Global supply chains are undergoing a drastic transformation. Economic uncertainty, geopolitical upheavals, climate-related disruptions and tightening trade including potentially damaging tariffs, are reshaping the vital systems that keep the world’s economies running. On top of this, new technologies including AI, data analytics, automation, machine learning and IoT are forcing companies to re-evaluate investment priorities.
The stakes are especially high. Although companies need ongoing investment to address the challenges above, traditional venture capital funding has become increasingly expensive. Equity investors are more cautious and the once-steady flow of financing into the sector has slowed considerably. In this new reality, supply chain companies face a stark choice in the equity capital markets: accept significant dilution or risk being left behind competitively. Fortunately, there is another option. Venture debt can serve as a powerful financing tool to provide the capital needed to grow, scale, and thrive—without sacrificing ownership or control.
Supply chain: 2020-2024
In some ways, global supply chains got back on track relatively quickly following a very tumultuous Covid-impacted 2020. And yet, several supply chain disruptions carried over into 2021 and beyond. Common supply chain challenges today include geopolitical risk, inflation, variable geographic demand, limited labor mobility, product or component shortages and extreme weather events. To counter this, some companies have shifted to various strategies like selling on backorder while others have opted to work with domestic providers rather than foreign suppliers. Many supply chain companies over the last few years have survived by becoming more efficient across their entire organizations. Accordingly, these companies are now great candidates for venture debt since they have established business models, meaningful revenue and gross profit, and have moderated cash burn significantly.
Why supply chain companies should consider venture debt
Venture debt can be a key source of capital for supply chain companies seeking growth and efficiency. Scaling in this sector often requires continued investment in the platform such as adding software to track shipments or investing in AI-based systems to optimize order management and warehousing. However, unpredictability from macro or micro events can make it challenging to secure traditional equity financing at reasonable valuations as investors re-evaluate risk appetite for potentially volatile cash flow. Venture debt can provide the capital needed to fund these initiatives at a significantly lower cost of capital than equity.
Supporting growth without dilution
Beyond the short-term benefits, venture debt also plays a crucial role in supporting long-term growth. By providing the capital to hit critical milestones—whether that’s expanding into new markets, investing in next-gen tech, or meeting key performance metrics—venture debt can help companies improve their valuations for future rounds of equity financing. This positions them for continued success and preserves founder equity.
Funding for acquisitions
Unfortunately, many supply chain companies are struggling to find financing in today’s markets to meet their capital needs. However, this creates a compelling opportunity for larger, more mature companies to scale their businesses via acquisitions. Whether it’s acquiring a new product line, expanding into new geographies or simply acquiring customers, venture debt can be a key source of capital for these corporate efforts. Unlike an equity raise, which can be a very lengthy process, venture debt financing often can be completed in only a couple months. Furthermore, a delayed-draw facility can provide the comfort of committed financing, something of utmost importance in M&A discussions, while not incurring additional interest expense until an acquisition closes.
A vital lifeline for an uncertain future
The global supply chain sector is facing unprecedented challenges. For companies navigating this complex and ever-changing landscape, venture debt can provide a unique and critical form of support. It enables companies to stay nimble, respond to disruptions, and scale efficiently—all without giving up control.
Supply chain companies are at the forefront of global commerce, and the world needs them to succeed. Venture debt can help these companies continue to innovate, disrupt, and lead—ultimately strengthening the global economy at a time when resilience has never been more important.
About the author:
Brad Pritchard focuses on investments in the technology sector as a managing director at Runway Growth Capital. He possesses over 20 years of experience in venture lending and investment banking from leading financial institutions including BlackRock, Hercules Capital and Wells Fargo Securities.
Disclosures and Disclaimers: All statements and views expressed herein are opinions only of the author and do not necessarily reflect the views or positions of Runway Growth Capital.
SC
MR


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