Tech sector feels credit crunch
Technology businesses are facing a funding squeeze as venture capital (VC) firms rein in their investing.
James Dowdall, partner – deals advisory at ReSolve said that the advisory firm is seeing increasing numbers of restructuring challenges among tech businesses.
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“They have been promised further funding or investment from venture capital firms as they scale, on the condition of meeting certain milestones,” he said.
“However, even if they are hitting these targets, they’re still burning cash as they’re growing, so in some instances the VCs have pulled out from the next tranche of funding due to wider market conditions, uncertainty and challenges across their portfolio companies. Essentially, they’ve shifted the goal posts. The cash runways are pretty short; sometimes these companies only have three months before they will run out of money.”
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Dowdall said that the management teams of these tech firms have not been through this type of situation before.
“They have had the fundraising experience and been on the road speaking to VCs and growing their businesses,” he said. “But that’s not really something they’re used to. They’re feeling very exposed and unloved by the VC community right now.”
Some new funds are emerging that have noticed an opportunity to raise money and do a ‘buy and build’ strategy, he added.
It has been a challenging year for the tech industry, after Silicon Valley Bank’s collapse in March and swathes of lay-offs from the likes of Meta and Alphabet.
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