending runway without diluting equity,” said Cash. “In some cases, it can make the difference between success and failure. It’s important that those of us involved in the financing of hard tech founders adopt the kind of visionary long-term thinking we look for in founders.”

“Debt as Catalyst – Making Hard Tech Less Hard” is available to download for free from: atelventures.com/catalyst

ATEL Ventures Inc., a division of ATEL Capital Group, is a provider of venture debt and equipment financing to emerging growth companies.