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Venture Capital Startups Google

Venture Debt Boom Belies Risks

Venture capital funding rounds may tend to get all the attention, but debt financing for technology startups is on the rise again—at least for now.

Web survey company SurveyMonkey, hardware maker Jawbone, marketplace Etsy and mobile social network Foursquare have recently chosen to borrow hundreds of millions of dollars collectively in later rounds of financing. Bankers say more early and mid-stage companies are raising debt, too, as entrepreneurs seek fresh funds without giving up equity.

But there are signs that the debt trend could be nearing a peak as more lenders enter the space. Increased competition is likely to drive down returns and lower interest rates. That could make lending money to tech startups less attractive, bankers say. And as rates fall, more companies will seek debt, adding to the risk that firms will loan money to companies that can’t repay.

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