For the second week in a row, a new breed of specialty finance concern – that which originates loans/ debt to high growth, B2B SaaS startups – has made the news for a fresh funding round. Coming on the heels of Founderpath’s $145 million raise – an equity and debt round co-led by Coromandel Capital – Arc Technologies announced a new $20 million Series A in equity led by Left lane Capital. Though these two firms have their own unique financing structures, Arc and Founderpath play in the same sandbox in terms of the B2B SaaS end-market they serve. And that’s what makes these back-to-back fundings this week’s most interesting – they shine a light on the growing trend in specialty finance and alternative lending, where the private debt markets, especially in the form of asset-backed lenders, are continuing to fuel the growth of young software companies – often times pushing out equity – whether through originations (distribution), or pooled capital (the specialty funds that deploy to originators).
With today’s adverse macroeconomic conditions continuing to foster a “risk-off “ credit environment for traditional bank lending, the private credit market is stepping in, and stepping up BIG. Beyond specialty fintech loan originators, private debt funds are also being tapped more frequently to fund business operations and strategic acquisitions. With traditional equity capital providers ratcheting-up scrutiny on target portfolio companies, private debt is becoming a more attractive option, especially for SaaS and fintech startups that operate with higher margins, margins that can support the debt service without constraining a young startup’s growth.