Venture debt is back in a big-way

Venture Debt appears to be back in a big way.

With many mature venture-backed startups having raised at high valuations in 2020-2022, they would now likely have lower valuations should they seek to raise another round of VC funding.

Some firms are now offering non-dilutive structures to these companies as an alternative to a down round.

Grammarly has secured a $1 billion commitment from General Catalyst. The 16-year-old writing assistant startup will use the new funds for its sales and marketing efforts, freeing up existing capital to make strategic acquisitions.

Unlike a traditional venture round, General Catalyst will not receive an equity stake in the company in return for the investment. Instead, Grammarly will repay the capital along with a fixed, capped percentage of revenue it generates from the use of General Catalyst’s funds.

The investment comes from General Catalyst’s Customer Value Fund (CVF), a capital pool that helps late-stage startups with predictable revenue streams deploy new funding specifically to growing their businesses. CVF’s alternative financing strategy essentially “lends” capital that is secured by a company’s recurring revenue.

For companies like Grammarly, this form of financing is advantageous because it’s nondilutive and does not reset the company’s valuation. Grammarly was valued at $13 billion in 2021, during the peak. However, the company’s valuation in today’s market is significantly lower, as evidenced by the secondary market.

General Catalyst’s Customer Value Fund has provided funding to nearly 50 companies, including insurtech Lemonade and telehealth platform Ro. CVF maintains its own distinct limited partners and was not included in the firm’s recent $8 billion capital raise.