European VCbacked firms turn to complex convertible debt
Convertible issuance in Europe hit recordhigh last year
Startups want to avoid lowering public valuations
Debt adds to risks for founders if markets do not recover

LONDON, March 18 Reuters European venture capitalbacked 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.

Ultralow interest rates allowed growing companies to complete equity funding rounds at skyhigh valuations during a boom in 2020 and 2021. But as venture funding has dried up, companies and their investors have been wary of equity funding rounds which risk establishing a new, lower valuation.

Convertible debt, which changes into equity after a set period, can enable company founders to raise cash quickly and privately, without publishing an updated valuation.

The volume of convertible debt issued by European venture capitalbacked firms hit a record 2.5 billion in 2023, up from 1.7 billion in 2022, Dealroom data compiled for Reuters shows.

But as the deals become more complex, they can offer investors more upside and create risks for the companies, according to Reuters interviews with lawyers, company founders and an investor familiar with the deals.

If you don39;t know what you39;re doing, structured debt can be a Trojan horse, said Ali Niknam, CEO of Dutch digital bank Bunq, who has raised via…