LONDON - European venture capital-backed companies are signing up to increasingly complex convertible debt deals which risk giving investors more control or bigger payouts further down the road, people involved in the deals told Reuters.
"If you don't know what you're doing, structured debt can be a Trojan horse," said Ali Niknam, CEO of Dutch digital bank Bunq, who has raised via convertible debt at a previous company.James Wootton, a partner at law firm Linklaters, said that as companies have found it harder to raise money, the power has shifted towards investors.
For some, convertibles offer an opportunity to secure alternative longer-term funding while waiting for venture capital market conditions to improve. Hercules loaned around $200 million in the UK and Europe last year, down from around $400 million in 2022. Norwegian lithium-ion battery business Morrow is among the VC-backed companies which helped swell convertible debt issued by start-ups to last year's record."Like other start-ups, Morrow Batteries has found that the capital markets have become more challenging the last couple of years for companies in the scale-up phase as we are," CEO Lars Christian Bacher said in emailed comments.