Hercules Adviser hopes to fill venture debt void

The subsidiary of Hercules Capital has formed a new private credit lending program following the failure of Silicon Valley Bank, which was a lender and banker to about half of the tech and life-sciences start-ups in the US.

Hercules Adviser, a subsidiary of Hercules Capital, has formed a new private credit lending program following the failure of Silicon Valley Bank, which was a lender and banker to about half of the start-ups in the US.

The program was formed to back venture and growth stage companies “that are being impacted by the recent market events across the venture and growth stage lending ecosystem,” Hercules said in a statement.

The March 10 failure of SVB – which has since been acquired by First Citizens Bank – left an immediate hole in the venture debt market. “For nonbank lenders, this is once-in-a-generation event,” Zack Ellison, founder of venture debt lender Applied Real Intelligence, said in a March 17 story by affiliate title Venture Capital Journal.

Ellison estimated that the annual venture lending market has been about $30 billion to $35 billion for the past three years. Of that total, about 70 percent was provided by banks, principally SVB, Signature Bank, Pacific Western Bank, Bridge Bank and Comerica, he said.

The failures of SVB and Signature Bank, as well as publicly stated concerns about credit ratings for Comerica and Pacific Western, are expected to make those banks more hesitant to make new venture loans, providing “a really amazing opportunity for the 10 to 12 private venture lenders,” Ellison said.

It is not clear if First Citizens, which assumed $72 billion worth of loans as part of its March 26 purchase of Silicon Valley Bank, will be as active in the venture lending space as SVB. First Citizens has said the acquisition “allows First Citizens to build on its experience with innovation hubs by leveraging Silicon Valley Bank’s strength in serving the private equity, venture capital and technology sectors.”

Nonbank lenders positioned to take advantage of a possible pull-back by banks from venture lending include Hercules Capital, the largest BDC focused on venture lending; Western Technology Investment (WTI), which was acquired last year by P10; Monroe Capital, a private credit provider that last month acquired venture debt specialist Horizon Technology Finance Management; TriplePoint Capital and Runway Growth Capital.

Hercules Capital CEO Scott Bluestein said in a statement, “As the largest and leading nonbank venture and growth stage lender, we are well positioned to leverage our scale and our deep and longstanding relationships in the venture capital ecosystem, to provide the capital from this new private credit lending program to help companies navigate the challenges from the recent market events.”

Since its inception in December 2003, Hercules Capital (NYSE: HTGC) has committed more than $16 billion to over 600 companies. Along with Hercules Adviser, it manages more than $3.6 billion in assets. Prior to the launch of this new private credit lending program, Hercules Adviser managed two private funds with committed capital and leverage in excess of $1 billion.

The anchor investor in Hercules Adviser’s new private credit lending program is Davidson Kempner Capital Management, which lists more than $38 billion in assets under management.