Private Equity vs Debt Financing in 2024

private equity vs debt financing

2023 marked another declining year for venture capital deals, both in the number of deals made and the dollars invested. With the collapse of the Silicon Valley Bank, recession fears, high interest rates, and geo-political uncertainties, fundraising for SaaS companies was even more challenging last year than in 2022, and the continued decline of deals reflects that — but it isn’t predicted to shift upward in the quarters ahead. As interested parties weigh the best financing options for their SaaS clients, considering the state of private equity vs debt financing in 2024 is key.

2023: Equity Deals Stalled Atop $2.59 Trillion of Dry Powder Globally

In 2022 and 2023, VCs sat on a record high of more than $2.59 trillion of global dry powder, showing intense selectivity about the deals they would engage in. For SaaS companies — and growth-stage businesses in particular — this resulted in a hyper-competitive environment for those seeking equity financing. At once, companies sought to raise their valuation by boosting their growth metrics but lacked the funding to move the needle and gain a competitive edge with key growth initiatives. 

This stall follows the record levels of deal values in 2021, some of which represented investments that didn’t achieve the desired returns. As LPs and VCs pull back and struggle to find alignment on the investments made when money was readily available, growing companies are impacted, unable to raise enough capital through these means with competition so fierce and deals so scarce. Coupled with the slew of other challenges that emerged in 2023, from high interest rates and inflation to labor challenges and geopolitical complexities, many companies were faced with a challenging path to growth.

The State of Private Equity vs Venture Debt in 2024

Market predictions show a continued difficulty in obtaining venture capital in the year ahead, marked by the same challenges it continues to face. Predictions of a rebound show any equity deal growth to be slow and dependent on other factors, like the settling down of inflation and interest rates. This hurdle is hard to overcome as many of the same pressures that sparked it are still at play, like geopolitical challenges, a tightened labor market, and supply chain issues. Though some hope looms, the amount of time these effects will take to trickle down into SaaS companies actually getting the funds they need from equity deals may leave many stalled for growth.

Venture debt rises as a prime funding option in the year ahead, contrasting equity with its speed and ease of access. It’s a reliable option capable of supporting the needs of SaaS companies through every phase of their growth cycle, from pre-market businesses to those who have engaged in equity deals for years and are seeking financing to extend their runway until the next raise round. For growth-hungry companies, venture debt’s ability to be accessed and implemented more quickly ensures it can be leveraged to fund key initiatives now and set up the rest of the year for success. 

Though the venture capital market has slowed, SaaS companies don’t have to. This year presents a rich landscape for growth, building upon the momentum of AI in 2023 and the demand businesses across all industries have for smarter data solutions. For SaaS companies, the time is now to branch out from equity financing in favor of faster, more reliable methods like venture debt that can better position them for a year of growth.

Deciding Between Private Equity vs Venture Debt? Talk to Our Team

At River SaaS Capital, we’re dedicated to helping SaaS companies achieve sustainable growth with smarter funding solutions. Our non-dilutive debt funding options are designed to equip borrowers with the fast, flexible financing they need in the structure that will best serve them. Whether your SaaS clients are seeking traditional loans that can be borrowed in one sum or installments and repaid in interest and principal payments, interest-only options that let borrowers save principal repayments until a later period, or step-up structures with payments that start small and grow within terms defined ahead of time, we’re here to help.

In addition to our venture debt financing, we also offer equity funding as our relationships with our borrowers grow. For SaaS companies that want to utilize venture debt in their early growth stages and expand to equity financing down the line, our hybrid financing structures ensure we’re equipped to support their growth for years to come. This also ensures your clients don’t have to deal with the intense competition seeking equity deals elsewhere. 

In 2024, we’re eager to continue supporting the growth and innovation of some of the brightest minds in the SaaS market. As you decide between private equity vs venture debt for your clients, reach out to us to learn more about how we can serve your needs with swift, reliable funding today.